When my column on paying income tax on eBay profits ran it
brought a wave of emails on whether you were required to report
income earned from eBay sales to the IRS sparked a number of
additional questions and comments from eBay sellers who were
hoping that I could somehow validate that their eBay activities
were mere hobbies instead of actual businesses and therefore not
susceptible to IRS taxation.
Several folks argued that just because their little eBay hobby
generated a little cash, that didn't make it a full blown
business. It seems they consider the income from their little
hobby to be financial manna from Heaven and thereby not taxable
by earthly tax collectors. I've always been amused by folks who
try to impress me with talk about their "little side business"
but when the subject turns to taxes they suddenly refer to it as
"my little hobby."
All arguments aside, the conclusion that I came to after reading
each of the emails was always the same: while you may think
selling on eBay is just a fun pastime and the money you're
making is not reportable as income, depending on the
circumstances, the IRS would probably disagree with you.
It seems that everyone likes making money, but hates carving off
a piece for good old Uncle Sam. Welcome to free enterprise,
folks. If you're going to come to the dance you have to pay the
fiddler.
The IRS rules are clear: you must pay taxes on all personal and
business income and that includes money you make selling on Ebay.
In its most basic sense, the IRS rules can be interpreted to
mean that if you buy an old vase at a garage sale for $10 and
sell it on eBay (or elsewhere) for $20 you made a $10 profit and
therefore must report it as income and pay Uncle Sam his fair
share.
In reality, if you are a casual seller who only sells a few
items on eBay every now and then it's doubtful the IRS is going
to let loose an army of agents to collect taxes on the few bucks
you make. However, if you consistently sell on eBay the IRS may
deem your activities to be business oriented and you will be
required to file a Schedule C and claim the income.
As mentioned last week, the IRS uses a number of factors to
determine if an eBay hobby that generates sales revenue is
actually a business. These factors include:
• Do you carry on the hobby in a business-like manner?
• Do you spend considerable time working on the hobby?
• Do you depend on income from your hobby for your livelihood?
If the answer to any or all of these question is yes, you're
running a business, not carrying on a hobby, and you are
responsible for paying taxes on your income.
What's eBay's take on all this? Naturally eBay is vehemently
opposed to anything that might rock the eBay boat. eBay does not
issue 1099 tax forms to sellers, nor does it report seller's
sales figures to the IRS.
Ebay considers itself merely to be a facilitator, meaning that
they provide a marketplace in which buyers and sellers come
together to do business.
Furthermore, under its current system it would be impossible for
eBay to issue accurate 1099s to sellers. eBay does not track if
a seller actually gets paid by the buyer, so eBay has no idea
how much money - if any - actually changes hands at the end of
each transaction.
On the bright side, if you do sell on eBay as a business you can
deduct a number of business expenses, including the cost of
inventory, listing fees, shipping, envelopes, packing materials,
etc.
You might also be able to deduct things like the purchase of a
computer for business use, office space (even if it's a home
office), office supplies, and more.
Talk to your accountant if there's any doubt as to whether you
should or should not be paying taxes on your eBay earnings.
About the author:
Tim Knox Entrepreneur, Author, Speaker
http://www.prosperityandprofit.com
http://www.dropshipwholesale.net http://www.smallbusinessqa.com
http://www.timknox.com
