I sell on ebay..do I have to claim this ?

[CalvinH · Accepted solution]

Hello17287_03404

I see you want to know about the e-bay tax.

Do I have to pay taxes selling on Ebay?A lot of questions have arisen about weather or not sellers need to report their income to the IRS.
Several folks argue 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 talk about their "little side business" but when the subject turns to taxes they suddenly refer to it as "my little hobby."

All kidding aside, the conclusion that I came to after doing some research and reading 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.
The IRS uses a number of factors to determine if an eBay hobby that generates sales revenue is actually a business. These factors include:


            1. Do you carry on the hobby in a businesslike manner?

            2. Do you spend considerable time working on the hobby?

            3. 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 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 it's 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.

I hope that this helps.
Calvin

[jjannd]

Personal use items are not deductible on taxes. With that in mind if you have "garage style" online sales on PERSONAL items that you have purchased for your personal use, subsequently used and then sold them--that does not have to be reported. So if you have a pair of shoes you bought for $25.00, used them and then subsequently sold them for $5.00 that is NOT INCOME. That is what is called a "LOSS". Keep receipts folks. And document everything you sold and how much you purchased it for. Many many people that sell online do so as a means of getting rid of "stuff" -their own PERSONAL ASSETS they are trying to convert to cash. That in and of itself does not make it HOBBY OR BUSINESS income. Rather its LOSS of income which can't even be reported on taxes as a loss so why should it be reported as income when it isn't?

[pwesley-question]

Casual eBayers are rarely responsible for income tax.

A huge percent of people who ask me this question are not a business, nor are they a "hobbyist". They're just folks who sell their used personal items, unwanted gifts, etc, for extra cash. Like their old DVDs, that unwanted Christmas sweater, a pair of heels you only wore once, etc.

In these instances, proceeds from eBay are almost NEVER taxable income. It doesn't matter if you sell 1 item or 100 items. What matters is your cost basis - are you selling it for less than you paid? If so, it's none of the IRS's concern. Not reportable, not taxable.

Similarly, those unwanted Christmas gifts are not taxable. (Assuming you're selling it for the same or less than the giver paid for them). Document what you can, but no auditor is going to push you for documentation on selling used personal items for under MSRP (and 99% of items that sell on eBay sell for less than MSRP).

The thing to keep in mind, if you use PayPal (and most eBay transactions happen through PayPal), they will send you a 1099 if you reach a certain level (current threshold is over 200 transactions, or over $20,000 collected). This does NOT mean you necessarily owe taxes on this. You only owe taxes on the things you sold for profit. For the rest of the items, you will have to explain yourself to the IRS. Respond with the appropriate form (I believe you can do this on a 982 ...some tax professional might have a better idea), and just say the items were a capital loss, there was no income.

Now, if somebody is abusing this, it would be fairly apparent to an auditor. For example, if you're selling hundreds of new items, or multiples of the same thing, then you will look like a business.

Remember, only income is taxable. Don't let your accountant tell you otherwise. Selling something to break even, or at a loss, is not income, and not taxable.

[SweetieJean]

You are posting on a three year old question.

[pwesley-question]

This question is not still relevant? Did eBay go out of business and I didn't hear about it?

25 million people have used eBay to sell something, about 95% of those are personal items by individuals (not businesses).

This thread comes up 2nd on Google on this topic. Additionally, 5 out of 5 accountants/CPAs I spoke with recently gave me misinformatoin about this topic. Hard working people should not be overtaxed because of ignorance, or feel like they're skirting the law. If this board is going to be indexed by search engines, it needs to be updated.

[taxesmanic]

Thank you for posting on this 3 yr old question. I am just reading this today - 3yrs later I suppose. Never assume that everyone who will ever read it already has. The internet is a big place...

[SweetieJean]

Please note that there have been relevant Tax Court rulings, IRS guidance, etc. in the intervening years, so please continue your research.

[SweetieJean]

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[jjannd]

Personal use items are not deductible on taxes. With that in mind if you have "garage style" online sales on PERSONAL items that you have purchased for your personal use, subsequently used and then sold them--that does not have to be reported. So if you have a pair of shoes you bought for $25.00, used them and then subsequently sold them for $5.00 that is NOT INCOME. That is what is called a "LOSS". Keep receipts folks. And document everything you sold and how much you purchased it for. Many many people that sell online do so as a means of getting rid of "stuff" -their own PERSONAL ASSETS they are trying to convert to cash. That in and of itself does not make it HOBBY OR BUSINESS income. Rather its LOSS of income which can't even be reported on taxes as a loss so why should it be reported as income when it isn't?