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
Why sell paper piecings on eBay?eBay is a great way... Read More
Drop Shipping Is Your Perfect Home Based Business SolutionDrop shipping... Read More
Need Extra Money? Buy and Sell Your Gently Used Baby... Read More
Finding quality products to sell is the key to continuing... Read More
Unless you have been hiding under a rock, I am... Read More
If you have dabbled at all in the world of... Read More
For many people, their first experience of working online involves... Read More
There is as a lot of buzz about shill bidders... Read More
Q: I read your last column about paying income tax... Read More
There are a plenty of free e bay.com free auction... Read More
OK, so you've been bitten by the eBay bug!You've ransacked... Read More
Are you planning to sell on eBay? Or have you... Read More
Everyone's talking about eBay these days. With the frequency of... Read More
Experienced sellers at online auction sites such as EBay will... Read More
Do you want to have a lot of auctions going... Read More
You might be one of the thousands of individuals who... Read More
Online auction sites are a great way to find a... Read More
About City Police Departments AuctionsThe City Police Departments handle and... Read More
From the beginning, eBay's primary growth came from the collectibles... Read More
If you were to look through eBay, or any other... Read More
eBay is a one-stop solution to any one who wants... Read More
Dropshipping is an attractive marketing technique, but when you take... Read More
Ebay is without a doubt the greatest internet marketing phenomenon... Read More
Ebay auctions are definitely the easiest and fastest way to... Read More
Selling books on eBay can be a very lucrative business!... Read More
A fascinating eBay case study is the number one seller... Read More
One of the most valuable things in life is the... Read More
A Dropshipper is someone who will anonymously send the goods... Read More
One question that always seems to pop up is, "Where... Read More
EBay's online auctions have created business opportunities for thousands of... Read More
Many new Ebay sellers make one of two mistakes: either... Read More
Shop at a flea market in Oaxaca, Mexico. Trade with... Read More
I don't know if you've ever noticed, but it seems... Read More
Q: I want to start an online business. Since I... Read More
There are many ways to start a home business online,... Read More
In your quest to build credibility as an Ebay seller,... Read More
eBay offer an unbelievable amount of traffic for ANYONE wanting... Read More
Ebay is without a doubt the greatest internet marketing phenomenon... Read More
Some of these eBay hints will save you money, others... Read More
Auction templates are simply a must for successful online auction... Read More
I've got this strange friend; her name is Maria. Maria's... Read More
eBay users are accustomed to only two "standard" formats for... Read More
"Who's Suzie?"My wife Katrina had been acting strangely ever since... Read More
If you've studied business concepts you know that finding a... Read More
Have you thought of using the online auction site eBay... Read More
I just received an interesting email from eBay and it... Read More
There are a plenty of free e bay.com free auction... Read More
Fee Increase Leaves Some Sellers Angry, Others ThrilledMuch of my... Read More
POWERSELL Status, the secrets revealed.If like thousands of people you... Read More
Remember back when selling online was a new experience? Dealers... Read More
Everyone's talking about eBay these days. With the frequency of... Read More
Why sell paper piecings on eBay?eBay is a great way... Read More
As an ebay(TM) seller it happens very often (too often)... Read More
The Problem...It's happened to the best of us.You've been watching... Read More
Selling on eBay can be very profitable, and is a... Read More
Are you having trouble finding a great deal on a... Read More
The best online auction links for buyers and sellers are... Read More
William Vickrey, highly regarded as the founder of auction theory,... Read More
EBay's online auctions have created business opportunities for thousands of... Read More
Have some vintage jewelry? There are several ways you can... Read More
Like many folks, you have heard of online auctions. Heck,... Read More
Many people who sell on Ebay completely neglect the follow-up... Read More
I'd like to begin with a question ? and I'll... Read More
eBay is an online auction site so it stands to... Read More
This question has become one for the ages. There are... Read More
You would like to increase your income by selling other... Read More
Online Auction |