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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.

81 thoughts on “Do You Have to Pay Income Taxes on eBay Sales?”

  1. @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.

  2. 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.

  3. @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.

  4. @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.

  5. 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. 🙂

  6. 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

  7. 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?

  8. 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?

  9. 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. I don’t have receipts for all my items in my collection, especially the ones from 30+ years ago.

  10. “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. I don’t have receipts for all my items in my collection, especially the ones from 30+ years ago.”

    I’m curious about this too. I buy stuff from people on Craigslist and then resale on Amazon and ebay. Do I need to have receipts for everything to prove to the IRS what my actual profit was on each item?

  11. 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?

  12. 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?

  13. 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 I buy something from craigs list, I will print the page as my receipt. Rummage sales are done by either asking for a receipt or keeping records in a notebook. Address, items, cost. Also, keep track of miles while going to rummage sales or to the post office. You can get $.50 / mile. you can write off a portion of your mortgage payment, insurance, utils, internet, phone… storage units…

    I have heard the irs will assign a value for cost of goods sold if you don’t have a receipt for an item. I have not been audited so I don’t know for sure… I am now completing my 3rd year of reporting my Ebay hobby as a business. They seem to be happy with the fact that I’m making a profit and owe them money. I hope I’m doing it all right. 🙂 Happy scouting.

  14. @Markwonder — sales on collectibles like coin collections are taxable. If you don’t have a proof of purchase, the IRS has rules for this. The best bet is to hire a good tax advisor who can take care of this and make sure you’re in good standing with the IRS.

  15. 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.

  16. David, Unfortunately… this is not a FREE country like “they” say. All has a cost.. and living in this land has a cost. u profit on selling things in this land to people on this land….. u have to pay to the government that keeps its “together” thats how it is.

    I hate to pay taxes and im pretty sure lots of people do, but… its how it is.

    For the rest, like everyone says…. if u sell something for less than what u paid for, why should i report it.. im not making any money.. just getting some back. let the Buyer pay for it.. that easy… collect taxes from them and send that to the IRS or go buy a case of beer. ur choice

  17. David, although it would be nice to just keep the money…what do think pays for roads, parks, libraries, schools, police, fire and rescue, military, etc. uh… TAXES… If “we” don’t pay for it who will??? So now you’d be stealing from me and every other tax payer, who has to compensate for you NOT paying taxes. Yeah, it’s by force because if you had the choice, you wouldn’t do it, duh! But, YOU don’t mind using the resources…now THAT doesn’t seem very fair to me.

  18. @ Jess, all the services you mentioned above should be privatized. If you want to use a service or product then you have to pay for it yourself. You cannot steal money from other people to pay for it.

    You would get the services school, police, fire the same way you get your house, car, food, clothes, which is by paying for them.

    I don’t have kids but for the people that do have kids, should pay for their own kid’s education. If they cannot afford to pay it then they should have used protection.

    • @David – I respectfully disagree. All citizens, even those without kids, should subsidize children related budgets, e.g., school. Why? Think about all the parents who have to send their kids to war. Also, these younger generation will be subsidizing your social security and medicare one day. They are making sacrifices and contributions in other ways too — don’t forget.

      PS: This is not a justification for the wars we are participating in right now, nor the broken SS/Medicare system. I am just trying to point out the other side of the gives and takes; and the general concept of fairness.

  19. 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 in my life to be decided by anyone else; say when I was a child my Dad needed a new car, well I guess my need for 2nd grade education just went out the window. Seriously? That’s what you want? I agree there are a lot of stupid people out there and I’ve met too people that would put their hair color, BMW, or MCMansion before their child’s need for school or emergency services. What would happen if you were out of town and got into a car accident? I mean are you also going to send money to the hospitals in Las Vegas? I don’t think so. Seriously, if you don’t mind paying the money for your individual services then what’s the issue if the government (you elected) does it for you? By paying taxes I am helping my neighbor. I’m actually thankful I can afford to. Do I get out of it what I put in, not always, but that’s okay with me. Some pay more, some pay less, some take more, some take less. At least, I don’t have to manage all of those payments/services too. I think it’s worth paying the government to manage all those bills for me! What would happen to the physically and mentally handicapped? The bedridden? There’s just way too many scenarios where privatizing would be disastrous. Sorry you can’t see that.

