Ebay as a business and declaring it on your taxes

[phorsenuf]

Ok, so those who do ebay and run it as a business, can I pick your brain a bit?
How do you claim your business? Do you use a schedule C? Do you claim a home office? What about where you store everything? Also, do you figure inventory costs and such?
I'm curious how everyone handles it. I do my own taxes...always have. I've had home businesses before (child care), but I'm wondering how this may differ.
Thanks for any advice you can give!!!

 

[Cheshire Figment]

I am a (retired) CPA and JudySue is retired from the IRS. We have always used a Schedule C.

I have used a spreadsheet when we sell items. It gives the eBay number, date of sale, selling price, shipping fee, actual cost, actual shipping expense. Also, if the sale is within Florida the amount of Sales RTax collected, and the amount of Sales Tax paid (if any) on the purchase.

So far we have not claimed office in home, but we may in the future as we will have an area specifically for storage. We did purchase a digital camera used exclusively for eBay, so we did write that off as a Sction 179 expense.

As far as eBay fees it is very simple; we do a dump of the account for the year, add the beginning balance and all depisits to the eBay fee account and subtract the ending balance -- that gives the fees paid to eBay. For PayPal I do a monthly dump and pick up fees there.

Hope this information helps.

 

[disneysteve]

My answers are all pretty much the same as Cheshire Figment.

I report my ebay business on Schedule C. Don't forget to deduct ALL expenses. This includes ebay and paypal fees, shipping supplies, postage, mileage/tolls incurred while buying merchandise or traveling to the post office, internet access fees, cost of computer/camera/printer supplies, and anything else that you spend money on in the course of doing business.

I also have not claimed my home office or storage space because it seemed more trouble than it was worth.

Steve

 

[Puffy2]

I don't do ebay but I have had a home business in the past. Never took deductions for part of the home because first, I was told that sometimes that will "flag" a tax return to be audited (?) also I was told when you sell your home, somehow that figures into it... sounds like more paper work than I wanted.

Also, I never took deductions for equipment that I bought like for a computer, camera, etc... (I DID include cost of merchandise to be sold, and disposable supplies like paper for the office, etc....)

My reason for this is because if you have inventory - you must file an inventory return each year with your county. THey tax you on all inventory held by the business. I listed and paid tax on on merchandice but I never took as a deduction things like my home computer because then you are supposed to list that as well....and each year you list it (with a depreciation schedule) until you sell the item. I didn't want to fool with this or ever be questioned about it, so I never took deductions for those things. When I closed the business I sold off all inventory I had left or donated it to charity.

 

[Lewisc]

People selling "stuff" from around the house are generally selling it for less than the original purchase price. No income tax due. BUT be careful of state sales tax.

 

[mep319]

I thought I read some where that ebay was akin to a yard sale and at this point and time the IRS is not pursuing unless it is your main source of income....

 

[disneysteve]

Originally posted by mep319
I thought I read some where that ebay was akin to a yard sale and at this point and time the IRS is not pursuing unless it is your main source of income....

Whether or not the IRS is pursuing it doesn't have any bearing on the tax law. Lewisc is correct. If you just use ebay to sell unwanted household items for less than their original cost, you don't need to report that income.

If, however, you are making a profit on your sales, that profit is taxable income regardless of whether or not it is your primary source of income. In fact, you likely need a business license and you need to collect and remit sales tax according to state law.

Certainly many people cheat on their taxes and I'd suspect loads of ebay merchants are not filing taxes appropriately, but if you do that and ever get audited, you'll be screwed.

Steve

 

[mep319]

I just starting listing things on ebay. But they are household items...primarily clothes my DD has outgrown...and books/cd/vhs/dvd we no longer want/use. I was assuming I don't have to file anything. I'm certainly not "making" money but it is also nice that I'm recouping some money I've spent on items I probably would have given away or trashed. Especially since I'm hoping to pay for most of my vacation doing this. Sooooo again I'm assuming I don't have to file taxes on such things. I'm hoping I don't have to file PA state taxes! But thanks for any advice you can give.

 

[maggiew]

Thanks for the information. I have a question.

cheshire figment said:

I have used a spreadsheet when we sell items. It gives the eBay number, date of sale, selling price, shipping fee, actual cost, actual shipping expense. Also, if the sale is within Florida the amount of Sales RTax collected, and the amount of Sales Tax paid (if any) on the purchase.

What do you use as the "actual cost" of the item. Is that the price you paid for it or the price it was probably worth at the time? For example, if I bought a shirt at the GAP for $29.99 and then 3 years later sold it on eBay for $1.99 what is the actual cost? What would I be expected to show the IRS if I was audited? Original receipts??

 

[floridagirrl2]

I sell on Ebay & Amazon as a home-based business. According to my accountant, I can only deduct the cost of merchandise that is actually sold in a particular tax year (I can't deduct the cost of merchandise that I paid for but haven't sold). I also deduct Ebay, Amazon, and Paypal fees, postage, shipping supplies, and mileage. I do collect Florida sales tax and remit it quarterly (usually only about 10 bucks a quarter, since most of my customers are not in Florida).

I keep track of all my sales on a form I print out from my computer and keep the forms in a notebook. I record where the item was sold (Ebay or Amazon), the date sold, the price I sold it for, how much I paid for the item, the date I was paid and how (Paypal, check ,etc.) & the name and address of the person who bought it. I prefer being able to flip through a notebook rather than using a spreadsheet.

I use a spiral notebook to keep track of the merchandise I buy & how much I pay for it (I've read that the IRS is fine with tracking purchases in a notebook if you don't have receipts--for instance, if you buy your merchandise at yard sales).

