posted on April 11, 2002 12:31:09 AM new
Hi- I'm new to selling on eBay, and I was just wondering how it works as far as reporting any money that you make on eBay at the end of the year. Is it considered income if you are just a casual seller (not a business or retail store)?
posted on April 11, 2002 07:44:25 AM new
It all depends on how much you sell, and how much risk you are willing to take. If you are audited, they will count your ebay sales as income... but if you are not audited, they will never know the difference. I always declare everything... all sales, all expenses. It usually comes out pretty close to being a wash. but it allows me to deduct my travel, my computer and internet hookups, my car, my storage shed... all stuff I probably would have needed or done even if it were not for ebay.
posted on April 11, 2002 05:57:34 PM new
I asked my CPA uncle that exact question. My thought is "who would know"? Same answer from him. If someone found out, I could be in trouble. My thought is that it would be so easy for the IRS to pull up sellers' records, even if just current sales, and have a starting point.
posted on April 11, 2002 07:48:43 PM new
The IRS does not need to get your SS number from ebay. You are leaving electronic footprints that are traceable everytime you send emails and bid on ebay.
We have been selling part time on eBay for 3 years. We keep track of everything and claim it as income. Like the other posts, we also can deduct things as expenses - things like stuff we buy, Internet connections, computer, ISP, printer, digital camera, mileage to the swap meet, etc.
posted on April 11, 2002 07:51:15 PM new
They don't have any trouble matching you with your income if you're audited.
The IRS doesn't scan records of eBay or Paypal or any other entity. The IRS does pull records if needed when you are audited. But they don't search eBay for your income, they look at how you live and estimate your income and expences, then it is up to you to explain how your exences are greater than your reported income.
Once the audit process begins, the IRS will know more about your income and expences than you do. Not providing a SS number to eBay or Paypal will do noting to hide income from the IRS.
Once the audit goes into full gear they will have banking records, they will also know how much you spend on cars, utilities, food, vacations, jewelry, etc.. They will be able to estimate your income even if you do everything on a cash basis.
Can taxpayers hide income? Sure can. But they can't once they are audited, and then it is too late to "come clean".
posted on April 11, 2002 07:54:08 PM new
If you are a person subject to the Tax Laws of the United States, then you must report all income, wherever the source is from.
The rule I have used as advice in the past is this:
If you are casually selling only those items from your garage, then you don't have to claim it as income, but you DO have to show support for it for WHEN you become audited.
Don't play games with the IRS. If it is not a listed deduction or a specifically mentioned exclusion, report it.
posted on April 11, 2002 08:14:02 PM new
I never said I wasn't reporting my income; I said eBay doesn't have my SSN, which is true.
I have to report my income, otherwise I can't use my deductions. My 2001 return shows a $37,000 loss on the eBay business. As a result, I'm paying practically no tax for 2001.
posted on April 11, 2002 08:39:57 PM new
Ok This might be a stupid question - but how in the world did you show a 37000 loss on ebay?.
[ edited by corksmom on Apr 11, 2002 08:40 PM ]
posted on April 11, 2002 10:10:10 PM new
fluffythewondercat
How is it possible to show a $37,000 loss on Ebay? You must be listing a ton of items with little or no sales. Did you give everything that didn't sell to charity?
posted on April 12, 2002 04:58:06 AM new
Losing Money: For those of you who dont know it, you can claim everything clear down to pencils, paper, envelopes, WINDEX (for cleaning your shelves, equipment, etc) furniture polish, meals for when you are traveling on business, mileage, blah blah blah. If you have a good accountant, you would be AMAZED at what you can claim! I dont know about a 37000 dollar loss, but we have had up to 11000 loss on rental property. In fact, we have yet to show a gain, simply because of all the deductions you can take LEGALLY.
posted on April 12, 2002 08:03:20 AM new
I'm sorry, but I'm a little worried that so many people don't understand how I can sell profitably on eBay and still show a loss on my taxes. You could be cheating yourselves on your taxes this year. I heard on the news that many people don't take deductions they're entitled to.
Take a tour of a 1040 Schedule C form (Profit or Loss from Business - Sole Proprietorship) with the aid of a really good book on accounting. I always recommend "Small Time Operator" by Bernie Kamaroff. It's entertaining, easy to follow and has tons of great ideas.
Just off the top of my head, a few of the expenses we deducted...
Office rent (the biggie!)
Telephone
Internet connection (home and office)
Credit card interest from inventory purchases
ISP fees and Internet domain registration
Utilities
Non-commuting car expense (including depreciation)
Publications (I prefer the Wall Street Journal)
Freight-in (the cost of shipping new inventory to our office)
Storage space rental
Billpoint and PayPal fees (from the bad old days when I used them)
eBay fees
Depreciation on computer equipment
Packaging and shipping supplies
Business license
Office and coffee station supplies
Post office box rental
Refunds to customers
There are more, but I don't have my 2001 return handy.
posted on April 12, 2002 08:07:25 AM new
It's a little late for most people but for those of you who haven't filed yet, I found TurboTax Deluxe a big help. True, I still had to compile a spreadsheet categorizing all my expenses, but TurboTax suggested some deductions I hadn't thought of.
posted on April 12, 2002 10:34:25 AM new
Well even if you take all legal deductions, which I do, you are basically deducting the reasonable and necessary costs of doing business, and if you have more deductable expences than income, you are losing money.
This isn't a secret, receipts minus expences equal profit/loss. If the expences are more than the receipts, you're losing money.
I think the general business goal is to actually make money.
I would rather pay taxes on income than have no income and no taxes.
Did you know that showing a big business loss year after year is an item the IRS uses to flag tax returns for audit?
