eBay sellers have to report their earnings just like traditional businesses, so it’s important to know how to file your taxes on eBay earnings.
Overlooking or forgetting to file your taxes from selling on eBay will lead to scrutiny from the IRS in the future. Nobody’s goal is to spend time being audited and paying penalties from the IRS, so how do you establish best practices for your taxes on eBay earnings?
This guide will explain to eBay sellers everything they need to know about filing taxes accurately and on time.
Should I Report My eBay Earnings?
For tax purposes, it’s important to identify how your selling activities on eBay are classified under IRS guidelines. eBay sellers fall into these classifications:
- Hobby- if the intent of your selling is not with the intent to turn a profit.
- Business- if the intent is to turn a profit.
Many people consider selling items on eBay a side hobby or such a rare occurrence that it doesn’t need reporting, which isn't necessarily true. Selling items from around your house can qualify as an online garage sale, but this only applies if you’re selling personal items.
If you have consistently recurring sales or are purchasing items with the intention of resale, then you have started an online auction business. If your eBay income is more than $600 and is a significant portion of your total income, then it’s in good practice to report those earnings.
You’re considered a business if you spend a considerable amount of time on eBay selling items, and are reliant on the income that selling items generates. Additionally, the IRS considers your activity a business if you have made a profit during three of the last five years, including the current year.
[LEARN MORE ABOUT THE IRS HOBBY CLASSIFICATION]
Filing Taxes on eBay Earnings
Due to the nature of selling on eBay, you’ll file taxes using the 1099 tax form for a self-employed individual.
What is a 1099 tax form?
A 1099 form is given to those who work an independent contractor and perform services for a company rather than being a direct employee
This is common for sellers on eCommerce marketplaces. As mentioned earlier, eBay doesn’t provide this documentation, so it’s on you to fill out the form.
Simple mistakes can lead to IRS auditing, so it’s vital for you to be thorough in your recordkeeping. Keep detailed records of every transaction to ensure you’re best prepared to file accurately.
As a business filing taxes, you also have deductions that you may be able to report as well. The deduction expenses include:
- Administrative Expenses
- Office Equipment
- Office Supplies
- Seller and Merchant Fees
- Shipping Expenses and Merchant Fees
Depending on the location you’re selling from and the location your buyer is located in, there may be sales taxes that need to be collected. Make sure to research if a sales tax is required and collect it accordingly. Neglecting to collect necessary sales taxes could lead to auditing and penalties from the IRS.
[Learn important tax information in your state]
File Taxes as a Non-US Taxpayer
Foreign sellers conducting transactions in the U.S. are required to fill out Form W-8BEN for their income. This form is for reporting income and any reduced rate or exemption of withholding.
eBay Does Not Help You File Your Taxes
According to eBay’s tax policy, sellers are responsible for any taxes from the sales they make on eBay.
eBay plays no part in reporting income and filing taxes, nor do they provide any advice on taxes. They’re supplying an online marketplace and sellers provide no services or work for eBay, so the company has no obligation to assist sellers with their tax filings.
eBay sales produce earnings that are worth reporting, so be aware of best practices to ensure you’re handling your tax filings correctly.
Stay on top of your recordkeeping and make sure you include every transaction to avoid missing earnings and sales taxes. The IRS will be closely monitoring your filings, so stay on top of reporting your earnings to avoid an audit or penalties.
Need help filing your Amazon taxes? Check out this guide on everything Amazon sellers need to know before tax season is over!