Is Selling On eBay Just A Hobby Or A Real Business?
Q: I made extra money selling things on eBay last year. These were items I picked up at yard
sales mostly. My husband says I am responsible for paying income tax on the money I made, but I
disagree. This is just my hobby, not a business. What do you think?
-- Gladys A.
A: With so many people selling on eBay these days this is a question I get all the time. To many
eBay sellers the thought of running an actual business is about as appealing as getting negative
feedback, so they go out of their way to convince themselves that selling on eBay is really "just
a hobby" and therefore, should not be susceptible to income tax laws.
While you might think selling on eBay is just a hobby and the extra money you're making is not
reportable as income, depending on the circumstances, the IRS just might disagree with you.
The IRS rules are clear: you must pay taxes on all personal and business income and that includes
money you make selling on eBay.
In its most basic sense, the IRS rules mean that if you buy a vase at a garage sale for $10 and
sell it on eBay (or elsewhere) for $20 you made a $10 profit and therefore must report it as
income and pay Uncle Sam his fair share.
In reality, if you are a casual seller who only sells a few items on eBay every now and then it's
doubtful the IRS is going to lose much sleep over the few bucks you make.
However, if you consistently sell on eBay the IRS may deem your activities to be business
oriented and you will be required to file a Schedule C and claim the income.
The IRS uses a number of factors to determine if a hobby is really a business. These factors
include:
Do you carry on the activity in a business-like manner?
If you conduct your eBay activities in a business-like manner, i.e.
you keep business records, track profit and loss, keep a separate checking account, etc. then whether you
think so or not, your hobby is really a business.
Do you spend considerable time working on your hobby?
If you put considerable time and effort into your eBay sales, the IRS
may contend that you do so for profit and not fun. It seems the folks at the IRS don't believe in doing
things strictly for pleasure. My guess is, neither do you. If you weren't making money selling on eBay I
doubt you'd bother getting up at 4 a.m. to hit all those yard sales.
Then again, maybe you would... :o)
If you depend on income from your eBay activities for your livelihood?
If so, it's a business, not a hobby.
There are a number of other factors the IRS uses to determine if a hobby is really a business, but that
covers the basics.
You can learn more at the IRS website at www.irs.gov.
What's eBay's take on all this?
eBay is vehemently opposed to anything tax related (especially the forced collection of sales tax, which is a
whole other issue). It's understandable that eBay is not a fan of the IRS since trying to enforce tax rules
on buyers and sellers would undoubtedly be detrimental to the way eBay does business.
eBay does not does not issue 1099 tax forms to sellers, nor does it report seller's sales figures to the IRS.
eBay considers itself a facilitator, i.e. they provide a marketplace in which buyers and sellers come
together to do business.
However, since eBay is not directly involved in the transactions that take place between buyers and sellers,
it would be impossible for eBay to report sales figures. Furthermore, eBay does not track if a seller
actually gets paid by the buyer, so they have no idea how much money actually changes hands, making it
impossible for eBay to issue accurate 1099s to sellers.
On the bright side, if you do sell on eBay as a business you can deduct a number of business expenses,
including the cost of inventory, listing fees, shipping, envelopes, packing materials, etc. You might also be
able to deduct things like the purchase of a computer for business use, office space (even if it's a home
office), office supplies, and more.
I'm not accountant (nor do I play one on TV), so please do not take any of this as tax advice or legal
opinion. Talk to your accountant if there's any doubt as to whether you should or should not be paying taxes
on your eBay earnings.
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This article has been written by well know businessman and veteran
entrepreneur Tim Knox. Learn more about Tim and how to profit using Ebay and insider wholesale drop shipping
techniques by visiting Drop Ship Secrets
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