posted on December 26, 2000 12:58:29 PM new
This topic came up not to long ago in another discussion, but I really didn't get any answeres.
I use ebay to sell my kids things as they outgrow them (clothes, toys, ect....) and my own outgrown things. Total I have had maybe 275 successfull auctions this year. I made about $1200-$1500. This figure is just a guess, but it couldn't be much higher than that. Most of my auctions end at $1.00 to $20.00.
Do I have to report that as income? I usually do a garage sale every year (exept this year, thanks to auctions!) and have never reported that $ on my taxes. I view these as the same type of thing.
What do you all think? Any tax experts out there???
posted on December 26, 2000 01:02:58 PM new
You need to consult your accountant or another professional who can advise you properly, but everything I've read says without a doubt the IRS expects us to report any and all additional income, including from garage sales.
There are a million questions to ask, such as are you allowed to deduct the original cost of the materials you sold. But it seems clear to me that the bottom line is: yes.
posted on December 26, 2000 02:01:49 PM new
I have spoken to my accountant about it and he advised me to add it to my income. That way you can sleep easy! You also get to deduct alot of expenses, too, so those of who are only doing a small amount of auctions might end up being able to deduct more than you make. You need to get good professional advice from an accountant before running any type of business. I have been in business over 20 years and eBay is similar to the others I have run, only a whole lot more fun! What other business can you run where you can't wait to see what your bids are?
posted on December 26, 2000 02:26:30 PM new
Well, I don't have an accountant or any other kind of professional. For the last 2 years we have filed our taxes online with a program called Taxcut. I wonder if there is a spot in the program for this stuff......I'll have to take a look.
Mrssantaclaus, you said "You also get to deduct alot of expenses, too, so those of who are only doing a small amount of auctions might end up being able to deduct more than you make."
What expenses are you speaking of? Packing supplies? Gas to the PO?
posted on December 26, 2000 02:40:16 PM new
luvmy2bears -- it really would be worth your while to ask an accountant. A good CPA may not even charge you for the advice. S/he's hoping to land you as a client.
Programs such as TaxCut and TurboTax are great for people with very basic tax returns. I used to do our family taxes on TurboTax myself. But I don't trust any of these programs to give me good, solid personalized advice on matters involving business, estates or trusts. Since I became involved in all three areas, I've employed the services of a CPA. My accountant has saved me more than enough money to pay his fees for the next 15 years.
I know, because every year before my CPA appointment, I run my tax info through TurboTax and it shows my tax bill to be much higher than on my CPA-prepared tax return.
posted on December 26, 2000 02:40:58 PM new
MrsSantaClaus is right. Until I really got into this, we got a nice refund every year. Just keep good records, and you can deduct a lot of expenses. I listed a few in another thread, but here are some that we deduct, or have in the past:
internet connection, new computer, printer repairs, printer ink and paper, mileage, stamps, envelopes, supplies for non priority packaging, bubble wrap, a storage building we bought to keep inventory in, laptop for travel, donations of unsold goods to charity shops, meals when we go to out of town sales, even hotel rooms when we go on shopping trips, phone calls, you get the idea-anything at all connected with the business.
What our accountant told us is that as long as you show a profit 2 out of 5 years, you can deduct them as business expense. If you don't, the IRS calls it a hobby and won't allow any deductions. Check with a good accountant, but don't overlook those expenses!
posted on December 26, 2000 02:42:22 PM new
that's why you need to ask the accountant. There are certain things you can deduct for "hobby" expenses. Other things if you operate as a business, but in that case you report your income on additional tax forms.
