I have been an ebay seller for about a year now and I have made aprox. $10,000 in income from it.
Because this income has not been earned in a conventional way, such as working at a job that pay you hourly, I have questions concerning how to file and report this to the IRS.
I am nineteen years old and I don't have much experience at all with the IRS and state taxing so I am nervous as April 15 rapidly approaches.
Basically I auction used clothing that I buy at local consignment shops on eBay. The amount at which the item sells for on ebay, minus the cost of the item and fees is my profit. I have been keeping track of everything in a excel spread sheet and I have also kept all the receipts of the things I bought to sell.
My question is what do I do to report this. Can I make an appointment with H&R Block and have them help me do my ebay income tax along with my normal tax returns from my day job??
Or is there something more complicated I have to do.
I also would be interested in knowing how I file my ebay income with my state. I live in Massachusetts.
Please post any ideas or suggestions you may have as I am sure this is important to a lot of ebay sellers.
posted on March 4, 2002 05:34:22 PM new
You need to file a schedule C for your eBay income. This schedule is attached to your IRS 1040 form. You may also have to pay self employment tax. You definitely should get help with this the first time anyway. If you are buying to resell and show a profit, you should apply for state tax I.D. number and collect sales tax from customers in your own state. This number will also allow you to buy your merchandise without paying sales tax. You can also buy supplies like paper, pens, ink cartridges tax free. You can deduct postage fees and gas for trips to the post office and trips to buy merchandise on schedule C. I wish I could tell you more, but you should get professional help. It will be worth it, believe me.
posted on March 4, 2002 06:27:22 PM new
In all honesty, I've known people who have been doing eBay for YEARS and haven't had the IRS come knockin' on their door. And in the last 3 years of watching this board I'm yet to see ONE post of ANYONE being audited by the IRS for any of their eBay income...just a thought.
posted on March 4, 2002 06:29:07 PM new
You can also buy supplies like paper, pens, ink cartridges tax free.
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This is incorrect info (but info that many people don't realize is incorrect..be sure to pick up whatever samll biz booklets your state department had to help figure out what you can, and what you can't do with your sales tax certificate). You can only legitimately use your tax certificate to purchase items that you are reselling or are an intrical part of the item you are selling. The idea is that your state wants to make money. You buy a pair of jeans for $3, and sell on eBay for $6..you collect tax on the $6 and send that (for most it's quarterly..for some yearly..different states do it differently) tax you have collected as an agent for your state, into your state.
The only time you would purchase paper )for instance) and not pay tax on it, is if you sold cards or something made with paper..you would never buy the paper and use your tax certificate, if you are using the paper for your record keeping, or whatever else you would use paper for. Same with your ink cartridges..if you are in the DTP business, for instance and you use your ink for making flyers, cards, menus, then you could buy it tax free (and then only if your state has a sales tax on these items when you resell them..not all states do)..but then you would sell the item and again, make tax money for your state. If you are also using the ink, to do your ebay records, you should keep a log, and only claim the percent of ink you are using to resell. The item must be a money maker for your state, to purchase tax free (not that stores won't let you..but they are assuming you know what category you fall under..and what of your purchases are tax emempt for you!). You are not suppose to buy office supplies using your tax certificate.
This is a very important reason why you should go to a tax professional, and get a good start on your record keeping.
You will make out a schedule C, and that will be the place you deduct your office supplies, including the sales tax you paid on them. Your tax professional, will give you advice and help in knowing what you can and cannot claim. Bring in your mileage on your car, from your hunt for items to sell, and any office supplies, shipping, paypal fees, AW fees, and eBay fees. Do you have an onl ine service like Road Runner or AOL, and have an idea what percentage you use it for your business? bring the bill in..do you keep a log for what percentage you use your computer for eBay vs personal use? Bring in the bill. Your HR Block tax cost will be lower if you do the gathering..and they just have to do the plugging in. You may be very surprised at how little taxes you will end up paying!
posted on March 4, 2002 06:36:03 PM new
In all honesty, I've known people who have been doing eBay for YEARS and haven't had the IRS come knockin' on their door. And in the last 3 years of watching this board I'm yet to see ONE post of ANYONE being audited by the IRS for any of their eBay income...just a thought.
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I don't think it's something most people share...and I can tell you that some people from eBay have been audited. Also, a lot of people do claim this income..and have for years..so they haven't had probelms with the IRS. The problem with not claiming it, is it becomes fraud.
Not a mistake on your income tax...fraud.
When you commit fraud, if you are caught, it's treated a lot different from an honest mistake. First off, for fraud, they can go back practically forever, even though most people only keep their tax records for 7 years. If you don't have records to prove how you got your figures in the past, you can have some very serious problems.
Besides, if you pay your share of taxes..hopefully less is needed to run the government..and they won't get such a high percentage from me : )
posted on March 4, 2002 06:55:46 PM new
Well, I'd think as many eBayers are on this board and have been thru the years - SOMEONE would have come forward and warned everyone else - IF they had been audited - how they were "caught", ect.
