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A Tax Filing Factsheet for eBay Sellers

Updated for Tax Year 2016


OVERVIEW

You can find almost anything for sale on eBay, from a piece of fine art to clippings of Justin Bieber’s hair. So it's no surprise that the IRS doesn't view all sellers alike in the online marketplace. You may not have to pay tax at all if you are essentially hosting an online garage sale, but if you run your eBay account more like a business, you should be reporting your sales to the IRS.


Not All eBay Sales are subject to income tax

Man working from home

Not every eBay sale is subject to income tax, but most are. If you use the site to get rid of household articles you've used in the past, you may qualify for "occasional garage or yard sale" treatment. According to the IRS, if your online auction sales are the Internet equivalent of an occasional garage or yard sale, you generally do not have to report income from those sales.

Assuming that you originally bought the used items for more money than you are selling them for, you don't have to report the income received from the eBay sale. For example, if you sell a bicycle that you paid $500 for two years ago for $350 on eBay, you usually don't have to notify the IRS — but you can't claim a loss on it.

 

Hobby sales must be reported

If you and the IRS classify your eBay sales as a hobby, you'll have to report the income. Your income is reported on Form 1040 and your expenses are an itemize deduction on Schedule A.

However, you won't be able to use a loss from hobby sales to reduce other income. This can be important if you make money in other activities. For example, let’s say that you have:

  • A net loss of $5,000 from your eBay sales operation.
  • A taxable income of $15,000 from a gardening business.

If your eBay activities are considered a business, you can use your loss as a deduction to reduce your gardening income, so:

  • $15,000 (income) - $5,000 (deduction) = $10,000 (gardening income).

If your eBay activities are a hobby, you cannot use a loss to reduce your gardening income. Distinguishing between a hobby and a business is not an exact science. The IRS looks to many factors including:

  • Frequency of your eBay sales
  • How much you earn
  • How much time you spend working on the hobby

If you make more than $20,000 in gross sales and have 200 or more transactions on eBay, you should receive a 1099-K form reporting this income to the IRS.

Using eBay to make profits is a business

If you sell and buy articles on eBay in order to earn money, the IRS will likely classify your sales activities as a business. This means you will have to report net income from eBay sales. Report your total gross income on Schedule C, then reduce it to net income by subtracting the amounts you spent for allowable business-related expenses.

For example, if your income is $45,000 and you have “business-related expenses” that total $10,000:

  • $45,000 - $10,000 = $35,000
  • $35,000 is your net income on your Schedule C

Business tax deductions for eBay sellers

The only tax deductions you can use to reduce your gross eBay sales income are those authorized by the IRS, but you'll have quite a few to choose from. Consider whether you qualify for:

  • Costs to purchase or fix up the items sold
  • Deductions for business use of your vehicle, either actual expenses or the standard mileage rate deduction, 54 cents a mile in 2016
  • Advertising expenses
  • Apportioned amount of phone and Internet charges related to your eBay business

If you're still unsure if something is deductible, check out a more comprehensive list of common small business expenses.

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The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.


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