Even if you don't retain an accountant, tax help is frequently available for free near April 15th from various groups. Your public library may have information about that.
posted on December 26, 2000 03:31:06 PM new
IF the cost of the items you are selling is less than the final bid amount, you have no profit. And losses from "hobbies" are only deductable to a certain amount
However, BE PREPARED to show where the items came from, what they cost, and what they sold for in case of an audit.
posted on December 26, 2000 04:32:05 PM new
<<And losses from "hobbies" are only deductable to a certain >>
Actually, hobby losses are not deductable at all..which is why it's much better to use a schedule C, and be a business. IRS expects (but this is not written in stone) a biz to have 3 out of 5 years profitable, and if you are not, they want this income to be hobby, or misc income, which is seldom good, since you have no way to show your deductions. Some deductions may be..a portion of your computer , printer, scanner, camera (all of these things(depreciated), office in your house, mileage, stamps, postage, etc, which can't be taken if this is a hobby vs business. Some of my tax clients go that way however, because they don't want to bother with inventory, and the kind of records you need as a business. I never advise that, as I always believe in taking everything/deduction that the government owes you.
posted on December 26, 2000 04:36:35 PM new
That's what I wonder/worry about when it comes to all this: an audit. I have kept pretty good records of my sales and expenses, but I don't have receipts for every little thing. I plan to do better in 2001, but even then, some things are vague. For example, if I get 15 books for $2 at a library book sale, can I record that as "$2 paid for books" or do I have to record each book separately in a ledger as costing 13.3 cents?
I feel like I'm trying hard to be accurate, but still wonder how sticky this could get.
posted on December 26, 2000 04:44:55 PM new
You don't need an accountant, unless you are an idiot.
Use the interview format in TaxCut and it will ask you all the appropriate questions.
Possible expenses.
1)Prorated portion of your rent.
2)Prorated portion of your utility bills
3)Mileage on your car.
4)Prorated portion of your computer cost, including telephone and internet serivce fees.
5)Ebay Fee's
6)Packing materials.
7)Printer Ink.
But you can't go negative otherwiase they will say it is a hobby. So with $1500 in income I'm sure you will come up more than $1500 in expenses.
posted on December 26, 2000 05:02:15 PM newBut you can't go negative otherwiase they will say it is a hobby
Not true. You can show losses two years out of five and retain business status. Perhaps it's time you join me and the other idiots who use an accountant because we want every allowable deduction.
posted on December 26, 2000 05:03:14 PM new
Be careful about claiming part of your rent and utilities. This will get you audited faster than most other things. We have one room that is just my office, but do not deduct it.
An excellent accountant once told us to hold back part of our deductions, such as office space. Then if we got audited, we could show them that we had been conservative in our claims. We've never had a problem listing costs in lots, such as 2 dollars worth of books. If you do buy from garage sales, ask for a receipt-most people are willing to do this, and that is what you need for your records.
posted on December 26, 2000 06:23:46 PM new
<<An excellent accountant once told us to hold back part of our deductions, such as office space. >>
I don't consider that smart advice. You should take every legal deduction you have. Never hold back..if you can prove it you should take it.
On the other hand, don't be so quick to claim your office in home..there are certain criteria you have to meet (and I'm surely not going to give individual tax advice on line, since everyone's situation is different). If you are entitiled to it, however, be sure you take it.
And unlike the person who said you were stupid to use an accountant..I certainly don'y agree with that..at least for the first year, until you have all of your depreciation set up, and a list of what you can and can't claim. Just a for instance, you must have a listing of what percentage you are using the computer, for biz if you are using it for something other than business. The percentage is what you claim on your depreciaton.
Most of the easily bought tax software is very good, but unless you are using their "business" version, the interview they do, may miss some valuable deductions.
Also, although the IRS wants to "see" you make a profit 3 our of 5 years, you DO NOT have to switch to a hobby if you have less profitable years..you DO have to be set up as a business and be able to prove it. Your accountant can help you with that.
IRS Pub 334 is a great publication to start out with, and it's free from the IRS!
posted on December 26, 2000 06:32:06 PM new
It is true that sometimes the IRS looks at home office deduction closely. But this is typically for someone who has a regular job and claims to work at home thus taking a home office deduction.
Clearly if you are generating income from your office at home, and have no other place of business for your Ebay business then you are on solid ground to take a home office deduction.
List your Ebay business as a seperate business. List the place of business are your home address. Any accountant recomending this isn't listening to you and trying to apply general priciples to a case where they clearly do not apply.
posted on December 27, 2000 05:03:12 AM new
"What our accountant told us is that as long as you show a profit 2 out of 5 years, you can deduct them as business expense. If you don't, the IRS calls it a hobby and won't allow any deductions."
