I started selling on eBay this year and I'm on track to exceed $20,000 in gross sales and will have over 200 transactions for the year. Approximately half of my gross sales go toward shipping, fees, and selling expenses, leaving me with only half the original sale price. I'm selling a relatively high volume of relatively low-dollar sales, so if I have $20,000 in gross sales, I'm only keeping $10,000 after upfront selling costs. All of the items I'm selling are my own possessions, which I store in my home, and the majority of my sales (90%) are at a loss from the original price I paid for each item. I'm keeping records of my sales and expenses, and I have my original purchase records/receipts for about 75% of the items I am selling, to prove that I'm selling them at a loss from the original prices I paid. Essentially I'm recovering from a shopping addition, selling the items I'd purchased for less money than I originally paid for them - many items are new in packaging/tags. I'm using the money that remains after selling expenses to pay down the debt incurred by purchasing these same items (much of which goes straight to interest on the debt). Because of the volume of sales and the dollar amount overall, I'm assuming the IRS will view my activities as a business regardless of the circumstances, and I know I will have to report it on my taxes.
Is it advantageous for me to obtain a business license in my state and operate as a home business, as far as my taxes are concerned? Will this allow me to claim business expenses and losses from selling almost everything at a loss - or at least allow me to claim a loss on every sale that I have my original purchase receipt to prove the loss - up to/equivalent to my eBay selling income, essentially to cancel out the income and my tax liability for it? Is there a risky downside of doing this that I need to be aware of, or additional requirements of operating as a "business" that I'm not taking into consideration?
My eBay sales are to all US states although I have not had any sales to my own state so far and I don't make any foreign sales. I am not collecting sales tax on any of my sales, although I know that eBay recently started collecting and remitting sales tax from buyers in certain states without sellers being required to do anything. I am not buying anything to resell for profit and I view my current eBay activities as asset liquidation to mitigate my losses - since I'm paying high interest debt with the left-over funds after my selling expenses, and I'm losing money on most of my sales when factoring in the original purchase price and the costs of selling.
Would it be wise to take it a step further and claim all the typical small business deductions... home office (a clearly defined section of my unfinished basement (but no walls) where inventory & packing materials are stored, orders processed & packed, printing equipment stored, and where the photography set-up that is utilized for eBay photos is located and used? Can I go so far as to claim depreciation, repairs, or replacement to my washing machine and dryer, which I utilize both for personal reasons (my laundry) and for my business, since I utilize them regularly to launder the pre-owned clothing that I sell on eBay to prepare it for sale - and even the purchase of the laundry detergent used for this purpose? What about my utility bills for power, water, etc. at my home, and my internet bill, which are used both for personal household use as well as for the operation of the business? What about my cell phone, which I use to take all of my eBay photos for listings and which I conduct much of my sales and eBay activity from, as well as for my personal use? What about my laptop computer, which I use both personally and for eBay selling? What about my car, gas, mileage for post office trips, and various other business-related costs? If I do get a business license and conduct my activity as a business, can I claim all of these various things at tax time? If I don't get a business license, can or should I claim them?
For reference, I file taxes jointly with my spouse and we both receive wages from employers, which is the only income we've ever had to report for taxes. We almost always take the standard deduction since what we are allowed to itemize and claim rarely exceeds the standard deduction. Obviously I won't be carrying on long-term as a business selling on eBay, since the plan is to liquidate the stuff, sell it all, pay the debts, then quit selling when everything is sold and nothing is left to sell. I don't anticipate keeping it up more than 1-2 calendar years, just as long as it takes me to list and sell everything I can, since I'm not selling for profit and I'm not reselling from wholesale and have no supplier, just my own stuff. Is it more advantageous in my particular situation to get a business license or not get one, to claim business losses or business deductions or not claim them, or just pay the income taxes on my eBay "income" left over after the up-front selling costs? Other than keeping meticulous records on every sale, what should I do?
