If you sell on eBay or one of the many online marketplaces, you might be wondering if you have to pay taxes on your eBay income? You certainly don’t want to get in hot water with the IRS! So what is the right answer when it comes to taxes and eBay income? The short answer is if you made a profit, you have to report the profit as income and pay income taxes on it.
Different Types of Sale
Selling at a LOSS
In general, if you are just selling your used stuff, you’ll most likely sell your items for less than what you paid for them. You would have sold at a LOSS. In this case, your sales are not taxable, but you should still keep a good record of it in case eBay reports the income on 1099-K, you will want to be able to prove that some of your income is not profit.
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, it’s a $25 loss.
According to the IRS Publication 525, Taxable and Nontaxable Income, page 33:
Sale of personal items. If you sold an item you owned for personal use, such as a car, refrigerator, furniture, stereo, jewelry, or silverware, your gain is taxable as a capital gain. Report it as explained in the Instructions for Schedule D (Form 1040). You can’t deduct a loss.
Selling for 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
- What you’ve paid for your products
- Procurement costs — i.e., shipping or cost of traveling to the store, etc.
- eBay listing and selling fees
- Cost of shipping to your buyers
- PayPal fees
- Any other expenses related to your eBay activities
You only pay taxes on the profit — the difference between your total income minus your total expenses.
Tips from Other Bloggers
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. 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.
Pinyo Bhulipongsanon is the owner of Moolanomy Personal Finance and a Realtor® licensed in Virginia and Maryland. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, financial literacy author, and Realtor®.