For Seniors: How to Pay Taxes on Your eBay Profits

If you sell something on eBay, you have to pay taxes. Whether in cyberspace or face-to-face life, never forget that Uncle Sam is always your business partner. (If you live outside the United States, check the tax laws in that country so you don’t end up with a headache down the road.)

You may have heard some rumors about not having to pay taxes on eBay profits. If you hear any variation on this theme, smile politely and don’t believe a word of it.

According to the IRS’s e-commerce office, even if you make as little as a buck on any eBay sale after all your expenses (the cost of the item, eBay fees, shipping charges), you still have to declare it as income on your federal tax return.

Aside from any payroll taxes you pay for your employees, you have three main areas of taxes to keep track of:

  • Federal income taxes: If you make money on a garage sale, you do have to declare it as income — just as you do with anything else you make money on. Most people never make any money on garage sales because they usually sell things for far less than they bought them for. However, the opposite is often true of an eBay transaction — people really do make money on many of the items they sell. If you have questions about eBay sales and your taxes, check with your personal accountant, call the IRS Help Line at 800-829-1040, or visit the IRS Web site.

    Even if you lose money, you may have to prove it to the government, especially if you’re running a small business. You most definitely should have a heart-to-heart talk with your accountant or tax professional regarding how to file your taxes. If something might look bad in an audit if you don’t declare it, consider that a big hint about the wisdom of declaring it.

  • State income taxes: Yes, it’s true: Not only is Uncle Sam (way over in Washington, D.C.) looking for his slice of your eBay profits, but your state government may be hankering to join the feast. If you have a good accountant, give that esteemed individual a call. If you don’t have one, find a tax professional in your area. Tax professionals actually do more than just process your income tax returns once a year; they can help you avoid major pitfalls even before April 15.

  • State sales tax: If your state has sales tax, a sales tax number is required before you officially sell something. If sales tax applies, you may have to collect the appropriate sales tax for every sale that falls within the state that your business is in. A 1992 U.S. Supreme Court decision said that states can only require sellers that have a physical presence in the same state as the consumer to collect so-called use taxes — but don’t just assume that little clause lets you off the hook.

blog comments powered by Disqus
Advertisement

Inside Dummies.com