In this video, you get answers to these questions:

  • What money do you pay taxes on when you are selling a product?
  • How do you determine what your tax liability is?
  • How can you figure out what you owe in taxes?

Video Transcript

What money do you pay taxes on when you’re selling a product? Business owners who are selling products may be wondering how do I determine what my tax liability is. That’s the question I’ll be answering today. I’m Aaron Hall. You can learn more about me at and please see the disclaimer below this video. All right, you’re selling products and you’re wondering when I get paid on those products, what is my tax liability? Do I have to pay taxes on all of the income or sale proceeds? No, you don’t. Here’s how you figure out what you owe in taxes. First you look at how much did I bring in during the year and then you look at how much did I pay out during the year to run the business and typically you’re going to pay income tax on the difference between the two. In other words, that’s your profit and you pay taxes on profit in a business.

Now there are some special rules involved like if you buy something that lasts many years, like some equipment that as a six year lifespan, you may have to amortize that over six years. In other words, you can’t deduct the full purchase amount in the year you buy it. You may need to spread that out over six years, but that in recent years has continued to change. So that’s something where you’d want to be working with a tax advisor. But the high level answer to the question is you don’t pay tax on the gross income for the business. That’s all the proceeds that you get. You look at that and then you deduct your business expenses and that’s expenses related to the cost of goods, it’s expenses related to running your office, software, insurance, employees, contractors. All those sorts of expenses, you add them up and whatever your profit margin is, that’s typically what you’re going to pay income taxes on as a business owner at the end of the year. To learn more, check out the other videos here or visit

Next Steps

To learn more, visit my website at