Do You Have to Pay Taxes for Stuff You Sell on Ebay?
You may have heard that Paypal will have to start reporting to the Internal Revenue Service for accounts which process more than 200 transactions or $20,000 in the 2011 tax year. For people who sell stuff on eBay, this raises concerns about whether they will have to start paying taxes on their sales. While this may be true, the law states that you must claim all profits from online sales, regardless of the amount of sales made.
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Business Vs. Hobby
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If you only place items up for sale on rare occasions, less than around once a month, you probably won't have any problems with unclaimed income. However, all income, no matter how small, is required to be reported, including sales on eBay, garage sales, or weekend flea market booths. Even if you don't consider a few items sold on eBay as a business, they still qualify as taxable income.
Possible Tax Liabilities
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Depending on the volume of your sales and how your online auction is managed, you may be responsible for paying any of several taxes. The Internal Revenue Service, in Tax laws and Issues for Online Auction Sellers, states that you may have to file "for income tax, self-employment tax, employment tax, or excise tax. Your sales may result in capital gains, nondeductible personal losses, or you may have ordinary business income."
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Online Business Deductions
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Just as your eBay income must be claimed for tax purposes, you may also be entitled to deductions because of the business. If a portion of your home is dedicated to your business, and used on a regular basis to conduct or manage the business, you may claim a deduction for a home-based business. The business can be in a separate structure on the same property as the primary residence but it must be used exclusively for that business.
Costs and Profits
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Selling an item is not synonymous with earning a profit. For instance, an item that you purchased new for $75, if sold for the same amount or less, would not be considered a profit. Only if the item brings in more than you spent on the item, including repairs and handling costs, is there a profit that must be reported. Where the auction is being used as a business, selling items at less than your investment may even qualify for loss claims in your net income.
Local Licensing And Taxes
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Where you live will have an effect on the amount of taxes you have to pay. In some jurisdictions you may be required to have a business license to conduct regular online auctions. If you are operating a business online, it must be licensed and pay the necessary local fees or taxes in addition to taxation at the federal level.
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References
- Photo Credit online image by sasha from Fotolia.com
