Do You Have to Pay Income Taxes on eBay Sales?

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?

Answers

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:

  1. 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.
  2. 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.

Updated 7/10/2012 based on reader’s comment:

According to the IRS Publication 525, Taxable and Nontaxable Income, page 35:

Sales of personal items. If you sold an item you owned for personal use, such as a car, refridgerator, furniture, stereo, jewelry, or silverware, your gain is taxable as a capital gain. Report it as explained in the Instruction for Schedule D (Form 1040). You cannot deduct a loss.

However, if you sold an item you held for investment, such as gold or silver bullion, coins, or gems, any gain is taxable as a capital gain and any loss is deductible as a capital loss.

Example. You sold a painting on an online auction website for $100. You bought the painting for $20 at a garage sale years ago. Report your $80 gain as a capital gain as explained in the Instructions for Schedule D (Form 1040).

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.

About the Author

By , on Jan 12, 2009
The following is a question submitted by our reader. You can see all questions submitted here, and submit your question here. 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 financial expert as needed.

Leave Your Comment (81 Comments)

  1. Pinyo says:

    @Shelle – You should report your eBay activity, irregardless of EIC. Whether you would have to pay taxes or get a refund, I really don’t have enough information to answer your question.

    @Nate – You would be taxed on your profit only. Just keep a good record of your income and expenses. I haven’t used eBay in a long time, but I think you could access all of your transactions. The only thing that’s missing from what eBay can provide is how much the items cost you and how much you actually paid for shipping and packaging. List all of these things out in a spreadsheet and you could figure out your real profit (or loss).

    You report all of your income and expenses in Schedule C and you only pay taxes on the profit.

  2. Nate says:

    I’ve been selling on Ebay this year and now this is my first time claiming in on taxes…PayPal did not sent me a 1099 but I’ve made probably around $15,000 in sales since I started (not sure how much of that was last year…maybe $9000).

    The thing is that I’m running very slim profit margins so I’ve probably only made about $1000-$1500 profit (maybe).

    If I’m close to the line, could the $15000 in gross sales change the income tax bracket I’m in or will they only base my tax rate on actual profit I’ve made?

    • Imtiaz Ali says:

      My dear I was in your shoe long time before. Pinyo did explained things like professional way which may went over your head but here is simple example to understand.

      Mr: A bought a Toy in $1000.00 and sold on ebay for $1100.00 and after fee of paypal he got $1090.00. Ebay charged $2.00 for insertion, $50.00 at the end of month as ebay store and sealing fee, shipping cost $5.00. (Now lets do the math which you have to do to show to show your H&R Block person at the time of tax return.)

      Gross Sale: 1100.00
      cost of goods: 1000.00
      Expenses: Paypal Fee: $10+ Ebay Charges 50+2= $52.00 + Shipping $5.00= $67.00
      Gross Sales – Cost of goods – expenses = 1100-1000-67= $33.00 (its your profit and taxable money)

      End of story you are going to pay tax on $33.00.

      Give call at 2698613079 if you have any question.

  3. shelle says:

    I have a question – my husband is unemployed – he does not receive unemployment for 2011 – We had money in a investment account that we took out to live on while he is looking for work, so to help make ends meet, I have sold stuff on ebay that I purchased at clearance from walmart, old household items (clothes, etc….) – Can I report this income on my taxes so that I can claim the EIC, mortage interest, and 2 children. Would I have to pay taxes or would I get a refund? Or is it better to keep this to myself.

  4. Pinyo says:

    @Ali – Thank you for looping back and sharing your story.

    @tom – Techically, you didn’t make any profit so you can’t really claim $5,000 — although I don’t think the IRS would mind. Personally, I don’t think it make sense to try to pay more taxes so that you can qualify for a car loan. There must be a better option.

  5. tom says:

    Hi Pinyo,

    It might sound odd but I actually want to claim my craigslist sales on my income tax… Last year wasn’t the greatest year for me work wise, so I went through the entire house and sold piles of stuff I no longer needed… probably to the tune of $5000. The value of the goods was probably double that so technically I didn’t make a profit. The reason I want to claim the $5000 is so that my tax return shows a greater income for the year. (This will help when looking for a new car/loan etc…) I don’t really care about paying a few hundred dollars tax on the $5000 now because I’m in a better financial position.

