Is Selling On eBay Just A Hobby Or A Real Business?

Q: I made extra money selling things on eBay last year. These were items I picked up at yardsales mostly. My husband says I am responsible for paying income tax on the money I made, but I disagree. This is just my hobby, not a business. What do you think? -- Gladys A.

A: With so many people selling on eBay these days this is a question I get all the time. To many eBay sellers the thought of running an actual business is about as appealing as getting negative feedback, so they go out of their way to convince themselves that selling on eBay is really "just a hobby" and therefore, should not be susceptible to income tax laws.

While you might think selling on eBay is just a hobby and the extra money you're making is not reportable as income, depending on the circumstances, the IRS just might disagree with you.

The IRS rules are clear: you must pay taxes on all personal and business income and that includes money you make selling on eBay.

In its most basic sense, the IRS rules mean that if you buy a vase at a garage sale for $10 and sell it on eBay (or elsewhere) for $20 you made a $10 profit and therefore must report it as income and pay Uncle Sam his fair share.

In reality, if you are a casual seller who only sells a few items on eBay every now and then it's doubtful the IRS is going to lose much sleep over the few bucks you make.

However, if you consistently sell on eBay the IRS may deem your activities to be business oriented and you will be required to file a Schedule C and claim the income.

The IRS uses a number of factors to determine if a hobby is really a business. These factors include:

1. Do you carry on the activity in a business-like manner?

If you conduct your eBay activities in a business-like manner, i.e. you keep business records, track profit and loss, keep a separate checking account, etc. then whether you think so or not, your hobby is really a business.

2. Do you spend considerable time working on your hobby?

If you put considerable time and effort into your eBay sales, the IRS may contend that you do so for profit and not fun. It seems the folks at the IRS don't believe in doing things strictly for pleasure. My guess is, neither do you. If you weren't making money selling on eBay I doubt you'd bother getting up at 4 a.m. to hit all those yardsales.

Then again, maybe you would... :o)

3. If you depend on income from your eBay activities for your livelihood?

If so, it's a business, not a hobby.

There are a number of other factors the IRS uses to determine if a hobby is really a business, but that covers the basics.

You can learn more at the IRS website at www.irs.gov.

What's eBay's take on all this?

eBay is vehemently opposed to anything tax related (especially the forced collection of sales tax, which is a whole 'nother issue). It's understandable that eBay is not a fan of the IRS since trying to enforce tax rules on buyers and sellers would undoubtedly be detrimental to the way eBay does business.

eBay does not does not issue 1099 tax forms to sellers, nor does it report seller's sales figures to the IRS. eBay considers itself a faciliator, i.e. they provide a marketplace in which buyers and sellers come together to do business.

However, since eBay is not directly involved in the transactions that take place between buyers and sellers, it would be impossible for eBay to report sales figures. Furthermore, eBay does not track if a seller actually gets paid by the buyer, so they have no idea how much money actually changes hands, making it impossible for eBay to issue accurate 1099s to sellers.

On the bright side, if you do sell on eBay as a business you can deduct a number of business expenses, including the cost of inventory, listing fees, shipping, envelopes, packing materials, etc. You might also be able to deduct things like the purchase of a computer for business use, office space (even if it's a home office), office supplies, and more.

I'm not accountant (nor do I play one on TV), so please do not take any of this as tax advice or legal opinion. Talk to your accountant if there's any doubt as to whether you should or should not be paying taxes on your eBay earnings.

Here's to your success!

Tim Knox

Small Business Q&A is written by veteran entrepreneur and syndicated columnist, Tim Knox. Tim serves as the president and CEO of three successful technology companies and is the founder of DropshipWholesale.net, an online organization dedicated to the success of online and eBay entrepreneurs.

Related Links:
http://www.prosperityandprofits.com
http://www.smallbusinessqa.com
http://www.dropshipwholesale.net

In The News:

Melania Trump Auctions Her Hat  The New York Times

How to Win on eBay

I've bought over 100 items on eBay over three years... Read More

E Bay.com HTML Auction Templates: Which is Best for Ebay Selling?

There are a plenty of free e bay.com free auction... Read More

Mr. Rich vs. Mr. Job: How to Start a Dropship Business on eBay

Mr. Asset vs. Mr. Job....Discover the Secret Formula of the... Read More

The International Affiliate Program of EBay

eBay trades in more than 33 international countries with over... Read More

A New Definition of Buyer Beware

"Who's Suzie?"My wife Katrina had been acting strangely ever since... Read More

Making Money On EBay Can Be So Simple, Just Let Somebody Else Do All The Hard Work For You

OK, so you've been bitten by the eBay bug!You've ransacked... Read More

Ebay Auction Selling Secrets - Using Ebay to Launch Your Very Own Highly Successful Website

Launching your very own successful website is the dream of... Read More

Start Your Own Business: Sell Things on eBay

The popularity of online auction site eBay has been legendary.... Read More

Why Its a BAD Idea To Promote Hot Selling Products on eBay

Do a quick search on Google, Yahoo, or your favorite... Read More

Your eBay Business - 8 Ways To Insure Its Success

I don't know if you've ever noticed, but it seems... Read More

Selling through Auction Marketplaces

Consumers are increasingly feeling more comfortable in buying products through... Read More

Your Auction Headline Or Title - The Most Important Part Of Your Auction

The words you select to describe your item will have... Read More

eBays Latest Fee Increases--Is this the beginning of the end?

On January 13, eBay sellers received an unwelcome announcement from... Read More

From Ebay Zero to Power-Selling Hero: Using Feedback Effectively

When I talk about feedback to new Ebay sellers, I... Read More

Drop Shipping Secrets and Sources Revealed

Unfortunately for those just breaking into the wholesaling business, drop-shipping... Read More

How to Double or Even Triple Your Net Profit Selling on eBay

eBay Search tips and secretsThis is an example of how... Read More

Making Your Auction Business Stand Out From The Crowd

When my sons were growing up they started playing hockey... Read More

eBay Motors : Buy or Sell a Car on eBay

Are you having trouble finding a great deal on a... Read More

6 Reasons Why an eBay Business is the Easiest and Safest Home Business to Start

Calling internet auctions an "Entrepreneur's Dream" isn't poetic license or... Read More

5 Ways to Drive Traffic Away from Your EBay Auction

eBay is a one-stop solution to any one who wants... Read More

How Pop-Culture Collectibles Can Increase Your Online Auction Profits

How Pop Culture collectibles can increase your Online Auction profitsWith... Read More

Authentic or Fake?

1. Admit It: Old business models are no longer working.... Read More

Join the Home-Based Business Revolution

Greetings, Friend. So you've decided to go into business. Great.... Read More

12 Tips To Make Your eBay Business More Profitable

Sometimes it's the simple things that can make your eBay... Read More

Negating Negative Feedback on eBay

Taking some pride in my one hundred percent positive feedback... Read More