  20. 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 what his niche is with the small engines. Once I know this I can regularly look for small engines at auctions, garages, etc.. No need for ebay now, just call him up and send the engines and receive a payment.

    Of course you may need to build some report with the buyer, and make sure they have the same idea as you… Not emptying your wallet with taxes from big bro!

    I usually maintain an income of 2,000 – 5,000 cash {NO TAX} every month nowadays with the connected buyers in different niches, and the right amount of come-ups. I have an electrical guy, carpet guy, engine guy, etc..

  21. 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 to sell things individually on ebay. QUESTION: If I actually rent a shop to sell my personal items, do the same rules apply as if I were selling my stuff out of my yard? I certainly do not have receipts from buying stuff for 11 years in Japan. But I did ship a container of stuff back here five years ago at a cost of $10,000. (That’s another issue since I did declare it as moving expense on my taxes that year. That included personal belongings, some furniture I am using in my house now, and hundreds of books – I was a professor.) I am retired now so this and SS would be my only income. I have a person to do my taxes but want to get more input on this. Thanks!

  22. Elizabeth – You may want to check out selling your items at a consignment shop. You can usually get a lot more $$ for your items. A portion of your profit goes to the consignment shop but, if you find one that is for charity then it goes to a good cause. The one I use takes 40% which seems like a lot but, it sure beats having all the costs of owning your own shop. I don’t have to worry about rent, utilities, or the hassle of ebay. Also, I don’t have to commit to working long hours. I just call, make an appointment, and I’m in and out in under 20 minutes. I get a print out of all the items I put in then I just mark them off as they sell, it’s very easy to keep track. If my item doesn’t sell I can either donate it or reclaim it within 30 days. You can sell just about everything verses being just a clothing shop or art shop. Plus if it’s a charity you can write off any $$ that goes to the shop and all donations you make.

  23. 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.

  24. 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?

  25. 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!

  26. 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?

  27. @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.

  28. 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.

  29. 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.

  30. 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.

  31. 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!!

  32. 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?

  33. 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

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

  35. 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.

  36. @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.

  37. 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.

  38. 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…

  39. 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?

  40. @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.

  41. 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.

  42. 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?

  43. @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.

  44. 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.

  45. 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?

    • 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.

  46. @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.

  47. Pinyo,

    A friend came to me with a suggestion to buy widgets on ebay for 10k. A co-investor and I purchased them. We’re planning for a 3 way split of the profits after expenses are paid back to the 2 investors. We’re hoping to sell all of the widgets this year for about 40k. The friend is the one who’s going to sell everything after the initial inventory is established.

    I was hoping you might give us some suggestions on how best to shield this money from taxes… I don’t mean to AVOID or EVADE, I simply mean, some ideas to protect our money and use it intelligently.

    We’re also wondering if there would be an appropriate way for us to form a business… or if its suggested. We were thinking if the guy selling them sells them ALL on his ebay/paypal account, he’s going to get hit for 40k in profit, unless he can somehow explain/verify how he got the widgets… So what if he considers the two investors as “costs”, meaning he’s paying us (for the initial investment). For instance, we paid 10k, he pays us each 15k (5k to pay back investment, 10k is our split), he’s left with 10k “profit”. How then would we all claim the income? In that case, we’d each have 10k “profit”… but what about our time? We’ve already spent 20+ hrs each and we’ve only just begun organizing… we plan for it to take another month, working part time to get ready. I consider my time very valuable, but can we write it off? Should we all consider looking to purchase ‘business expense’ type items to reduce our profits? For example, we really need more computers, but we’re hesitant to spend the money before we start making profit.

    Anyways, long rant, just hoping for a few suggestions and thoughts on our plan… thank you for taking the time, your website is very informative!

  48. @John – I think you should consult a tax advisor because I am not quite sure how to handle it with 3 people.

