if i'm a middle man purchaser and i receive a large wire transfer into my checking account, then use that money to make a large purchase to sell, are there tax repurcussions?
State/Country relating to question: California
Hi and welcome to Just Answer!
If you are running business - you will be taxed on your net business income.
Your NET income when you resell merchandise = (gross proceeds) - (cost of goods sold) - (other qualified business expenses)
For instance - if you received $1,000,000 - that is your gross proceeds.
If you used $600,000 to purchase merchandise - that is your cost of goods sold.
You might have other business expenses - tax preparation, accounting, storage, etc - assuming $50,000.
In this case - your net business income will be $1,000,000 - $600,000 - $50,000 = $350,000 - that amount will be subject of taxation.
The issue might be if you receive the money in 2012, but expenses paid in following year - if you are cash based Taxpayer - as most of us are - all income and expenses are accounted if made during the same Tax Year. So - you should be very careful with large payments.
Let me know if you need any help.
Be sure to ask for clarification if needed.
If this is not an actual business, but something I'm trying to do on the side, will I need to claim the income?
If this is not an actual business, but something I'm trying to do on the side, will I need to claim the income?Yes - you need to claim all your income. If your purpose is to make a profit - that is considered your business.Scenario:wire transfer into my checking account will be about $12,000my purchase will be about $11,500net income after fees will be about $400You will be taxed on your NET business income. Be sure to keep all supporting documents for your sales, purchases and other expenses.I'm hoping to do this maybe once a month. I do not have a business license, but know of people that sell and purchase.In most situations - there is no need for special business license. However depending on your actual activities - I suggest to verify if your local government require registration.I'm not quite sure how the IRS and/or banks monitor accounts for taxation purposes, or if it's up to me to include that extra income at the end of the year.
Generally the IRS doesn't monitor bank transactions unless suspected activities are reported. Banks do monitor transactions and have their own policies - you might verify with your banker.
You will report all your income and expenses on your tax return.
The business income and expenses will be reported on the schedule C - http://www.irs.gov/pub/irs-pdf/f1040sc.pdf
The net income (after deductions)will be reported on the form 1040 line 12 - http://www.irs.gov/pub/irs-pdf/f1040.pdf
If the business has net income over $400, it may be required to file Schedule SE, Self-Employment Tax and net income is likely self-employment income and 15.3% self-employment tax would be required (13.3% in 2012).
Self-employment taxes from schedule SE will go to the form 1040 line 56 - http://www.irs.gov/pub/irs-pdf/f1040.pdf
Also - she will deduct half of self-employment taxes on the line 27.Generally - that all you needs. Please review all possible deductions - that might help to reduce Income Tax liability.
Taxes, Immigration, Labor Relations