Expenses for a hobby ARE deductible against any income produced by the hobby. You CAN NOT deduct hobby expenses from other income sources if your losses exceed your gain.
For many small-time sellers, those clearing out closets and garages, this can neatly wipe out any tax liability from eBay.
posted on December 27, 2000 05:42:52 AM new
<<Expenses for a hobby ARE deductible against any income produced by the hobby. You CAN NOT deduct hobby expenses from other income sources if your losses exceed your gain.>>
I'm not sure what you mean here. First of all, you can not deduct expenses from a hobby (you may be wording it as a hobby, and you mean a biz), unless you fill out a schedule C..which would mean you are a business, not a hobby (and that's why most people want it to be a biz, so they can use their deductions, including the shipping expenses..which would have no other place ot be deducted except on a schedul C). Otherwise, you would have no where to show your deductions.
You CAN deduct hobby expenses (which I'll call biz expenses, which is what it would be, since you need to fill out a schedule C to deduct expenses) against ALL earned income..however, you can not deduct home in office deductions against other income sources, to show a loss.
posted on December 27, 2000 07:19:50 AM new
My understanding is that claiming things like home office and office equipment is only allowed when those things are EXCLUSIVELY used for the business. For example, my home computer is used for my business, my personal banking, my daughter's computer games, etc. Thus I can't claim it because of the exclusivity issue.
I suppose I could keepa log to show how much time was spent in auction activity, but that's going to be pushing it.. I'm still debating over keeping a log in my car for all of those trips to the post office, to get mailing supplies, etc.
posted on December 27, 2000 08:01:38 AM new
<<My understanding is that claiming things like home office and office equipment is only allowed when those things are EXCLUSIVELY used for the business. For example, my home computer is used for my business, my personal banking, my daughter's computer games, etc. Thus I can't claim it because of the exclusivity issue.>>
That is why it is really wise to go to an accountant the first year of a biz. Home office is suppose to be used exclusively, but you may be able to take a partial room..again, there are questions your accountant will ask to determine if you can.
Your computer does not have to be exclusive..you can keep a journal and take a percentage..it can come out to quite a lot of tax savings.
posted on December 27, 2000 08:09:09 AM new
"First of all, you can not deduct expenses from a hobby (you may be wording it as a hobby, and you mean a biz), unless you fill out a schedule C..which would mean you are a business"
YOU CAN DEDUCT EXPENSES FROM AN INCOME-PRODUCING HOBBY TO AGAINST THE INCOME PRODUCED BY THAT HOBBY ... what part of that is so hard for you to understand. Read the tax code!
You can't deduct expenses from a hobby with the same liberality that you can a "business", such as if the hobby loses money you don't get to deduct the loss on the hobby from any other income, but for many eBay sellers, this approach minimizes their bookeeping hassle.
posted on December 27, 2000 08:17:39 AM new
abacaxi is right. This is from the IRS web site:
"You must include on your return income from an activity not for profit(a hobby). Deductions for expenses related to the activity are limited to the amount of hobby income you report, and can be taken only if
you itemize deductions on Schedule A, Form 1040."
http://www.irs.gov/prod/ind_info/tax_trails/5/atl5-1x115.html
posted on December 27, 2000 09:04:57 AM new
I was incorrect, the exclusive rule applies to home office, not computers.
HOWEVER, business use must be more than 50% of the item to qualify as a depreciable listed asset - so if its still being used for other things, you have to be able to prove that more than 50% of its use was related to the business.
I may be getting a laptop to take over the business activities, so I'll have that problem taken care of.
I am a firm believer in not claiming expenses without proper documentation - I don't want to run the risk of an audit - even if the chances are small.
posted on December 27, 2000 11:08:30 AM new
What do you think your net profit is after eBay fees and such? If it is less than $600, I don't believe there's any reason to bother.
posted on December 27, 2000 11:30:13 AM new
I know that my net profit for the year will be over $2000 (not bad for a 1st year). I'll have a lot of my cash tied up in existing inventory, though.