But, you say, you have documented all your expenses very well. However, the tax man will not understand why you have a business that costs you up to $37K each year. He might think you are exaggerating your expenses a wee bit. Which you are, of course, because if you were really losing up to $37K year after year you would be insane.
posted on April 12, 2002 11:00:09 AM new
That is what I think - why would you run something that costs you 37000 a yr. I deduct everything I possibly can - and I still show a profit. Paying taxes stinks - but I wouldn't do it if there weren't a profit.
posted on April 12, 2002 11:15:39 AM new
I paid on it. I simply kept track of my deposits via Checking and PayPal, C2it, etc. and logged them into my accounting software as Income From Auctions. But I also kept track of what I spent on postage and buying items at garage sales etc. and took those as business deductions. Combined with another side business I really had a net loss anyway.
posted on April 12, 2002 11:26:26 AM new
pelorus trots out that tired old bogeyman:
Did you know that showing a big business loss year after year is an item the IRS uses to flag tax returns for audit?
No, because it's not true.
What is true is that losses 3 years out of 5 is a yardstick the IRS uses to distinguish a BUSINESS from a HOBBY.
I can lose money every year for the next twenty years and I will never be audited FOR THAT REASON. Lots of businesses lose money. I had a friend whose business lost money eight years in a row. Eventually he had to close down, but he was never in any danger of being audited.
posted on April 12, 2002 12:53:15 PM new
Bottom line - Don't mess with the IRS.
Declare all income and take all legitimate and reasonable deductions. Don't take advantage and sleep well at night. Should you get caught taking what the IRS views as liberties, you'll pay more than you ever would have made by cheating.
There are very specific rules as to the legality of certain deductions and exclusions. Check with a tax professional and taking nothing for granted. The only people that don't fear the IRS are the folks that have never dealt with them.
posted on April 12, 2002 04:38:47 PM new
The IRS is mostly a case of fraud to begin with. Think about it. If you ran a store front and a hooligan came in and told you he would sell you protection insurance, what would you do?
Take the test, who do you owe, really?
http://home.earthlink.net/~realbadger/quiz.htm
posted on April 13, 2002 11:44:15 AM new
If you fit into the norm you have almost nothing to worry about. Casual sellers aren't going to be raising any flags.
"it would be so easy for the IRS to pull up sellers' records, even if just current sales, and have a starting point."
Only in cases of fraud. If you're blatantly hiding ebay income (using alias's, dealing in cash only) they may go look at ebay records. Ebay must be close to last on the IRS lists to audit because we deal mainly in traceable income, not notorious for fraud. Flea market dealers who deal in cash only are more likely to be audited.
posted on April 13, 2002 02:12:18 PM new
Did you know that showing a big business loss year after year is an item the IRS uses to flag tax returns for audit?
No, because it's not true.
What is true is that losses 3 years out of 5 is a yardstick the IRS uses to distinguish a BUSINESS from a HOBBY.
************************
And even that that isn't exactly correct. You can have many years of business losses..as long as you can show you are running a business, with proper paperwork. I have had clients who show a loss (look at Amazon!!..not that they have ever been my client!) for many years..and are still making money for themselves..just not for the business...yet. I have found it is very unusual for someone to make much money if they have a lot of inventory (which you don't really get to deduct until the year you sell it, not the year you bought it), or needed to buy a new computer, or outfit their office. They may be paying other people (such as family members), and waiting on making a profit for themselves once they get their business outfitted.
Now, you ask, why should you pay tax? Because if you pay your share, then my share (%) is less <g>.
And as I've often said on these boards..take every deduction you legally can. Don't worry about "red flags" if you are being honest. Even if you were auditted, if you have your paperwork, you'll be fine. And why take a chance of being charged with fraud, by not claiming hte income..IRS doesn't consider it an oversight..they consider it fraud..which means even taxes you filled out 15 years ago can be relooked at..and some may not have that paperwork anymore. IRS can often tell by your spending habits how much money you earn..so if you are selling on eBay to pay for Juniors $10,000 a year tuition and earning $30,000 a year...it doesn't take the IRS long to note you have more money coming in than you are claiming.
posted on April 13, 2002 02:40:38 PM new
Corporation "losses" such as Amazon's are not the criteria that the IRS uses. Amazon's "losses" are after Federal taxes are paid. A publicly traded corp is under a different set of accounting rules and tax regulations than other business forms.
3 out of 5 years of losses and you will have to convince the IRS why your "business" shouldn't be classified as a hobby.
Continuing losses will flag your return. Unlike a publicly traded corporation, continuing losses means that you must have income form other sources to fund the losses, which might be legitimate, but the IRS will want to know how a "business" that loses money year after year manages to stay afloat. No visible means of supporting the venture raises a flag. As example, if you have only $7000 a year in revenue year after year and $60,000 in expenses, the IRS will want to know where that $53,000 is coming from. Even if there is legitimate capitalization for the losses, the IRS will sooner or later rule the venture either a hobby or a sham transaction.
posted on April 13, 2002 07:37:51 PM new
<<Corporation "losses" such as Amazon's are not the criteria that the IRS uses. >>
I was making a point using Amazon..someone said you can't go on forever with losses..I was pointing out you apparently can.
Loses are not a red flag as in you "are in trouble". If you have an honest return, there is no reason to fear anything that might point to your return. And although Block/Hewitt have tried to determine red flags, there doens't seem to be a lot to go on...if you take a look at what their clients have been called in for. I have had a couple of paper audits, and I had no criteria for a reason at that time.
We had a client a few years ago that was into his 9th straight year of a lose. He actually had a audit, because of another reason, and his non profitable business was not an issue (he gave speeches, and had a lose year after year..but he loved being on the speech circuit, and he could prove he was actively pursing work, and trying to build up a business). I actually wanted to switch him to misc income and hobby, but "the big guys" said no, he could still file as a business.
