Sunday, November 02, 2008

Paying Taxes as E-Bay Seller

So many of the searches that hit my blog seem to be people trying to find answers to questions.  Being the nice person that I am, I try to provide answers, so that the next person who has that question will, maybe, find my answer and find it useful.

So this person was apparently trying to find out about paying taxes as an E-Bay seller.  Well, the short story is, yes, you have to pay taxes.  If you are an occasional seller, then you are expected to report the entire amount of income you received from the sale of merchandise on E-Bay as "miscellaneous hobby income" on whatever line it is for that on whichever for you file.  However, if you should happen to forget to report it, it's extremely unlikely that the IRS will ever find out, and I imagine most people who are supposed to report such income never actually do.

On the other hand, if you're in the regular business of selling stuff on E-Bay, then you're expected to file a business return, typically Schedule C of Form 1040.  This method of filing at least allows you to deduct the cost of whatever you sold against what you were paid for it, which means that you'll end up paying less tax.  You will, however, have to pay self-employment taxes on the net income of your business venture.

Also, if you sell to someone within your own state, and your state collects sales tax, you may be required to collect sales tax from whomever you sold to and forward that on to your state's revenue department.  Check with a local tax advisor on this, as some states exempt so-called "occasional sales" from the obligation to collect sales tax, while others do not.

In practice, a lot of the people who are supposed to pay taxes on E-Bay profits do not, as much of their income is undocumented.  This is actually a pretty big loophole, costing the government as much as ten billion dollars a year, and much hay was made about this a while back when Chris Dodd proposed to make it harder to conceal income derived from online sources.