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.
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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®.
Even if I made a million dollars of profit from selling on ebay I still would not tell the IRS, why? because It’s my money and I earned it. They have no right to steal other people’s money. Taxing is the same as stealing because they use force to take money from you as opposed to you giving them willingly.
David – questions/comments about privatizing… Doesn’t this encourage the rich to get richer and the poor to get poorer? The rich to get more education and the poor get less? Etc. If everyone was out for themselves and money is all that defines who you are then THAT would be the true crime. Personally, I feel people should take ownership of their own money but, I also feel that every child should be given a fighting chance to “make it” from birth. So I don’t mind that MY paying taxes give them that chance. I wouldn’t want all the decisions… Read more »
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?
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… Read more »
@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.
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.
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. 🙂
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
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?
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?
Few questions, what if I purchase something at a yard sale and sell it on ebay for a profit, should I have asked the person at the yard sale for a receipt? Also, what if I purchased a lot of hotwheels on ebay or at a yard sale and then broke up the lot to sell some on ebay, keeping some for my own collection. How do I go about filing that? Lastly, I have hotwheels that I have purchase years ago (1980’s) how do I go about selling those and claiming what I spent is what I really spent.… Read more »
How about if you don’t have any receipts for something that you bought 5 years ago? How can you prove to the IRS that you didn’t buy the item for a less or equal amount than what you sold it for? Will the IRS have to take your word? What about high value items like a coin collection?
Supposing I had a coin collection that I had to sell to make a down payment on a house and I sold it for $12,000. If I accumulated the coins for the last 30 years, I wouldn’t have receipts. Maybe take a guess on what I paid and let the IRS prove I was wrong?
Cost of goods sold on personal property (such as a coin collection) is equivalent to the value of the item. If you have had a tonka truck for 30 years and sold it for $400, you don’t claim $2 as you cost of good sold, you claim the $400 because that’s it’s current value. But, a $12,000 sale may throw some red flags to the IRS. On the other hand, a pallet of items purchased for $300, throw away 1/3 as waste, split into 100 auctions = write off $100 waste, cost of goods sold at $2 per auction. If… Read more »
The power to tax is the power to destroy. Stick to craigslist or find ways to get interested buyers from ebay so you can sell to them on the regular (cash) without ebay. Example: I purchase small engines regularly from different sources that I have worked hard to come buy. I originally made an auction on ebay with multiple engines on one listing. Later I closed the auction and by that time I now have potential buyers info that I got from talking with them in the message center on ebay. I will usually call the buyer and find out… Read more »
I lived and worked in Japan for 11 years. While I was there, I bought lots of used Japanese stuff – kimonos, ceramics, small paintings (by housewives type of thing) – mostly for myself and to give away to friends when I got back. I really went overboard, and now I want to get rid of it. (none of my friends has any for a kimono). I am thinking of renting a small shop at the corner market to sell it, since I will get more for it than I would at a garage sale and it is too tedious… Read more »
Are there special considerations for selling art, photographs, and/or crafts on e-Bay? I’m referring to products created and produced by the seller.
I have a large collection of items that I purchased during the last 6 years from ebay and other stores (on average each one costs about $40). Some even more. I did not keep records of all items. If I want to sell them at a later date, how would I estimate the tax I owe? I notice above that if a toy truck was sold for $400, then taxes would be paid on $400 (would the tax owed in this case be 1/3 * 400)? Thanks…I’m glad I found this forum.
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!
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?
Thanks for the info, I will definitely be paying my taxes.
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.… Read more »
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.
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.
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… Read more »