Even if its extra work, I'd honestly report all the income just in the off case of an auditor coming my way. The potential penalties would be worse than paying the taxes now.
posted on December 27, 2000 11:54:47 AM new
Listen to DMrick-an accountant is worth his weight in refunds! We have jobs, I have the online business, my hubby has cattle and an investments business as well. I'm not stupid, but I would rather pay an accountant to do all that while I spend my time lising on Ebay and Yahoo!
posted on December 27, 2000 12:33:37 PM new
If you are not familiar with business deductions, go to Staples or Office Max and get yourself a Dome book. It has the deductions listed for you in a simple manner. My father first used it in the 1960's and I have used it for 20 years, also. It is very simple to use - and you can always see exactly what you are spending. I simply take the final sheet to my accountant each year and he handles my taxes. He charges less than $200 for the service, which is not bad considering I get to pester him with questions all year long and he is currently handling the taxes for two brick and mortar businesses for me besides the eBay stuff.
And the best part of all - if you do get audited the accountant goes with you or instead of you.
posted on December 27, 2000 12:43:37 PM new
Some deductions you can use (sorry I don't know the actual percentages of them - that is my accountant's job)
Car deductions - mileage, gas, repairs, insurance
Misc deductions - newspaper (to find auctions and garage sales), paper, pens, pencils, ISP, cel phone, phone calls (if they are for business), calculator, computer, printer, scanner, digital camera, packing materials, postage, strapping tape to secure boxes, paypal fees, books you buy to improve eBay sales - and the list goes on and on.
I would not risk doing my taxes for this myself. The risk of making an error is too great. It is best left up to someone who knows the tax laws and how they change each year. And, as mentioned earlier - you are better off spending your time listing auctions.
An added bonus - Earned Income Credit. Ask an accountant about it.
posted on December 27, 2000 06:20:14 PM new
I don't even know which post to reply to first. I certainly can't begin to do someone's taxes on line, so please know that this is general. First of all..the person who thought you didn't have to claim income until you hit a certain amount..you actually have to claim $1..but you prob won't owe taxes on it..unless you have another income, or file with someone else who does. If you are using a Schedule C, you won't have to pay self employment tax on that $1..but if you don't use the C, and you claim under misc, you will. I should have said earlier, that you can't claim expenses under misc..I misspoke when I said hobby..but most of the sellers on Ebay do not qualify as a hobby, as they are selling for profit, which makes them a business..not just getting rid of last years old clothes (ok, some of you are LOL), or can't use a schedule A (if national statistics follow), so they wouldn't be able to put any expenses against their income unless they fill out a sch C..and why wouldn't you want to get the most deductions you can? When you read tax code, you have to read it all and make sure you qualify. Most of the people who sell on Ebay, are buying low and trying to sell high..that is not hobby income. A hobby income might be, for instance..you like to go to the race track, and you win..so be sure to save all of your wining tickets to put against the win..but that's only if you are filing a Schedule A..more than 85% of people who have had their taxes prepared by HR Block are NOT filing a schedule A.
So I stick with my original answer..go to a tax professional..I am sure you will not be sorry, and as a seller on Ebay, I'm familiar with all the expenses (hey, I wouldn't have road runner if I didn't do Ebay, so guess what one of my expenses is!), and most of you will not only pay very little if no tax (since knowing the time I put into ebay, I'm betting you use your computer for a high percentage of biz), or you may even help lower your taxes if you file with your hubby.
Remember, very few people are audited..and if you are honest, the audit means nothing..except maybe the IRS will find something you overlooked, and you'll get some extra back!
posted on December 27, 2000 07:17:27 PM new
DMRick, when you said this, I got confused:. >>If you are using a Schedule C, you won't have to pay self employment tax on that $1..but if you don't use the C, and you claim under misc, you will<<
Do you mean that anytime you put income under misc, you have to pay self employment tax? In the past I have used misc for stuff like garage sales or a prize I won for an essay at school. Are you saying that if you do that you are supposed to also pay self employment tax? Or only under certain guidelines?
