Incomes threshhold from Ebay sales for filing federal taxes for individuals

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Do you have to file a federal return and pay the self employed social security taxes if you make less than $3000 this year through ebay sales of personal items?

[LRay_EA · Accepted solution]

Currently the IRS has only posted the income requirements for last tax year. Depending on your filing status if your total income (wages, investments, and self-employment income etc.) is less than $12,550 for single to $25,100 if MFJ you would not need to file a tax return. https://www.irs.gov/publications/p501 

If your income is more than the threshold you would need to file a Schedule C with your personal tax return to include this income earned from ebay. You could also report any related expenses as well. Only the net income (income - expenses) from the business would be taxable and would reported to the IRS on your personal return as self-employment income. The related tax is self-employment tax. This is a great resource related to filing a Schedule C https://turbotax.intuit.com/tax-tips/self-employment-taxes/-what-is-a-schedule-c-irs-form/L7v0iDelI . 

[Opus 17]

The question is, what is income?

If you are only selling personal items for less than you paid, none of your sales proceeds are taxable income.  If you sell items for more than you paid, the difference (gain) is taxable. 

If you report your sales as a hobby, you would report the sales as capital gains or losses on schedule D.  The losses are not deductible against other income but they are not taxable; the gains are taxable.

If you report the sales as a business on Schedule C, and you are only selling personal items for less than they cost, this would be selling inventory for less than the cost, you have a business loss and you have no taxable income, even though you have gross proceeds.  (However, selling personal items at a loss should not be reported as business activity because you don't have a profit motive.  Reporting your activity as a schedule C business would allow you to deduct your losses from your other income like wages or a pension and that is improper.)

The issue is how to show the IRS that even though you have a 1099-K showing gross proceeds, that your taxable amount was zero.  There is a way to do that on your tax return which you should ask about when the forms come out.  In the mean time, you start by gathering your records and making a list of your sales that includes item descriptions, the date purchased, price paid, date sold, and selling price.   Make your best guess if you don't have receipts.