The IRS and eBay: Tax Season Is Here

Ok – it’s not tax season yet, but I ran across Ina’s article, and wanted to share it, so here it is…

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The IRS and eBay: Tax Season is Here

By Ina Steiner
               
AuctionBytes.com
                April 03,  2005

It’s
that time of year – April 15 is looming. As if I wasn’t already
thinking about it, the Associated Press ran an article about eBay
sellers and whether they were required to report eBay income on their
taxes.

How do you know if you are required to report eBay income in your
taxes? Barbara Weltman, publisher of the "Big Ideas for Small Business"
newsletter and author of several books, including, "J.K. Lasser’s Small
Business Taxes 2005," said the rule as the tax law states it is that
you have to report all income from whatever source derived.

However, an eBay sale may not be income. She explained that if you
purchased a designer dress for $1,000 and sold it on eBay for $200,
that is a loss.

Whether your eBay selling is a hobby, and the frequency of your
sales, doesn’t matter, Weltman said. Whether it is income or not is
what matters.

Weltman said eBay sellers who do not report their income are missing
out on opportunities. It’s the right thing to do, and the law, but in
addition to helping you sleep at night, reporting income allows you to
report expenses, like Internet access fees and all expenses related to
eBay selling. There may be an opportunity to take a home office
deduction, she said. And, if you show a profit, you can put money in a
retirement plan.

Some people are concerned that eBay is cooperating with the IRS, making it easier for the IRS to come after Powersellers.

eBay spokesperson Chris Donlay said, "The IRS would need to provide
us with a subpoena for a specific individual before we would provide
any data. I don’t believe this is something that would be typically
done for a routine audit, though it theoretically could happen." He
said this is true for both eBay and PayPal.

Where do you learn how to report eBay income on your taxes? Weltman
suggested IRS Publication 334, "Tax Guide for Small Business" (http://www.irs.gov/pub/irs-pdf/p334.pdf). She said her newsletter

and book, "JK Lasser’s Small Business Taxes 2005" (http://www.amazon.com/exec/obidos/ASIN/0471683825/auctionbytescom) can also help.

If you have questions, talk to a tax professional. Additional resources are listed below.

IRS Industry/Profession pages (IRS said they will be adding a section on online auctions):
http://www.irs.gov/businesses/small/industries/index.html

"Taxes Part One: Do I Have to Report My Auction Earnings?" By Mike Batsimm
http://auctionbytes.com/cab/abu/y201/m03/abu0033/s03

"Taxes Part Two – How Do I Report My Auction Earnings?" By Mike Batsimm
http://www.auctionbytes.com/cab/abu/y201/m03/abu0034/s05

IRS Section for Small Businesses and Self-Employed
http://www.irs.gov/businesses/small/index.html

Is it a Business or a Hobby?
http://www.irs.gov/businesses/small/article/0,,id=99239,00.html

Publication 535 (2004), Business Expenses
http://www.irs.gov/publications/p535/index.html

Recordkeeping
http://www.irs.gov/businesses/small/article/0,,id=98575,00.html

IRS Forms and Instructions
http://www.irs.gov

Ernst & Young Tax Guide 2005
http://www.amazon.com/exec/obidos/ASIN/1593150199/auctionbytescom

eBay Radio Interview with Barbara Weltman, August 2003 (Scroll down)
http://www.wsradio.com/ebayradiobytopic/businessadvice.htm

eBay Radio Interview with Barbara Weltman, March 2005 (Scroll down)
http://www.wsradio.com/ebayradio/march2005.htm

UK Article: "Taxman has sights set on eBay traders"
http://business.timesonline.co.uk/article/0,,9559-1419932,00.html

"Australian Tax Office Investigates eBay PowerSellers"
http://www.auctionbytes.com/cab/abn/y04/m09/i16/s01