tax question

[kbenz]

Is The money I spend shipping products tax deductible? If so what does it fall under?

[weldor2005]

Do you pay out of pocket or are your customers paying shipping?

[kbenz]

customers pay usually

I guess that answered that

[Redneck]

We have to report the amount that the customer pays us for shipping as income.....and we deduct what we spend for shipping as an expense.

[weldor2005]

We have to report the amount that the customer pays us for shipping as income.....and we deduct what we spend for shipping as an expense.

I'm no tax expert, but I see this is for all the people that have a set shipping price and turn around and profit a few bucks on it. But that being said, I feel your way kind of is break even, but it does still make your Earned income higher and hopefully dont post you into the next tax bracket.

Again, Not a tax expert, just a dumb welding engineer.

[VSAW]

What the customer pays for shipping should always be more than you charge but sometimes it can't. Time spent boxing items, boxes, tape etc all cost money. I spend about 40 minutes boxing up a larger item to ship. I use two boxes that cost almost $3 each, two cardboard pads inside the box $2 each, and another one around the perimeter to make sure the item is not damaged and I use about a half a roll of tape. So in all reality I have got more in shipping an item than the customer pays for shipping.

I have a UPS account and I get a discount. Plus most of my stuff goes to the east coast or west coast so I get what UPS calls a negotiated total. This is about $10 off the regular shipping cost and about $15 to $20 off what the regular off the street price is. What a customer pays me to ship something is usually 50% more than it actually costs me. But my shipping amounts (to my customers) are a little less than any of my competition on Etsy. I have not had any complaints on shipping costs out of over 450 sales. I do combine shipping sometimes and refund a small amount to the customer.

So my average shipping cost on my site is about $45 and the average cost from UPS to me is about $30. But as stated above I often times have more than a half hour of my time spent boxing an item to ship. But realistically I can't charge the customer for that time in the shipping because they would think the shipping cost is way too much. So I build that time into the actual cost of the item.

This is income, the entire amount the customer pays is income. But the money you pay to UPS is also a business expense.

[weldor2005]

VSAW, you are write that there is time invested for all that and materials. You are also right that it is listed as income. Any time invested should be time to the project and charged as labor. Anytime however that you need to buy a box, you can recoup that buy charging it to the customer. But if you mark up the cost of that box, then you are making profit and it is resale, which is not a labor rate, but pure profitable income. That profit margin needs to be declared as income on taxes. If you were to buy a box and then pass only that cost to the customer, it doesn't need to be declared as a profit or a loss. The time required to pack it however needs to be charged to the project as it would be normally.

[VSAW]

Yes the cost of the box is added into operating costs and what the customer pays for shipping is added to income. That is exactly what I just said. When a customer pays $40 for shipping an item and I get charged $32 by UPS that $8 does not cover the boxes and tape much less any labor to box the item. Sometimes a customer pays $40 and it only costs $29 to ship the item. It certainly depends on where the item is going. Most of my items go to the East Coast or the West Coast and I am in Texas. I can ship UPS ground to the NYC area in 3 days and the Los Angeles area in 4 days. So I average the shipping to make it easier on everyone.

I charge the same amount to ship an item to anywhere inside Texas as I do to ship it to Washington state or Maine. I have to average the costs. I can't just put in my ad that customers should message me and I will figure their actual shipping. I would get 20 messages a day just asking for shipping costs. Then I would have to see what the item should weigh and figure it to their zipcode. Then the item may be lighter or heavier depending on the actual wood used.

I also can't charge $70 for shipping to cover the labor in the shipping room because customers will complain about the shipping cost. It's much easier on everyone if I build that into the cost of the item and offer a reasonable shipping cost.

When I go to figure profit and loss it's just a matter of putting the receipts from UPS, Uline (boxes and tape) in the "money out" pile along with the ones from the wood company and the steel company. Then when I get money in from selling an item the entire total goes into the "money in" box and it all works out at tax time. I made 363 sales last year and some of those were multi piece sales. So I probably used more than 700 boxes last year.

Yes the $8 I made on the shipping is technically profit. But I do not look at each individual sale and see if I made or lost money on each shipping price. If I did that I would be doing math and paperwork for an hour each day.

In the case of you guys cutting and shipping items you should just be able to figure what the average cost of shipping an item by the pound is and figure what to charge by the pound. Then it is much easier than figuring shipping to each individual sale address. If it's small items usps flat rate boxes are pretty good. But not a bargain if you have to go to the post office and stand in line to send one.

I think there is room for discussion here. I may learn some ways to improve my operation.

[kbenz]

thanks for all the input