    If this is a one person show, my answer would be to set up an S-Corp and a Solo 401k. You can pay yourself ~$30k salary, contribute $17k of $30k into your 401k. You’d then end up paying taxes on the $13k difference. The company can match 25% of the $30k salary (e.g., $7,500), leaving $2,500, of which $1,000 will go toward payroll taxes (i.e., employer’s part Social Security and Medicare). The remaining $1,500 would be paid to you as a dividend (which you do have to pay taxes on).

    For 3 people, it is still a good idea to set up a corporation, and you want the PayPal account should be under the company’s EIN (this way no one get stuck with the 1099-K form). The investment would be considered a loan to the corporation. Assuming the profit after the loan repayment is split equally 3 ways, you each could put away 25% of the profit into a SEP IRA and pay taxes on the remaining 75%.

  49. I just sold 4 unwanted items on ebay within the last 2 months. 3 out of 4 items were gifts. 2 were used and one was new with tag (but the price portion was cut off). The 4th item; which was non-gifted one, was purchased by me about 10 years ago; which, of course, I have lost its receipt. So will I have to report it to IRS for next tax year and will I have to pay income tax for those 4 items? I don’t even know or remember each item’s cost? Please answer my question. Thanks.

  50. @Vannessa – Unfortunately, when you don’t know the cost basis (what you paid), the IRS consider that to be $0 and you have to pay taxes for the entire sale amount. You can read IRS Publication 551 for more info.

  51. Thank you very much, Pinyo. Your answer really answered my question. Again, thanks. I have another question. When I do the income tax for the items that I sold on ebay, do I need to show receipts of the items that I purchased to IRS?

  52. @Vanessa – You do not have to send the receipts to the IRS, but you should keep them for 3 years. If you’re audited, you’ll have to be able to proof that you paid what you said you did.

  53. This is from IRS Pub 525: “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 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 income and any loss is deductible as a capital loss.” My reading of this is that for non-business sales of personal use items, you cannot offset your gains on some items with losses on other items. Which sucks.

    • So by “gain,” I’d take that to mean “profit.” As in, it’s only taxable if you sell it for more than you originally paid for it.

  54. Anyone who thinks that if they buy something for 20 dollars and sells it for 50 on eBay and nets 30 dollars the sale will lose their shirt!

    • Suresh you shouldn’t be worry about if you have sold out something like pent for $10 or some computer equipment which were not in your use for while. Real trouble is when you make something as your business. I have bought so many cars and have sold them out so many times… don’t worry about those kind of small deals or some times deals.

  55. I couldn’t help but see people grumbling about paying taxes when they don’t seem to be makin gprofit. The article said very clearly, you pay taxes, have cust. pay taxes, and report your sales on Ebay IF YOU ARE MAKING PROFIT! I for one have been selling vintage items and CD I bought over 10 years ago and I have no idea what most of them were worth but making a few bucks here and there on those items, and after selling a lot of little stuff, I’ve made about $626 before taking out fees and shipping…which would really make it $426 ish. I do not have to pay taxes because I did not make profit. I’m losing profit..hugely. I mean I have looked up items of equal kind and based prices far under their sale value on purpose. I’m not trying to be greedy…I just need extra cash for college because I can’t get a private loan and my Father doesn’t have the credit and even at age 26 I still can’t get it without a parental cosigner. So for those of you freaking out…if you are selling stuff for cash cause you’re broke, and you are not making profit……….YOU DO NOT NEED TO REPORT IT! Calm down :P.

    • Jannet…you know why a lot of business around us are getting close? Just because of calculations, we don’t look at cost. Really when money come in hand it looks like oh wow I made 25 Mil this year and when we come down what we have then we say…hummmmmm Really did we made 25 Mil this year…God Dam….. Where the hell money is….This is how I fell when my CPA hand over my Yearly report…lolz

    • But the IRS can (and did) adjust income based on PayPal sales and send you a bill – even after you tell them it is used personal belonging that you are selling and are not making any profit.

