Is Selling On eBay Just A Hobby Or A Real Business?

Q: I made extra money selling things on eBay last year. These were items I picked up at yardsales mostly. My husband says I am responsible for paying income tax on the money I made, but I disagree. This is just my hobby, not a business. What do you think? -- Gladys A.

A: With so many people selling on eBay these days this is a question I get all the time. To many eBay sellers the thought of running an actual business is about as appealing as getting negative feedback, so they go out of their way to convince themselves that selling on eBay is really "just a hobby" and therefore, should not be susceptible to income tax laws.

While you might think selling on eBay is just a hobby and the extra money you're making is not reportable as income, depending on the circumstances, the IRS just might disagree with you.

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 mean that if you buy a 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 lose much sleep over 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 a hobby is really a business. These factors include:

1. Do you carry on the activity in a business-like manner?

If you conduct your eBay activities in a business-like manner, i.e. you keep business records, track profit and loss, keep a separate checking account, etc. then whether you think so or not, your hobby is really a business.

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

If you put considerable time and effort into your eBay sales, the IRS may contend that you do so for profit and not fun. It seems the folks at the IRS don't believe in doing things strictly for pleasure. My guess is, neither do you. If you weren't making money selling on eBay I doubt you'd bother getting up at 4 a.m. to hit all those yardsales.

Then again, maybe you would... :o)

3. If you depend on income from your eBay activities for your livelihood?

If so, it's a business, not a hobby.

There are a number of other factors the IRS uses to determine if a hobby is really a business, but that covers the basics.

You can learn more at the IRS website at www.irs.gov.

What's eBay's take on all this?

eBay is vehemently opposed to anything tax related (especially the forced collection of sales tax, which is a whole 'nother issue). It's understandable that eBay is not a fan of the IRS since trying to enforce tax rules on buyers and sellers would undoubtedly be detrimental to the way eBay does business.

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 a faciliator, i.e. they provide a marketplace in which buyers and sellers come together to do business.

However, since eBay is not directly involved in the transactions that take place between buyers and sellers, it would be impossible for eBay to report sales figures. Furthermore, eBay does not track if a seller actually gets paid by the buyer, so they have no idea how much money actually changes hands, making it impossible for eBay to issue accurate 1099s to sellers.

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.

I'm not accountant (nor do I play one on TV), so please do not take any of this as tax advice or legal opinion. 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!

Tim Knox

Small Business Q&A is written by veteran entrepreneur and syndicated columnist, Tim Knox. Tim serves as the president and CEO of three successful technology companies and is the founder of DropshipWholesale.net, an online organization dedicated to the success of online and eBay entrepreneurs.

Related Links:
http://www.prosperityandprofits.com
http://www.smallbusinessqa.com
http://www.dropshipwholesale.net

---

E Bay.com HTML Auction Templates: Which is Best for Ebay Selling?

There are a plenty of free e bay.com free auction... Read More

eBays Latest Fee Increases--Is this the beginning of the end?

On January 13, eBay sellers received an unwelcome announcement from... Read More

Using Online Ebay Auctions to Promote Your Website - Confessions of a True Traffic Junkie

If you are looking for traffic to your e-commerce site,... Read More

What Ebay Can Teach Us About Success

I flew back to New York from Atlanta a few... Read More

Drop Shipping Secrets and Sources Revealed

Unfortunately for those just breaking into the wholesaling business, drop-shipping... Read More

eBay - Getting More Bids Using An Auction Preview

If you sell in small niches as I recommend and... Read More

eBay Listing Service : Make Managing Your Auctions Easy

Do you want to have a lot of auctions going... Read More

The Top Ten Antique Categories On eBay!

Knowledge is Power! And this statement could not be more... Read More

The Number 1 Biggest Secret to Selling on Ebay

Ebay.com is a Tool. It is an awesome tool that... Read More

The International Affiliate Program of EBay

eBay trades in more than 33 international countries with over... Read More

Start Selling On eBay - Getting Started On The Right Foot

You've started your own eBay business and, even though it's... Read More

Using Paypal for eBay Purchases

Paypal is the preferred payment choice for many buyers because... Read More

Auction Image Hosting for Ebay Auctions: Free Single Most Recommended Tip

It is a well known fact that the more pictures... Read More

Dropshipping on eBay, Does It Work?

eBay offers any business owner a new global market to... Read More

Free Auction Templates: How to Set Your Border Color With FOAM

If you have not heard of Foamtemplates.com yet, home of... Read More

How To Find Tons of Hot Items Selling On EBay ...In Less Than 10 Minutes

There are many ways to start a home business online,... Read More

Photos on my eBay Auctions: How Do I Add Them?

On another forum I'm involved with, someone's asked a great... Read More

Authentic or Fake?

1. Admit It: Old business models are no longer working.... Read More

Seven Steps to eBay Selling Success

More and more people try their luck at selling on... Read More

Increase your eBay Profits the Easy Way

Sometimes the simplest things can boost the number of visitors... Read More

USP on eBay

If you have dabbled at all in the world of... Read More

Is The eBay Fee Increase Actually Good For Business?

Fee Increase Leaves Some Sellers Angry, Others ThrilledMuch of my... Read More

Mistakes to Avoid in your eBay Auctions

Online auctions continue to grow in popularity as an easy... Read More

How to Double or Even Triple Your Net Profit Selling on eBay

eBay Search tips and secretsThis is an example of how... Read More

Better Than Sliced Bread? Drop Shipping, The New Home Business Craze

Many of you will probably remember the days when the... Read More

12 Tips To Make Your eBay Business More Profitable

Sometimes it's the simple things that can make your eBay... Read More

EBay Income Possibilities

If you've ever read an article about eBay, you will... Read More

EBay Feedback, 5 Key Things All EBayers Should Know

eBay's user feedback system is one of the site's most... Read More

10 Tips to Starting a Financially Successful Ebay Business Startting Right Now

Ebay is Perhaps the easiest and fastest way to start... Read More

eBay Gold

Internet auctions are relatively new having been around since the... Read More

eBay - Tapping Into The Japanese Collector Market

If you owned a skateboard shop in your local mall... Read More

Louis Vuitton -- Avoiding the Ebay Nightmare Fakes

Without a doubt, eBay was one of the cleverest on-line... Read More

5 Secrets To Make A Killing on EBay

Secret #1: Find a 'real' wholesale and drop ship companyDo... Read More