Kristine McKinley
 
 
 
Is your eBay activity a business or a hobby?
Many eBay sellers start out as a hobby, or just to clean
out their closets. Many times, this hobby can lead to a
profitable business.
 
A hobby is an activity that you do simply because you love
doing it, but it may also earn you some income. That income
must be reported on your tax return, even if it is just a
hobby.
 
Some hobbies may actually be businesses, which would allow
you to deduct expenses against any income you earn. On the
flipside, some businesses may only be hobbies, in which
case you would only be able to deduct expenses up to your
earnings.
 
How can you tell if your activity is a business or a hobby?
Basically, it's whether you have a profit motive or not.
 
Learn what factors the IRS looks at when determining
whether a business is a business or a hobby.  The IRS looks
at nine factors to determine if you are trying to make a
profit, or if you're just enjoying a hobby:
•  Whether you run the activity in a business like manner
•  How much time and effort you put into making a profit
•  Whether you depend on the activity for your livelihood
•  Whether your losses were due to conditions beyond your
control
•  Whether you changed your operating methods to improve
profitability
•  Whether you or your advisors have the knowledge needed
to carry on a successful business
•  Whether you successfully made a profit in similar
activities in the past
•  Whether the activity makes a profit in some years, and
how much
•  Whether you can expect to make a profit in the future
from the activity
 
Here are some things you can do to show that you are indeed
operating a business and not just a hobby:
 
•  Get an employer identification number (EIN)
•  Apply for a business name
•  Have a separate checking account to be used for business
transactions
•  Hire an accountant to keep your books
•  Create a business plan
•  Keep track of the time you spend each week doing
business activities
•  Consult other business owners or advisors to help make
your business profitable
 
To minimize the income tax on your eBay sales, you should
treat your business like a business, not a hobby (even if
it is just a hobby!). By following the tips in this lesson
you will be able to deduct your business expenses and keep
your tax liability to a minimum.
 
 
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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' -
ree_special_re.html
 
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