At the end of the year, I add up all the money I took in and subtract all my expenses.

My DH repairs, upgrades, and networks computers as a home-based business, and he deducts mileage, cell phone, Yellow Pages advertising, etc. He also pays quarterly estimated taxes to the IRS. We don't deduct for a home office because I've heard that's a red flag for getting audited. Plus our offices are a very small part of the square footage of our home.

I also have a "day job," so not all of our income is self-employment income. We always did our own taxes until we started having our home businesses--while we do all the calculations of income & expenditures ourselves, we give this to the accountant and let him figure out our taxes and fill out all the forms. He only charges $150.00 for this and it's worth every penny to us.

Bottom line about selling on line--there is an electronic record of EVERY transaction you make. A guy who used to post regularly to an Ebay newsgroup was audited by the IRS (for reasons related to real estate sales, not Ebay) and he said the IRS auditor walked in to the meeting with a printout of ALL his Ebay sales. Luckily, he had been reporting them and paying taxes on them. My feeling is that if a person is ever audited, they could be in trouble for not reporting income they earned online.

 

[maggiew]

Let me clarify maybe what I was asking before.

In terms of profit we make and what needs to be declared on taxes.

If you use eBay as a business and you buy something at a yard sale for $1 but sell it for $10 on eBay, you make $9 profit minus fees and things.

But if you buy a $30 shirt and wear it for a year and then sell it on eBay for $3, is your profit $3 minus fees or is it not considered profit or income or whatever? If you have the original $30 receipt does it matter?

 

[disneysteve]

Originally posted by maggiew
But if you buy a $30 shirt and wear it for a year and then sell it on eBay for $3, is your profit $3 minus fees or is it not considered profit or income or whatever? If you have the original $30 receipt does it matter?

I believe that selling personal belongings for less than their original cost is not a taxable transaction. However, if you also sell some items for a profit, you better keep very good records so that if anyone ever comes asking about your business, you can seperate the business sales from the personal sales.

Steve

 

[CarolA]

There are variations here. Selling at a loss does not exempt you from income tax unless you can PROVE you sold at a loss. A lot of people don't have the records to prove that. So if you did not keep the original $30 receipt on the shirt. If you were a true business you would be depreciating the shirt and could owe taxes, one for gain made if your resale value exceeded the depreciation expense. I have no idea how it works in the case of a un-incorporated person.

Also, if you are using EBAY as a business do not assume the 'yard sale' type rules apply to you. If you are like me and have sold one or two things in several years, it would be a lot of work for the IRS to come after the $50 I made. However, if you are a "professional seller" the rules will be different.


Remember the IRS LOVES records. Your word does not do a lot for them.

I am a CPA. My advice! Talk to a TAX person. While one poster on here does seem to have a tax background, it would be pretty hard to get good advice that you can reley on from these boards. (We don't know your full situation and it's not like any of us are going to meet with the IRS with you!)

 

[Lewisc]

Originally posted by CarolA
If you were a true business you would be depreciating the shirt and could owe taxes, one for gain made if your resale value exceeded the depreciation expense.

Carol--Inventory (shirts) don't get depreciated. The more $$$ you're making the better your records better be. Excellent previous post by Floridagirl, if you're audited the IRS will easily have a record of your income from E-Bay.

WATCH SALES TAX RULES, must be collected and sent out even if you're selling stuff at a loss.

 

[DMRick]

I believe that selling personal belongings for less than their original cost is not a taxable transaction.

But..you are suppose to be able to prove that with a receipt..if you can't prove, it, then you actually owe income tax on the entire sale, previously owned by you or not. Normally (but not always..just start bragging about all you are making on eBay tax free, and a jealous neighbor may decide to report you) someone selling what appears to be clothes baby outgrew, is not worth the IRS's time..and you'll never be bothered. Start putting large deposits in your bank account, and that may change.

The best advice I have heard, is to go to a professional. And don't go to one who downplays what you earn on eBay..go to one that will set you up your first Sch C, depreciation for your computer, printer, scanner, camera, etc. Never stop yourself form taking a deduction just because you are afraid fo a red flag..unless you are lying, so what, you deserve the deduction. I had many clients some (tax preparer, before I started making more on eBay) with horrible accounting practices, and they got their figures off my ceiling while in the middle of doing their taxes...those people need to be afraid of Home in office, since their record keeping is so poor. You should never be afraid of it if you are honest.

Also, if you read about income taxes on eBay's site, they freely admit, they will be happy to pass all records over to the IRS.

 

[autumnblue]

I just started selling some used items on ebay and I assume I will take a loss on most, if not all of them based on original price (many of these things were bought years ago and I do not have a receipts). I predict I will probably only get a couple hundred dollars from my sales and I'm just doing this to save for a trip , I have no intention of making this a business or a consistent source of funds. However I did sign up for a PayPal premium/business account so that I could accept credit cards. By default by doing this , did I make myself a business and now subject to taxes?

Thanks

Autumnblue

 

[DMRick]

By default by doing this , did I make myself a business and now subject to taxes?

Sales are always subject to taxes. Generally the IRS doesn't bother the small time seller, whee it is obvious they are selling off their "old" stuff. But even those sellers "technically" are supposed to be able to prove they are not making a profit, and are selling items for less than they paid. So it really doesn't matter what you appear to be, it's how you can prove it. Will the IRS go after you if you look like an on line garage sale? Prob not. Can anyone here guarantee you that? Nope.

 

[VintageKnight]

Hey i love the idea of using the spread sheets to keep track of ebay usage....but

Im really new to the excel thing i know how to change info in excistin g cells, but not how to set up a fresh page...

any ideas.???

DisneyVK