# Ebay Sales and Income Tax



## Girlzndollz (Oct 3, 2007)

This question regards "Income tax" not "Sales tax". When a person is selling as "a business" on Ebay, income is reported as a business as usual, but there are some without stores and just selling as Joe Regular.... selling is selling, is it not? I hear of many around my town that just treat ebay like a garage sale of sorts. Any thoughts or insight into this? What's your opinion or what do you hear around where you are about this? It confuses me to say the least. 

Insight doesn't have to be your own personal experience, just any info you are aware of. Thanks again.


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## Progeny (Jul 28, 2007)

Hi,

not sure which country you are in but in the UK you would be liable to pay tax on ANY income over your personal tax allowance, whether you have a business account, shop, website, stall, sell on the street etc.

Lee


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## Girlzndollz (Oct 3, 2007)

Thank you, Lee. I am US based. Your post brings up another question. Is there an amount one is allowed to earn without reaching the level of reporting?


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## Chani (Jun 18, 2007)

_Technically_ if you have a garage sale and earn $5.00, you're supposed to report those earnings. The same if you find a penny on the ground. _Technically_.

There MIGHT be a low cap on what you don't need to report, but I haven't heard of one.


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## geodesia (Feb 6, 2008)

It is considered self-employment income if you are making items for sale, or acquiring them at wholesale and reselling them, or whenever your motive is profit, basically. Whether you call yourself a business or not, there is no amount of self-employment income that you are technically allowed to exclude on your tax return. If you have over $400 profit, then you pay self-employment tax as well. You'll need to file a schedule C or C-EZ and a schedule SE to figure the self-employment tax. (This is the most unfun part of having your own eBay business!) 

edited: A garage sale (or an eBay account where you are merely selling off your old record collection or whatever) is typically a case of selling personal items for less than you originally paid for them. There is no profit and you needn't report the proceeds (unless you run garage sales as a business). And you can't claim a loss on re-sale of your own personal items. Likewise, the penny on the ground is not earnings. Call it a gift from heaven; gifts are not taxable (unless you are _giving_ gifts over $12K). 

regards -- geodesia






Girlzndollz said:


> Thank you, Lee. I am US based. Your post brings up another question. Is there an amount one is allowed to earn without reaching the level of reporting?


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## greyhorsewoman (Jul 19, 2007)

If you have a 'regular job' ... your ebay or other business could be considered a hobby. Normally, you can only claim costs of a hobby up to the income the hobby produced (you can't claim a loss against your other earnings). 

As always, to be absolutely sure about your particular situation, always call the IRS hotline or consult an accountant.


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## peteVA (Nov 11, 2007)

You should use a Schedule C with your 1040. It gives you lines to list your cost of goods in, your cost of goods out, your gross profit then list your expenses and come up with you TAXABLE Income, or net profit.

You can, if you can prove it, list part of your home expenses / ustilities as business expenses if you meet certain requirements.

Get a Schedule C for the 1040 personal income tax return. Look it over. you can download one from the IRS website.
.


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## Girlzndollz (Oct 3, 2007)

peteVA said:


> You should use a Schedule C with your 1040. It gives you lines to list your cost of goods in, your cost of goods out, your gross profit then list your expenses and come up with you TAXABLE Income, or net profit.
> 
> You can, if you can prove it, list part of your home expenses / ustilities as business expenses if you meet certain requirements.
> 
> ...


 
Hey Pete, going this way, can one take a loss if one's expenses exceed one's profit due to inventory unsold? Thanks.


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## Girlzndollz (Oct 3, 2007)

Thank you everyone for all the input so far. I know alot of folks selling on Ebay, none of them discuss this aspect, so I am inclined to think they are unaware of it. I will be asking around. 

It seems the folks here on the forum are well aware of filing net income. So far my tabulations come to: folks in town, zero aware. Here on the forum, all aware. I wonder if this is b/c everyone here is in business, and locally, they are just folks in town selling stuff on Ebay.

There is one point made so far that I'd like to know more of: If one is selling their own items, it seems those aren't included. 

I am curious b/c when one signs up for Ebay, theres nothing that says keep records, and folks I know aren't, and I wanted to know what everyone here does, as there are Ebay sellers on the forum. 

Thank you again for the input so far, I most appreciate it.


