Business and Tax Considerations

Important business and tax information for Mayhem sellers.

Business and Tax Considerations

Selling on Mayhem has specific business and tax implications because you receive payments directly through your own PayPal, Venmo, or CashApp accounts rather than through the platform. Here's what you need to know.

Understanding Your Business Structure

When you sell on Mayhem, you're operating your own business, not working as an employee or contractor for Mayhem itself. This affects how you handle taxes and business expenses.

Sole Proprietorship: Most small Mayhem sellers operate as sole proprietors by default. This means business income and expenses are reported on your personal tax return.

Business Entity: As you grow, you might consider forming an LLC or corporation for liability protection and tax benefits, but this isn't necessary when starting out.

Business License: Check your local requirements. Some areas require business licenses for any sales activity, while others have thresholds based on income.

Tax Reporting for Mayhem Sellers

Income Tracking: Since payments come directly to your personal PayPal/Venmo/CashApp accounts, you're responsible for tracking business income separately from personal transactions.

1099 Reporting: PayPal will send you a 1099-K if you receive over $600 in transactions in a year. However, you're required to report all income regardless of whether you receive a 1099.

Business Expenses: You can deduct legitimate business expenses, including:

  • Your Mayhem subscription fee ($5 or $10/month)
  • Materials and supplies for products
  • Shipping costs (if not reimbursed by customers)
  • Photography equipment for product photos
  • Marketing and advertising expenses

Record Keeping Requirements

Income Records: Keep detailed records of all sales, including:

  • Order information from your Mayhem dashboard
  • Payment confirmations from PayPal/Venmo/CashApp
  • Any cash or check payments received

Expense Records: Save receipts for all business-related purchases and maintain records of:

  • Monthly Mayhem subscription payments
  • Product materials and supplies
  • Business-related travel (if applicable)
  • Home office expenses (if you have a dedicated workspace)

Bank Account Separation: Consider using a separate bank account for business transactions to simplify record keeping, especially if you're receiving payments through PayPal.

Sales Tax Considerations

State Requirements: Sales tax rules vary by state. Some states require you to collect sales tax on all sales, while others have thresholds based on sales volume or number of transactions.

Digital Products: Tax treatment of digital products varies significantly by state. Some treat digital downloads the same as physical goods, others exempt them entirely.

Mayhem's Role: Since customers pay you directly, Mayhem doesn't collect or remit sales tax on your behalf. You're responsible for understanding and complying with tax requirements in your state and any states where you have customers.

Marketplace Facilitator Laws: If Mayhem doesn't process your payments, these do not apply. If Mayhem does handle your payments, we do not currently collect sales tax on your behalf, so you must manage this yourself.

Payment Platform Considerations

PayPal Business vs Personal: Consider whether to use a PayPal business account versus personal account. Business accounts offer more features but may have different fee structures.

Transaction Fees: Remember that payment processing fees (PayPal, Venmo, CashApp) are generally deductible business expenses.

Payment Platform Reporting: These platforms have their own reporting thresholds and may send you tax documents. PayPal, for example, reports business payments differently than personal payments.

Managing Business Growth

Inventory Tracking: If you sell physical products, maintain accurate inventory records for tax purposes and business planning.

Quarterly Payments: As your income grows, you may need to make quarterly estimated tax payments to avoid penalties.

Business Insurance: Consider liability insurance, especially if you sell physical products. Your homeowner's or renter's insurance may not cover business activities.

International Considerations

Selling to International Customers: This can create additional tax complexity. You may need to understand customs requirements and international tax treaties.

VAT (Value Added Tax): If you sell to customers in countries with VAT systems, you may have obligations depending on your sales volume.

Professional Consultation

When to Consult Professionals:

  • When your annual income exceeds $10,000-20,000
  • If you sell in multiple states with different tax requirements
  • When considering business entity formation
  • If you have questions about specific deductions

Finding Help: Look for tax professionals who understand e-commerce and small business operations. Many accountants are now familiar with online selling platforms.

Differences from Traditional E-commerce

Platform Integration: Unlike Etsy or eBay, Mayhem doesn't provide integrated tax calculation or reporting tools. You manage all tax aspects independently.

Payment Processing: If you receive payments directly, you have more control but also more responsibility for compliance and record keeping.

Fee Structure: Mayhem's subscription model means predictable platform costs, but you pay processing fees directly to payment providers.

Practical Tips for Compliance

Monthly Review: Set aside time each month to review sales, expenses, and update your records.

Separate Accounts: Use dedicated accounts or payment methods for business transactions when possible.

Documentation: Save screenshots of your Mayhem sales dashboard and payment confirmations as backup records.

Professional Relationships: Build relationships with a tax professional and business insurance agent as your business grows.

Remember that tax laws change frequently and vary by location. This guide provides general information, but you should consult with qualified professionals for advice specific to your situation and location.

The independence that Mayhem provides in payment processing gives you more control over your business, but it also means taking responsibility for proper business practices and tax compliance.