IRS rules -Taxes On eBay
Income
Q: I read your last column about paying income
tax on eBay sales if you are doing it as a business, but as someone who only
sells on eBay occasionally I'm still confused if the IRS rules apply to me.
Can you tell me more? -- Norman L.
A: Last week's column 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 kidding aside, the conclusion that I
came to after reading each email 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 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.
Here's to your success!
By Gimmy Leo
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