Do I Need to Pay Taxes on My eBay Income?
Many eBay sellers who restrict their sales to that of personal items believe that they don’t have to pay taxes on any of their profits, but sadly, that’s not true. In fact, even many eBay sellers who generate significant revenue from their eBay sales — through dropship services, volume sales, etc. — harbor the mistaken notion that eBay sales are somehow exempt from the long arm of the IRS.
If you’ve ever taken the time to read the fine print of even the 1040 instruction booklet, however, you’ll see that the IRS makes no bones about it: all income — regardless of source, even tips and gambling — is potentially taxable.
Perhaps you’ve been operating under the assumption that your eBay sales activities should be considered as a hobby rather than a business and therefore not subject to income taxes. That may be the case, but the burden of proof lies on you. If you’ve been selling secondhand merchandise that you originally purchased new, you might be able to avoid paying taxes if the selling price is lower than the original purchase price, which is what often happens in garage sales, yard sales and eBay sales. Since you didn’t make any money from the sale, you didn’t have any profits to report as income.
However, if the merchandise has appreciated in value — say, a rare video console from the ’80s — and you sell it for more than you paid for it new, then you’re expected to report the profits as taxable income.
Now, the chances of the IRS flagging you for an audit are fairly slim if all you’ve done is sell a few small, personal items here and there, even if you did make a little money off of them. That’s not to say that it will never happen, however, so it’s best to keep all your original purchase receipts so that there’s no question that you ultimately made little or no profit from their resale.
Of course, if you spend a considerable amount of time on your eBay sales and are dependent or even partially dependent on them for your income, you are required to report your sales on your income taxes and will likely need to file a separate form for them, e.g.,the Schedule C or the 1040-ES for estimated quarterly tax payments for individuals who regularly make profits on a business. The good news, however, is that if you do have an eBay selling business, you’re eligible to deduct nearly all expenses related to running it, from your postage and packaging costs to the transaction fees you pay to PayPal.
Like everything else tax-related, it’s best to consult a qualified tax professional or accountant regarding any questions about your eBay income. Although tax season is still over a month away, it’s best to start gathering records now so that you’ll be ready to present documentation to your accountant when it comes time to filing your tax forms. Keep meticulous records of your eBay sales, including receipts from the post office and eBay and from your purchases of items you intend to sell on the auction site. Regardless of how you view your eBay sales, it’s best to be prepared for the possibility that the IRS will step up enforcement of income tax laws on eBay sales in the future.
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