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## mothertongues (Aug 8, 2005)

When I had an eBay store, I kept records of all sales just as for my internet store, and paid income taxes on it. But I do deduct for utilities, etc. since it is a home-based business.


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## tim3560 (Jan 7, 2007)

Girlzndollz said:


> Thank you everyone for all the input so far. I know alot of folks selling on Ebay, none of them discuss this aspect, so I am inclined to think they are unaware of it. I will be asking around.
> 
> It seems the folks here on the forum are well aware of filing net income. So far my tabulations come to: folks in town, zero aware. Here on the forum, all aware. I wonder if this is b/c everyone here is in business, and locally, they are just folks in town selling stuff on Ebay.
> 
> ...


As far as the government is concerned, if you buy something, never use it, and then sell it, you've still made an income even if you didn't make back what you had invested in the item to begin with.
As far as I'm concerned, I'm not going to report it because I've already paid sales tax when I purchased it. With that said, I would probably keep personal items separate from business items. First, you can keep better records for your business and second, um, you can keep better records for your business. lol As far as your left over inventory is concerned, you would write that off as a business purchase, and just hold it for future use or sell it to make space.


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## geodesia (Feb 6, 2008)

Following the IRS to the letter, you owe tax on stuff you sell for a gain, even personal items. This usually doesn't apply to somebody cleaning out the packrat items. But suppose you found a painting you liked at a garage sale, paid $10 for it, and ten years later had it appraised and found it was worth $2000, so you sell it on eBay. You would figure your basis ($10 plus whatever you paid to have it appraised and cleaned up) and subtract that from the selling price, and that would be the taxable income to you. 

Items you purchased specifically for investment (art, stamps or coins, for instance) and then re-sell are taxed as capital gains. You can't take losses on sales of personal items but you can take losses on capital gains. 

I doubt you would find the average person reporting income to the IRS when he sells personal items on eBay for a slight gain. And I doubt the IRS cares much. But you can bet they are not blind to sellers with repeated transactions and a lot of money passing through Paypal accounts. If you are setting yourself up to be in the business of selling things on eBay, it is advisable to act like a business, keep records, and report the income. 

The "hobby" issue comes up when people are reporting income on a Schedule C or C-EZ and taking losses year after year (often to help lower their tax liability on their regular paychecks and other gain). The IRS may eventually look at your returns and decide to reclassify your business as a hobby. You report hobby income but you can only take hobby losses to the extent of hobby income, so it's no good for reducing your other tax liability. The best way to guard against being reclassified as a hobby is to act like a business: engage in the activity regularly, keep records, be able to show a business plan, etc.


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## Girlzndollz (Oct 3, 2007)

Okay, as a business, its clear to keep records and track income and expenses for reporting. What about for personal selling? 

If someone receives a gift and sells it on Ebay, do you think they are and know to do this? It seems these days, we all know someone selling on Ebay, even if not ourselves.

And Geodesia, you're posts are interesting but confuse me a little. I have 10 years of accumulation I would like to list on Ebay. I may buy something for less money, and if someone else wants it and gets into a bid war, they may bid higher than I paid. I can't figure out from your posts how I would sort that all out. But what you are saying is inline with what my my impression was, that selling stuff there was like 'cleaning out' closets, like a garage sale. 

All this information regarding income taxes and filings has really gotten my attention because I've never heard of this before.

I guess what I'm asking is, in reality, do you think people are really doing all this? I'm just looking for opinion, not asking for your own personal experience. Thx.


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## geodesia (Feb 6, 2008)

I think it's most likely that a vast majority of eBay sellers don't report gains on personal items, and the IRS has bigger fish to fry. 

As a tax preparer though, I can't say online that I would recommend ignoring the tax code.  Whether or not I would. And it wouldn't be all that advisable for anybody else to say so either if their identity is traceable.


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## Girlzndollz (Oct 3, 2007)

geodesia said:


> I think it's most likely that a vast majority of eBay sellers don't report gains on personal items, and the IRS has bigger fish to fry.
> 
> As a tax preparer though, I can't say online that I would recommend ignoring the tax code.  Whether or not I would. And it wouldn't be all that advisable for anybody else to say so either if their identity is traceable.