    So my question is, if I don’t mind forking out the taxes, can I claim the income anyway?

  6. Imtiaz Ali says:

    Thanks the answer. Let me tell you my experience. I am the guy who started this question.

    I went to a website and paid about $400.00 to kind of active filling name website.

    They registered and INC company on my name and also got my Fadral and State tax number.

    They instruct me to have business bank account and all the transactions should be going in and out from there to have prove. so i was moving money from paypal to bank and using from there to have trail of money.

    2nd H&R Block told me that i have to pay tax 3 times a year this is optional to pay 3 times or 1 time a year but I like to pay 3 time. They don’t charge you any extra fee if you have been file your tax return once in year.

    There are 4 type of taxes you have to pay.

    1- State tax on gross amount of product (If sale is in state)and you have to charge this to customer.
    2- State income tax (on your profit) after all expanses and every thing you spent for company or product to reach at the door of customer.
    3- Fadrel Income tax same like state but % will be different.
    4- Social Security Tax.

    last 3 tax will be charge on your profit amount.

    There you go. Easy Breeze Clean money and no worries.

    Thanks & best regards,
    Ali.

  7. Pinyo says:

    @Thanson – I clarified the title of the article. We are talking about income tax here.

    For your homemade wallets, you would be taxed on the profit made, e.g., sales minus costs of raw material, shipping, and fees. Your labor doesn’t count because you have to pay income tax either way.

  8. Thanson says:

    So is the Craigslist tax some of you are talking about sales tax or income tax? Also, what if it isn’t buying and then selling…for example, lets say I was making homemade wallets, how would the tax all go down on that? Or is this illegal without some sort of authorization?

  9. WAKE UP PEOPLE says:

    If you want to blame anyone for taxation, blame Emperor Wang Mang of the Xin Dynasty in China. The United States troubles started in 1861 after the Civil War, long before anyone on the internet was ever born. Those troubles continued in 1862, 1894 and then, while everyone was sleeping in 1913, the wool was pulled over our eyes to believe that the 16th amendment actually meant that we all now have to pay income taxes.

    So for all those who sat on their hands and did nothing, while all future generations, and with the simple stroke of a pen, not a sword, became slaves of a new oppressive government, I take this time now to extend both of my middle fingers towards you. I do this with what little freedoms we still have left in this country. Our four fathers risked their lives, many of which died, in order to leave the oppressive taxation style environment and government of Great Britain. So for those who need a brush up on their history, from 1776 to 1913, there wasn’t an income tax in America. How did the country survive? Holy crap, it must have been MAGIC! It’s called self reliance. We actually grew our own food, raised our own cattle, and built our own houses. Do you know what your income taxes really go to pay for? INTEREST ON OUR NATIONAL DEBT! All other forms of taxation are done at a LOCAL level from the items you buy and sell within your state. That’s why they call it the United States of America! That way if you don’t like what Utah is doing, you can move to Texas if you damn well feel like it. Income taxes make this the Divided States of America!!!

    P.S. I’m just the messenger…

  10. Sony Ali says:

    Thanks for reply Pinyo. I gave call to a tax adviser and he told me that I should go to any accountant and ask him to prepare file for corporation certificate because I am just a guardian of their money for profit and take that certificate to bank and let them make corporate business account and attach my paypal account to that that bank account and end of year it would be so clear and easy to pay tax on my 10% profit on sum amount arrived to account.

    Then i gave call to IRS and they said don’t worry when I would be paying tax return then just fill extra form of 1040 and pay tax on my 10% profit.

    I couldn’t understand both of them. what is corporate certificate and where i will find accountant. but to me it look like if i would have that kind of certificate then I wouldn’t have to prove anything at the end of year. IRS people were very nice and they were acting like don’t worry every thing would be alright.

  11. Pinyo says:

    @Sony – I am not sure about the export/import tariff and rules, but strictly from income taxes standpoint, you should be able to deduct most business expenses against your income and you would be taxed only on your profit.

    The best thing to do is to consult a tax advisor and ask for a professional tax preparation help.

  12. Sony Ali says:

    I have weird situation guys. I was working with 3 guys from India. I had contract that I will sale their items here in USA and then they will give me 10% on top of it. I have slips of western union. what should i do? That money is over 10,000.00$. please help me, I don’t want to do any illegal thing because i am on Residential permit.

