Taxing Ebay Part Deux

When my column on paying income tax on eBay profits ran it brought a wave of emails on whether you were required to report income earned from eBay sales to the IRS sparked a number of additional questions and comments from eBay sellers who were hoping that I could somehow validate that their eBay activities were mere hobbies instead of actual businesses and therefore not susceptible to IRS taxation.

Several folks argued that just because their little eBay hobby generated a little cash, that didn't make it a full blown business. It seems they consider the income from their little hobby to be financial manna from Heaven and thereby not taxable by earthly tax collectors. I've always been amused by folks who try to impress me with talk about their "little side business" but when the subject turns to taxes they suddenly refer to it as "my little hobby."

All arguments aside, the conclusion that I came to after reading each of the emails was always the same: while you may think selling on eBay is just a fun pastime and the money you're making is not reportable as income, depending on the circumstances, the IRS would probably disagree with you.

It seems that everyone likes making money, but hates carving off a piece for good old Uncle Sam. Welcome to free enterprise, folks. If you're going to come to the dance you have to pay the fiddler.

The IRS rules are clear: you must pay taxes on all personal and business income and that includes money you make selling on Ebay.

In its most basic sense, the IRS rules can be interpreted to mean that if you buy an old vase at a garage sale for $10 and sell it on eBay (or elsewhere) for $20 you made a $10 profit and therefore must report it as income and pay Uncle Sam his fair share.

In reality, if you are a casual seller who only sells a few items on eBay every now and then it's doubtful the IRS is going to let loose an army of agents to collect taxes on the few bucks you make. However, if you consistently sell on eBay the IRS may deem your activities to be business oriented and you will be required to file a Schedule C and claim the income.

Posted in: