Taxes and the eBay Seller
Here is a great article by Kristine A. McKinley a CPA and a Certified
Financial Planner. I always get questions from eBay sellers about paying
taxes on their eBay earnings. The simple answer to the question is that if
you sell on eBay and make over $400 in eBay profits –yes you have to pay
taxes. Read Kristine's article for more detail and to understand the
rules.
Are You Required to Report your eBay
Earnings?
Many people ask me if they are required to report the profits they earn
on items they sell on eBay. The answer is "yes".
If you sell items on eBay for a profit, then you should report your eBay
sales, and you may owe income taxes on any profits. It doesn't matter if
it's just a hobby or if you are trying to build a business.
Generally, any income you receive from all sources is subject to income tax
unless it is specifically exempt by law (hint: eBay profits are not exempt
by law). That means that a lot of activities that you might not think of as
taxable, such as garage sale income, gambling winnings, and yes – eBay
profits – are taxable.
You must file a tax return if your net earnings from self employment are
$400 or more. You are self employed if you carry on a trade or business for
profit. If you are selling on eBay with the intent of making a profit, then
you are self employed.
To report your earnings, you should file Form 1040, and attach Schedule C or
C-EZ. Schedule C is used to calculate your net profit or loss from your
business, which is then reported on your Form 1040.
At this point, you may be thinking "I don't run a business; I just sell on
eBay as a hobby". Unfortunately, income from hobbies is taxable as well.
Even worse, you can only deduct expenses up to your hobby income, which
means losses are not deductible.
There are several tax advantages to selling on eBay. Personal expenses, such
as the use of your car, home or computer may become partially deductible,
retirement savings plans can shelter part of your eBay income from taxes,
and you may be able to hire your family to help shift income to members in a
lower tax bracket. So even if you only sell a few items on eBay, not only
are you required to report your eBay earnings, it may even help you reduce
your income taxes by taking advantage of tax opportunities available only to
small business owners.
Finally, there is a common misconception that if you did not receive a 1099
or W-2, you are not required to report your income. This is not true. All
income is reportable, regardless of whether you receive a form or not. EBay
is only a facilitator of the auction; therefore you will not receive a 1099
from eBay reporting your sales.
Kristine A. McKinley, CPA, Certified Financial Planner®, and founder of
Beacon Financial Advisors, teaches individuals and families how to invest
and plan for retirement, college, and other financial goals. Kristine offers
financial and tax planning on an hourly, fee-only basis.
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