And IF there have been people audited from eBay - I'm pretty sure it was the flagrant "Powerseller" types raking in thousands of bucks a month - putting blinking lights on themselves to attract attention from the IRS!
I really doubt if they are going to come knocking on the doors of the low-profit earners - when they have the bigger fish to fry...
posted on March 4, 2002 08:18:04 PM new
The original poster asked about legally claiming her eBay earnings. Hopefully I gave her some advice on doing that..and some reasons why it's good to do. Obviously, not everyone claims this or other income they have. I have no idea why people who have been audited don't post about their experience. My own audits have been paper audits, way before I sold on eBay, but even if it happened yesterday, I can see no reason to share this info with people I don't know..maybe others feel the same. I worked with a tax service when eBay was in it's infancy, and you don't need to take my word for it, but people do get caught...from all walks of life..some with so little income you wonder just why the IRS bothered. So when newbies come to a board like this asking how to do eBay legally, I have no problem sharing what I do know. What anyone does with that info is up to them. I'm sure a large population doesn't get caught, just as you stated.
posted on March 4, 2002 09:41:11 PM new
How much are you allowed to pay yourself? I know I'm not making a profit if I actually paid myself what my time was worth.
posted on March 4, 2002 10:14:20 PM new
Actually, the IRS goes after low income people because they assume if you're making under $X a year, you can't possibly live on that and must have some hidden income. I can speak from experience. I was audited one year when I had gross income of something like $7000.
posted on March 4, 2002 10:49:20 PM new
How much are you allowed to pay yourself? I know I'm not making a profit if I actually paid myself what my time was worth.
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I'm sure we all agree on that..that we don't make enough to pay ourselves what we are really worth LOL! Your payment as a self employed person is your profits...you get to keep them all! Really, it might be worth asking yourself, if eBay really is profitable enough for you..if you are working for $2.00 an hour, you might want to reconsider.
The IRS has wonderful free booklets all about small businesses. Lots of info in their books.
posted on March 5, 2002 05:07:46 AM new
Well, I know you guys are offering help to John here, but this same question (by him and others) comes up here on this board EVERY year at this time, and I'm YET to hear anything about any eBayer's getting audited
by the IRS on these threads...that's all I was trying to say...
posted on March 5, 2002 07:19:14 AM new
Every year I post this tip and no one pays attention but here goes one more time:
The best book on starting a legal small business that will keep you out of trouble is _Small Time Operator_ by Bernie Kamaroff (possible misspelling there). Very popular, very straightforward and will straighten out a lot of the misconceptions you might have.
It addresses such questions as a "salary" for the owner (it's an owner's draw, and you can "pay yourself" as much as you like, but you'll soon find that you've crippled your business fatally if you pay yourself too much), paying self-employment tax, hiring workers and so forth.
posted on March 5, 2002 07:23:57 AM new
spyked, an IRS audit may not have come up on these boards but I have read first-hand accounts of ebay sellers getting audited on other boards. They are very infrequent, but they do happen. And apparently ebay is quite cooperative in handing over a complete listing of all your sales to the IRS.
posted on March 5, 2002 08:07:35 AM new
My husband operates a small service-oriented business (not eBay related)in his off hours for extra income. In the past we never claimed this income on our taxes, but were advised several years ago that it might be to our benefit. That year we kept close track of his income, mileage, supplies, phone bills, repairs, etc. and turned them all in to our tax man. In the past we had done our taxes ourselves because all we had were the W2s for wage-earning jobs and it wasn't too difficult. That year the tax guy charged us $165 to do our taxes and we about fell over--until he got us a $1,500 refund from my husband's spare job. Those expenses really added up--and it was well worth paying the tax guy for his knowlege.
posted on March 5, 2002 08:45:35 AM new
Sounds like the original poster has kept good records. All you need to do is have a good accountant get you set up and pay whatever taxes are owed. Since you live in Taxachusetts you may need to be collecting sales tax from all your MA buyers and keeping records accordingly. On the other hand if you are buying to resell, you should be able to get a resale number to avoid paying sales tax on these items.
Most people make more out of taxes than are really necessary. All you need to do is report your income and pay whatever tax is due after the usual deductions.
posted on March 5, 2002 11:24:26 AM new
All you need to do is report your income and pay whatever tax is due after the usual deductions.
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But that's the part that does have a little bit to it. Some people think they can just put on a piece of paper what they spent, subtract what they owe, and they are good to go. It just doesn't work that way. If you just put your income under misc income, you will miss lots of great deductions, which may let you avoid paying taxes at all (and may get you some of the taxes back you paid out in your "real" job. A schedule C is the way to go for eBay or any at home business. And if you have a room you use for your "office"..don't let people scare you away from claiming it. It is not a tipoff to the IRS, and if you claim it honestly, you deserve it.
Taxes really aren't a big deal as mballai stated..it's just that first year, you really should use a professional (and get your depreciations and Schedule C deductions set up if you have any)..I've never met anyone who wishes they didn't.
