Ask LH: What Tax Rules Do I Need To Know For My Online Store?

Dear Lifehacker, I recently started up an Etsy store selling handmade stickers. I read somewhere I needed to register for an ABN and I did that, in the capacity of a sole proprietorship. My question is — what next? I didn't realise opening an Etsy store and selling homemade wares is so akin to small business, and I'm feeling a bit overwhelmed with working out what records I need to keep and how taxes will work. Any advice for side-hustlers in the Etsy space? Thanks, SellerOnTheSide

Image via Evan Lorne / Shutterstock.com

Dear SOTS,

While it can be exciting to take a step into the world of small (or micro) business through online selling, even that small step can bring up a lot of tricky little things to take into consideration. From the ATO, here are a list of things you may need to consider if you aren't already:

•declaring your online sales income •money you receive from the activity will generally be assessable income •expenses incurred in earning this income will generally be deductible •you will need to keep accurate records of your expenses and sales in line with legal requirements •you may need an ABN •you may need to register for GST •if your activity results in a loss, you may be entitled to offset this loss against other income or carry it forward to offset against future income, and therefore reduce the income tax you might have to pay in the future.

You've already registered for an ABN, which is a good start. If you're carrying out your business under a name that isn't your legal name (or some variation thereof), you'll need to register your business name, which can be done here.

The good news is that as it's a small side business, you probably won't have to worry about GST. You must register for GST if and when your GST turnover (gross income minus GST) exceeds $75,000. If you don't have to register for GST, the following applies to you:

Don’t collect GST on your sales or claim GST credits on your purchases. Your business issues normal invoices – it must not issue tax invoices. Normal invoices don’t include the words ‘tax invoice’ or indicate that the invoiced amount includes GST.
Do claim the full cost of your business purchases (including any GST) as a tax deduction on your income tax return.

If you're operating entirely from home, you can also look at claiming home-based business expenses on your tax. You can also claim any materials or tools that you use to make your products.

When it comes to tax time, keeping good records is going to make things a whole lot easier for you, though luckily Etsy and other online storefronts usually have this pretty well covered. The ATO has a handy guide for record-keeping for small businesses if you're unsure.

Whether you should hire an accountant for your small business or not is one question to consider. If your expenses and earnings are fairly simple then you should be able to do all your bookkeeping yourself, but some people prefer to delegate or leave it to a professional. Just be aware that you may be charged a small business fee by your accountant.

The government also has a digital business homepage, if you're after more information or resources on running your online business. Good luck!

Cheers Lifehacker

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