Do You Have To Pay Taxes On eBay Sales?

By Pinyo, on January 12, 2009

Last week the M-Network launched a new feature called Ask the M-Network where readers can ask any financial questions. One of the questions submitted was from Ruth about paying taxes on whether you have to report side income from stuff you sell on eBay. Here’s Ruth’s question:

I have recently started selling on eBay, trying to make a bit extra to pay down debt. Is there a minimum amount that I can make before I have to pay taxes on my eBay income? I certainly don’t want to get in hot water with the IRS! Can you recommend a book or website that discusses the tax situation for eBay sellers?

I’ve sold a few items on eBay and yes you have to pay taxes on your profit — this is not the same as your eBay income. Here’s my general rule of thumb:

If you’re selling used stuff that you no longer want, you don’t have to report it. This is not to avoid paying taxes, but because you probably didn’t make any profit from the sale. For example, let’s say you paid $100 for a pair of shoes and sold it for $75, it’s a net loss and that’s before eBay and PayPal expenses. Yes, you got $75 income, but it’s not profit.
If you’re selling items to make money on eBay, then report these activities to the IRS. In short, you need to keep track of what you received and your costs, such as (1) what you’ve paid for your products, (2) procurement costs — i.e., shipping or cost of traveling to the store, (3) eBay listing and selling fees, (4) cost of shipping to your buyers, (5) PayPal fees, and (6) any other costs related to your eBay activities. You’ll be taxed on the profit, or the difference between your total income minus your total expenses.

Here’s a response from David at My Two Dollars:

I would recommend June Walker’s book: Self-employed Tax Solutions — which while written for freelancers and the like, has great tax information inside as well for anyone making money on the side. I read the book for my own blog income, and I can see where some of the information is relevant to making money on the Internet.

And yes, you do have to pay taxes on eBay income…at least by law you do. However, eBay does not issues 1099’s and they do not report sales to the IRS. Most people who sell a few things probably don’t report it, but if you start selling a lot, I would most certainly claim it on my taxes.

Do you do this as a hobby or a business? Do you have plans to make a profit, or just to unload some of your junk? Just to be on the safe side, if you start selling a ton of stuff, I would keep track for the year and then talk to a tax pro at tax time. Little sales over 12 months can really add up to quite a bit of money!

Here’s a response from Patrick at Cash Money Life:

I recommend reading Lower your Taxes Big Time, by Sandy Botkin. The book is aimed primarily at people who own a small business or earn alternative forms of income through things such as consulting, crafting, selling things on eBay, or anything else. At less than $14, the book should easily pay for itself – or just borrow a copy from your local library.

Concerning items sold on eBay, yes, you will have to pay taxes on them. However, you only pay taxes on your profits, not on all items sold. The other thing to keep in mind is that you can deduct expenses as well. Common expenses for eBay include listing fees, shipping and insurance, PayPal fees, etc.

Example 1: You have a designer dress that you bought for a Christmas ball. You spent $100 on it, wore it once, then decided you won’t wear it again, so you list it on eBay. If you sell it for $75, you didn’t make any profit on it, so you shouldn’t have to pay any taxes on it.

Example 2: You go to several yard sales and find a couple items that you think might be worth more than the asking price. You pay $5 for a box of 10 widgets and turn around and sell them on eBay for $20 each. That $5 investment just turned into $200! Great deal! But you will need to pay taxes on your $195 profit (less expenses).

I highly recommend buying a tax book or speaking with a tax professional for more details. Each situation is different and there may be other things you may be able to deduct, or other things you may need to pay taxes on.

Please remember that our answers are opinions and should not be considered professional advice and we assume no responsibility of any kind. Please consult a certified financial expert as needed.

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Pinyo is the brain behind Moolanomy personal finance blog and a few other web sites. If you like this article, please subscribe for free daily email updates.

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9 Comments

Craig
January 13, 2009, 14:26

@Pinyo Why would someone report their earnings from ebay? I understand it may be the proper thing to do, but unless it’s a large number something like over $10,000, I don’t think it will be reported. That’s like going to a casino, people don’t report it unless its too high.
The Passive Dad
January 14, 2009, 16:29

I sold on ebay for two years and found the record keeping and taxes to be overwhelming. I sold hundreds of small ticket items and it made record keeping very difficult to track shipping costs and state taxes for each region in California. Yes, I had to keep track of who purchases what in different tax regions in the state. If you sell on ebay, you need to be very organized. The upside is you can write-off many expenses, but you need to keep track.
Pinyo
January 16, 2009, 15:41

@Craig — Because it’s the law and getting audited is a bitch.

@Passive Dad — I agree that it could be overwhelming. I just have a simple spreadsheet that tracks all the transactions.
Craig
January 16, 2009, 15:50

@Pinyo I understand it’s technically the law. But most transactions over ebay are strictly cash. No one is going to report that. Same way if you make a sale using craigslist. The gov’t will never find out about it.
Sam
January 18, 2009, 15:05

Unfortunately I will have to pay taxes on money I made from eBay this year. I also have some other income from blogging and such. My taxes are really starting to get complicated. I guess it is still worth it though.
Sammy
March 18, 2009, 23:08

this is a weird topic, let’s just keep to this story

If you make more than 10,000, you should report it. Most people can’t sell junk in their house and make that much unless high end product HDTV, jewelery etc

Bottomline if you scured, you should, what you hear are fear factors, anyways do what you’re senses tell you
Tuan Nguyen
June 5, 2009, 0:15

From the Example 1 above: You have a designer dress that you bought for a Christmas ball. You spent $100 on it, wore it once, then decided you won’t wear it again, so you list it on eBay. If you sell it for $75, you didn’t make any profit on it, so you shouldn’t have to pay any taxes on it.

So how do I show everybody that I spent $100 on the thing that we sell? Or just know by myself?
Pinyo
June 5, 2009, 9:30

@Tuan – Just keep a record of it. You need to be able to proof it if the IRS asks.
Mike
August 2, 2009, 15:27

Uhm…how about it’s THE RIGHT THING TO DO?!? Man, I’m sick of hearing grown adults say, “The government will never find out…” Sheesh. Where are the morals? It doesn’t matter who knows or who doesn’t. Where is the integrity?

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