      Next step – appeal

  56. I just started doing “drop shipping” and I sell on a few different sites online. I have only had a total of 5 sales and made a profit of maybe $40 to $50 total, I haven’t registered my business yet but I do have a EIN. I am considedred self employed according to what I read. So I am guessing I don’t need the EIN? Anyways, on drop ship items it looks like I actually made more on Paypal then I actually made. I have to pay store fees on some of the sites and the paypal fees plus the actual cost of the item. Then I keep the difference which isn’t much. How do I pay taxes? The only other income I get is my spousal support of $934.00 per month. I have spent quite a bit of money trying to get my “business” started. Normally I have to pay taxes all at once when I file because the government doesn’t take taxes out of my spousal support. I’m so confused. What forms do I need to file?? I only do internet sales. I plan on selling jewelry, clothes and other items that I have made myself and possibly giving up the “drop ship” idea all together.

    Thanks,
    Claudia

    • Dear Claudia your story is same like mine….when I gave call to IRS at my initial stage they guy said “you don’t have to worry about. just keep your financial proves with you and in the end of year there will be some kind of form he said for extra income and just pay it. Calculations of sealing on ebay I have been listed on previous posts some time today.

      Believe me or not. IRS is really Helpful if you give them call and ask them any question. if you have been done tax returns with H&R Blocks then you can just walk in anytime to ask any professional tip from them free for rest of year….you have been paid for that.

      fell free to call at 269-861-3079 to discus anything about what should you do and what if and what if not…..these were the questions when I was a small small person before CEO of……

  57. eBay frowns upon dropshipping on their site. If they catch you, you can be shut down.

    It happened to a friend of mine. They ask him to prove he’s an ‘authorized dealer from the manufacturer’ And when those can’t be given, they shut him down.

    Seriously, though, dropshipping profit margins are INCREDIBLY thin anyway.

    I prefer the Auction Debt Eliminator’s method anyway.. High profit margins, and it’s a legitimate system.

  58. Last year I made over 20k profit on ebay and did not report it, this year a little more then that and I will definitely not report it either. No need to, it is almost impossible for the IRS to find out.

    • Luke My friend thought the same and called me stupid because I was paying taxes….Guess what…..He have to pay big time plenty for next 5 years now….I wish I could post his pic here….lolz…I am Laughing I am bad…this is what he is going to say any ways.

  59. I have a question guys. THis is actually great link here.

    So far since 7 months ago on eBay after fees,shipping etc.. I made 2400$ on eBay. And that was on 66 transactions.

    Is this amount to little for it to be taxable? I am actually using my family members paypal and ebay for that.

    I should just be under 20k or 200 transactions? basically I think 2400$ is not a lot for timeframe of 6 months and it should not bother anyone at IRS.

    Someone give me a tip. Please thank you 🙂

    • If you’re using a family member’s paypal, then that’s under their name, and the IRS would be coming after them instead of you. And I’m pretty sure that as of right now, you have to have both 20K AND 200 transactions for Paypal to send you a form.

      Of course, that’s the question, how much is too much? $1,000? $10,000? Yeah, $2,400 in the grand scheme of things is not much at all. I’d just be afraid that if you didn’t report it, and you somehow got audited down the road and they found out, that whatever penalty they’d levy would wipe out all the profit you made. So then the whole thing was a waste of time. Don’t know how big of a penalty they could do though.

    • I do not think I would add it to my adjusted gross income unless I was sent a 1099 form from paypal, or Ebay. If they are not reporting you it is because you are below their required reporting amount. Do your Taxes around March 15th if they are to send you a 1099 they should have them out by late February. That way you don’t have to amend your Taxes because of late information.

  60. Can I report all of my spendings as cost of Doing business if I keep all of my receipts. For example I’m using my garage as my warehouse/office/distribution, does this mean I can report my month rent as a loss? What about my PG&E bill because technically it’s going toward the computers and appliances use to run the business. And then there are minor things too like dining out and shopping, ect. I meet with customers and partners to discuss the business at these events. So can I report all of these spending as loss that cuts into my eBay profits if I keep all of the receipts?

  61. what if you buy something for $100 sell it for $200 then use that money to buy something for $200 and took a loss on a bad deal sold it for $100 do you have to pay capital gains on the $100 dollar profit from the first sell or did you break even?

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