Q&A: How do I report my bookselling income on my tax return?

QUESTION: This is my first year filing taxes since I started selling books online. On my tax return, how do I account for inventory, returns, and income?

ANSWER: I've always reported my business as a "sole proprietorship" on a Schedule C. This is the simplest, best option for most small businesses and part-time sellers.

A time-saving way to do this is to use TurboTax or TaxCut, which will ask you in plain English for your income, a figure on "returns," and you can set up other categories of expenses (like "books") that become your "cost of goods sold."

For your first time filing taxes, I'd recommend you do what I did the first year: find an accountant through the Yellow Pages. The man came to my place one evening, asked me questions about my business, reviewed my bookkeeping, then figured my taxes within minutes on his laptop. It was pretty inexpensive, about $200, and it was well worth it to me, because it gave me the peace of mind of knowing I'd fulfilled my tax obligation with the advice of a professional.

And that tax return provided me a guide for doing my own taxes since then (using TurboTax and TaxCut for simplicity's sake.) Another great thing about hiring the accountant the first time is they can educate you on how to put some of your bookselling income aside tax-free into a SEP-IRA retirement account.

Also, be sure to see my previous post about the tax-preparation workshop scheduled for April 11 on eBay.