Filing Taxes for eBay Sales
by Kristine McKinley on June 19th, 2007
Q. How do I go about filing income tax for eBay sales?
I’ve never had a "real" job where I’ve had to do income tax, so I don’t know how to do this…I’m a full-time student; but I do sell stuff on eBay occasionally (about 2 items/week, sometimes more, many times I go weeks/a month without selling/listing anything), stuff I usually buy at the mall or buy from websites and then sell it on eBay for a profit.
How would I go about keeping records of my expenses and profits for tax purposes? Do I need to keep an itemized list of expenses, sales and profits or can I just add all the total money received (including final bid price + shipping buyer paid) and subtract the expenses (original price for item, tax I paid on item, shipping I paid on item to have it delivered, eBay fees, shipping I actually spent to send item to buyer)?
I’ve only started selling since last September or so…
A. If you only sell items on eBay occasionally, then you are most likely a sole proprietor (some eBay sellers will incorporate their business but most eBay sellers are sole proprietors).
Sole proprietors report their eBay income and expenses by completing Schedule C - Profit or Loss from Business and attaching it to their personal income tax return (Form 1040).
You should report your gross income (the sales price before any fees or discounts), then deduct your business expenses to arrive at your net profit.
Business expenses that eBay sellers typically incur include:
- Inventory cost
- eBay listing fees
- Paypal fees
- Shipping costs - postage, packing materials, etc.
- Mileage for trips to the post office, trips to find inventory
(most people use the standard mileage but you can use actual expenses instead)
- Home office expense - mortgage interest, real estate taxes, rent, utilities, and repairs/maintenance
- Office supplies
- Computer and software expenses
(may need to be depreciated over the life of the item)
- Telephone and internet costs
(business use only)
- Advertising
- Continuing education
There are more expenses that you may incur, but these are the most common for eBay sellers.
It’s important to keep good records so that you get all the deductions you are entitled to. And yes, you should keep itemized lists of your income and deductions - the more detailed your records, the better, especially if you are ever audited by the IRS.
You are only taxed on the net profit, but you have to pay self employment taxes on your profit in addition to your ordinary income taxes. The self employment tax is 15.3% and your ordinary income tax rate can range from 10-35%, so these taxes can add up quickly! This is another reason why you should keep good, detailed records.
To keep track of your income and expenses, I would suggest either Excel spreadsheets or an accounting software program such as Quicken Home and Small Business or QuickBooks. eBay also offers an accounting assistant (fee applies) which allows you to download your eBay activity into your QuickBooks software (very cool!).
The IRS is targeting eBay sellers and other small business owners who may be under-reporting income (or not reporting it at all), so good for you for being proactive and learning your responsibilities as a small business owner.