  13. Pinyo says:

    Kaz, David is right but you might have to collect sales tax for same state buyers.I’d check with your tax advisor.

  14. David says:

    No you do not have to pay taxes because you did not make a profit, rather you had a loss of $2500 – $1100 = $1,400

  15. Kaz says:

    Just wondering, I’m currently going through a lawsuit and dumping a lot of my unused/sitting on garage shelf junk to help fund an attorney. Most of the items I am dealing with are automotive related. Should I be collecting sales tax for such items if most everything I have I paid anywhere from double to triple the amount I am selling for even if the items go for $450.00 or more at auction on eBay and Craig’s List? Or does the net loss apply no matter what the amount made off of used goods as long as it is less than the amount its either valued at now or was paid for when new?

    Example; Big Block Chevy Brodix Cylinder Heads, originally
    paid $2500.00, currently still bought new for $2500.00 sold for $1100.00?

  16. Ruth says:

    You know something! These so-called stores (outside companies) figured out it was cheaper to advertise their stuff on Ebay rather than though the newspapers, it has spoilt it for us little guys, who actually put Ebay on the map! Our little auctions are lost between these businesses with their BUY IT NOW sales! Ebay got greedy and has been steadily upping the ante on the fees to it’s present rate and with this new threat of being taxed for whatever profit we may make, the word AUCTION has lost it’s appeal! It would be better to resell any stuff we may have in Garage Sales until the long arm of the IRS catches up with us there too!!

  17. Ant says:

    I have been selling electronics on eBay and getting paid via PayPal. I’m already over 25k . I do not have receipts for anything because I buy off craigslist and sell on eBay. How do I prove how much I paid without receipts to IRS. What can they do and what is the tax rate for NJ for slaes of godds on ebay.

  18. Manhar says:

    To me, It is impossible to keep track of stuff bought without receipt like Craigslist/Yard Sale and sold on Amazon/Ebay. I don’t think I can keep track of it.I sold stuff that I bought Dora Kitchen 3 years ago and for around $160 from amazon as USED and sold for 70 on craigslist and received cash amount from buyer. How to show Loss-Tax Credit to IRS.No email record as craigslist guy called me on my cell and came home and got the stuff.I think this is not possible to report Unless you are heading for big number with evidence.

  19. Manhar says:

    Dear David,
    I disagree.I am helpless but to comment.My feeling-People must pay tax.I have two kids and both of ’em will go to public school.School that are running on tax payers’ money.I am also paying good amount of tax like others.If I don’t pay tax, I can still send my kids to some school as I am saving some good money from tax.But what is about people with lower income.Where will their kids go?You should NOT have kids just because you don’t have money. If that is the concept then USA would never have build. I don’t know about you. But I love kids. Not only mine but others too. If only Rich people can have kids then who will work in TACO Bell,SubWay….How will ground level economy run? Economy run by Poor+Middle+Rich Class. Only Rich People can’t run economy.

  20. Sam says:

    Thanks for the info, I will definitely be paying my taxes.

  21. Kevin Mulligan says:

    @Eddie: If you were running a legitimate business you might be able to lower your income by the cost of goods sold… so that when you’re selling for less than you paid you could lower your taxes.

  22. Eddie says:

    On another note, do you get credit for Ebay sells that is less than what you paid? If I have to pay taxes on my profit, what kind of “write-off” do I get for “losing” money on a sell including fees for Ebay and Paypal, etc?

  23. Pinyo says:

    @Confused – In you situation, the answer is no since you didn’t generate any profit from your sales.

  24. Confused says:

    If I am just selling my own unwanted items on Ebay, like a garage sale & only getting a fraction of what I paid originally…is it considered a business or being self employed? My tax gal told me its considered a business but its all things I bought for myself or family & now we don’t want it so I listed them on Ebay.
    Thanks!

  25. Mr. Tumnus says:

    Lets see…Mr. “Where are the morals”…the government has spent OUR tax money that WE paid into the system on bailing out BIG BANKS who BROKE THE LAW and about COLLAPSED THE ENTIRE FINANCIAL SYSTEM. Not only that, but the government blatantly aids and abets these criminals. Now, we are spending 1.7 Trillion per year MORE than we take in as a country…on a bunch of CRAP. Tell me, would you pay someone back the 100 dollars you borrowed from them if you just found out that they had previously stolen 1000 from you?

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