Ebay & Taxes

For some reason, the media has finally realized that people selling items on eBay may have tax implications. Frankly, this story is unbelievable. eTaxes.com has carried this information for over FIVE years. Here’s the bottom line. It doesn’t matter WHERE you do business. You can sell items in a storefront or on eBay. Income is income is income. The same rules apply. If you are selling a used TV in a yard sale, no one expects you to report that sale on your tax return. If you buy computers and resell them at a profit that is income and must be reported on a tax return. Does it matter if you sell them in a store or on eBay? Of course not. As usual, the media isn’t just late to the story, they have the facts completely wrong.

We frequently hear from eBay sellers asking us various questions concerning reporting of taxes. Here is a sampling of the questions and answers.

Anonymous asked this question:
I heard somewhere but I can’t remember where. That after $5000.00 of sales on eBay they are required to submit a W2 form to the user and also to the IRS. is this true?
Thanks

eTaxes.com gave this response:
Under no circumstance will eBay be issuing a 1099, at least not at this point. eBay is only a faciliator and has NO part in the transaction (with the exception of PayPal, which is owned by eBay, being involved), other than as facilitator. One of the primary reasons that eBay should not have to issue 1099’s is that they have NO way of knowing what if anything has actually been paid. They can only report on the auction itself and nothing more. If someone wants to propose that PayPal has to issue 1099’s, no problem. I can say categorically that if there is any move to make this a reality, the IRS will be hearing it louder than they ever have before.

Anonymous asked this follow-up question:
Hello Steve
Thanks for the good answer. I have another question because you mentioned PAYPAL. What did you mean by in your comments about paypal. Sorry for my ignorance but do you mean that they will send out 1099’s? Please explain. I have a paypal account and have not been claiming the taxes on it so I am concerned.
Thanks

eTaxes.com gave this response:
PayPal actually collects and pays over funds to you so they may be required to report all payments made to the IRS. They have all the information in their files to do so. Remember, that you are required to report ALL of your taxable income. If you are selling used household products for less than what you purchased them for, there is no taxable event. If you are engaged in selling products at a profit, you must report every penny. Good luck.

Anonymous asked this question:
Is it true that any income (or profits?) received from eBay.com is tax free? Let’s just say that I want to buy items on a continuous basis and sell them for a profit and my gains exceed the taxable amount. I also want to know what kind of income is this considered? Any information will be helpful in determining if I would need to file taxes or not.

eTaxes.com gave this response on:
You mentioned the word “continuous” which tells me that this would be conducted as a business. In this case, yes, you must file a Schedule C as a business. In addition, your net income would also be subject to Self-Employment tax.

Anonymous asked this question:
Can you tell me the easiest way to keep books on what you can deduct and what my tax liability is, if selling on eBay and using Paypal accepting credit cards etc. Thanks

eTaxes.com gave this response:
Well, income is income. Every penny of sales receipts you have online should be listed as income, if you are buying and selling items at a profit. That would go on a Schedule C.

You can deduct all of your business expenses. This is primarily going to be the cost of the items (talk to your accountant if you don’t know what they cost and have no way of finding out–you may have to count it as zero), but also things like eBay fees, the cost of postage, the cost of envelopes and packaging materials, etc. If your computer is used exclusively for eBay you might be able to write off the expense of the computer over a few years.