Many people wonder if they are required to report the profits they earn online.  The short answer is “yes”.

If you do business online, whether it’s selling on eBay, affiliate marketing, selling a service, or direct selling, it’s taxable income.  This is true even if you think you just have a hobby.  

Generally, any income you receive from all sources is subject to U.S. income tax unless it is specifically exempt by law (hint: online profits are not exempt by law).  That means that a lot of activities that you might not think of as taxable, such as garage sale income, gambling winnings, and online businesses are taxable.

You must file a tax return if your net earnings from self employment are $400 or more.  You are self employed if you carry on a trade or business for profit.  If you are selling on eBay with the intent of making a profit, then you are self employed.

To report your earnings, you should file Form 1040, and attach Schedule C or C-EZ.  Schedule C is used to calculate your net profit or loss from your business, which is then reported on your Form 1040.

At this point, you may be thinking “I don’t run a business; I just have a hobby”.  Unfortunately, income from hobbies is taxable as well.  Even worse, you can only deduct expenses up to your hobby income, which means losses are not deductible. 

There are several tax advantages to doing business online.  Personal expenses, such as the use of your car, home or computer may become partially deductible, retirement savings plans can shelter part of your eBay income from taxes, and you may be able to hire your family to help shift income to members in a lower tax bracket.  So even if you only earn a little money online, not only are you required to report your earnings, it may even help you reduce your income taxes by taking advantage of tax opportunities available only to small business owners.

Finally, there is a common misconception that if you did not receive a 1099 or W-2, you are not required to report your income.  This is not true.  All income is reportable, regardless of whether you receive a form or not. 

To learn more about how your online income is taxable, and what expenses you can deduct, please check out for the “Your Top Tax Questions Answered” teleseminar and ebook.

Popularity: 71% [?]

As you may know, the size of your mailing list can reflect the size of your profits. Your “mailing list” is the group of people that have signed up to receive your mailings, which can be a newsletter, e-course, or any other email.

You can set up a mailing list through an autoresponder service, such as Aweber. Once you register for the service, you can set up a mailing list and preload various emails that will be sent to the people that sign up to receive them. Your autoresponder service will give you a bit of HTML that you can add to your website or blog. When people click the link, they will be added to your list. As soon as they are added, they will start to receive your mailings.

To maximize your profits, you will want to have several different lists, and you will want to stay in touch with the people on your lists regularly. For instance, you may have a general newsletter list for your website, as well as lists set up for the specific sections of your website.

If your website focuses on children’s products, you may have a section devoted to toddler-sized clothes, a separate section devoted to early elementary age children’s clothing, and another section devoted to tween clothing. Set up a mailing list for each separate section. You don’t need to have a separate newsletter for each age bracket; however, having these separate mailing lists will allow you to send news and advertisements that each list would be interested in.

For example, if you are a retailer for various products relating to children, you can send an email with some information about toddlers directly to your toddler list. Include your link for a product that they may be interested in. You may notice that your conversions go up, as you are no longer sending parents of older children links to products focused on toddlers. You will be able to send each specific group links to products that they will find most helpful.

The time frame that you use to stay in contact with each list may vary. If someone signs up for your general newsletter list, they may expect to receive a newsletter each week or month. However, if someone only signs up to receive updates for a specific section on your website, they may get irritated if you send them an email every single day.

Use your best judgment when setting up your emails. You will want to stay in contact with them regularly enough so that they do not forget you, but you don’t want them to feel harassed, either.

If you are sending your mailing list regular updates about your site, and including helpful information, you will see that your profits will increase.

Popularity: 32% [?]

What is a website?

Well, according to some leading Internet Marketing Gurus, a website is just an advertisement, a tool that a business uses to reach out to its market — either to sell or to inform.

So, what does that mean for your business?

That means that if you have just setup a website, and are creating a few products for it, or running a few affiliate programs — you really don’t have a business. You have an ad.

So then — what is a business?

Search Google, and you will find these definitions, among others:

• An organization operated with the objective of making a profit from the sale of goods or services.
• An enterprise, commercial entity, or firm in either the private or public sector, concerned with providing products or services to satisfy customer requirements.

In a nutshell, your business is what you do.

If you just wait for people to visit your website, then you don’t have a business.

If you play the Google Adwords game, or post on message boards or send out spam or do anything that does not involve providing a product or service to your customers, then you do not have a business.

Food for thought, eh?

A little homework: Sit down and think about what you’ve got going? Do you have a business? What does your business do?

Once you’ve figure that out, ask yourself this: Who are the people that you provide your products and services to? What do they come to you for? What else could they need besides the item(s) or service(s) you currently provide?

Find ways to meet more of their needs, related to what you’re already providing. Setup partnerships with complementary companies. Join affiliate programs that offer products or services that will benefit your target market.

Develop a strategy (a system) for finding out what it is people need from your business. And give it to them.

Then you’ll have a business.

Popularity: 26% [?]