Kristine McKinley
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
planning 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.
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Kristine A. McKinley, CPA, Certified Financial Planner®,
offers financial and tax planning on an hourly, fee-only
basis. For more information on eBay taxes, sign up for our
free special report 'Tax Tips for eBay Sellers' or visit
our blog.
=> Special Report 'Tax Tips for eBay Sellers' -
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