 
Thank you, G. And I agree, no one should make a statement that could possibly hurt themself. I would not ask anyone to speak from personal experience if it is against their best interest. 

I know from what I've seen, my opinion is the average Joe who isn't already in business, has no clue about reporting if they are not selling on Ebay "as a business".


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## peteVA (Nov 11, 2007)

Girlzndollz said:


> Hey Pete, going this way, can you take a loss if your expenses exceed your profit due to inventory unsold? Thanks.


Unsold inventory is not an expense, it is an asset. It has value and can be sold at a later time. 

Learning accounting on a forum is not wise. For one thing you often end up with the blind leading the blind.

Throw all you stuff in a bag and take it to H & R Block or whatever.

Seriously, this is not the place for answers that may come back and bite you by the IRS.
.


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## Girlzndollz (Oct 3, 2007)

peteVA said:


> Unsold inventory is not an expense, it is an asset. It has value and can be sold at a later time.
> 
> Learning accounting on a forum is not wise. For one thing you often end up with the blind leading the blind.
> 
> ...


Thanks, Pete, you make a good disclaimer for this thread, this is no place for tax advice. I think that's good to have in here, in fact, escential for anyone inclined to read this as text.

I'm not basing any of my filing on what is said here, I _really _did just want to get an idea of what others are doing, or aware of, or what their opinion was of what they saw others doing with regard to this. 

You're right, inventory is an asset. I'll have to find out how one can report a net income if one spend's every penny on inventory. I was looking at the expense factor of the inventory. I guess if one uses "cash" method, the expense can be taken without waiting for the sale to offset it. I'll look up more. Thanks for writing back, I appreciate it.


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## peteVA (Nov 11, 2007)

I may be wrong, things do change. But, in general, if you have inventory you cannot use cash accounting, since you are accumulating assets.

You made a profit, you just chose to invest it in inventory or raw materials rather than blow it on a cruise.

You may also have "work in progress" that is between the raw materials you have for your business and the finished inventory on hand for sale.
.


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## shaggy3131 (Jan 12, 2008)

Can I use "losses" in my T-shirt business to offset income from other sources for tax purposes?


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## Girlzndollz (Oct 3, 2007)

shaggy3131 said:


> Can I use "losses" in my T-shirt business to offset income from other sources for tax purposes?


Do you mean the way a "Sole Proprietor" includes the income and expenses of the business on their personal tax return?


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## peteVA (Nov 11, 2007)

To a degree. But you will have to prove it's really a business and not a hobby. 

Again, do not get your tax advice from a forum. Not just this forum, any forum. I don't think the IRS will appreciate you telling them that SnottyNosedKid415 on the whatever forum said you could claim that deduction. 
.


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## Girlzndollz (Oct 3, 2007)

This info is out of the Department of treasury, IRS, publication 583, rev'd 2003, so I better also check for an update:

1. Cash method: report income in the tax year received. Usually deduct or capitalize expenses in the tax year you pay them.
2. Accrual method: generally report income in the tax year you earn it, even though you may receive payment in a later year. You deduct or capitalize expenses in the tax year you incur them, whether or not you pay them that year.

It then goes on: If you need inventories to show income correctly, you must generally use and accrual method of accounting for purchases and sales. Inventories include goods held for sale in the normal course of business.

Then it adds a "Tip": Certain small business taxpayers can use the cash method of accounting and can also account for inventoriable items as materials and supplies that are not incidental. ~sigh~



Which further goes to show why it is best to hire someone who does this for a living and it's their job to sort all of the above out.

Pete, thanks so much, I always value your posts, and thanks so much to everyone else as well. Much obliged.

PS: I've included the above information not as a tutorial or lesson for anyone's benefit. Only b/c it was brought up in the thread, and since I had just read it for my own benefit, thought I'd share for anyone else interested. My guess is all the experienced business folks in this thread are already well aware of this stuff, just newbies like me, needing to ask and learn.


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## peteVA (Nov 11, 2007)

There are several reasons for keeping accurate books. 

While it might seem like satisfying the IRS is number one, the true number one should be so YOU know where your business stands. 

So, you've really got - for your won beneift, to make informed business decisions.

For the IRS and state tax agencies

And also for lending institutions, should you want to borrow money for your business.

The accrual method is how most "real businesses" operate and I strongly suggest using if from the start. 
.


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