IRS scrutinizes E-Retailers

Nov 15, 2022

The IRS knows about the internet!  Yes, their agents spend time online looking at businesses. According to the IRS, because of the borderless and paperless nature of the industry, they have concerns about income being ommitted. And electronic expense receipts can be manipulated.

Are you an online retailer? Do you have an online business? I highly recommend you keep good records of your income and expenses. Remember to include income earned through Paypal. Venmo and credit card processors. These income items must match the income declared on your income tax return. The IRS will also ask about advertising income from banner ads or pop-up ads. They often go as far as to look at the counters for traffic.

With respect to expenses, the IRS looks to the “reasonable” nature of expenses.

  1. Start up expenses are generally amortized over 60 months and not deducted when incurred.
  2. Website development costs in particular can either be immediately deductible or capitalized and amortized. Please be sure to discuss the best strategy here with your tax advisor.
  3. Research and development expenses are always scrutinized for reasonability.

So as an online business, be sure to keep good records. Because you dont have a physical space, does not mean you are not held to the same standards by the IRS as traditional businesses. Perhaps even higher requirements for you!

If you need help, please do reach out to me. Also remember that Research and Development credits are available to online development and are extremely valuable tax tool. Find out more at our Resources page at www.wendybarlin.com

 

 

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