Taxing Ebay Part Deux

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.
Taxing Ebay Part Deux Taxing Ebay Part Deux Reviewed by Henda Yesti on July 03, 2018 Rating: 5

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