Online auctions and retailing is big business and growing every year. eBay is the number one site for individuals to sell items and products on the internet. If you are thinking about selling on eBay, one question that you might have is if you are required to pay income tax on your sales? This article should answer your questions.
If you auction a few personal items on eBay every now and then that represent merchandise that would otherwise be sold at a garage sale, you have no tax liability and no extra filing requirement. Normal items that may have been up in the attic or not used in a while likely are worth less than what you paid for them so there is no taxable gain. The loss on these items is also not deductible.
The rule is different if you sell an item that has appreciated since it came into your possession. Selling art or antiques that have gone up in value significantly since acquisition and sold for a profit must be reported. They will be reported either as a capital gain on Schedule D or on Schedule C if you are engaged in an online business. A small gain on a novelty item is another matter. For example, if you bought a GI Joe for and sell it for 0, you have a potential capital gain that could be reported. IRS is not likely to be concerned over something small like a gain on a GI Joe. If you have one or two such sales like that a year, it is not going to be an issue even if in theory it is a taxable gain. But an individual selling GI Joe action figures on a regular basis as part of a profit seeking venture would have a potential IRS problem if they did not include the income on Schedule C of their return. Any legitimate business expenses could be deducted from the profit on goods sold of an online auction business.
At this point a distinction must be made between an online business and a hobby. A person who buys items for resale and is trying to make a profit in online auctions may have a legitimate business. However, if someone files a Schedule C with their return for an online business and reports a loss year after year, IRS may disallow the losses and declare that activity a hobby. The factors that play into this distinction are outlined in IRS Publication 535 (Business Expenses). In a nutshell, regular online selling may be a hobby if there is no clear profit motive. If your online sales are a hobby, the expenses cannot exceed the income from sales for tax loss purposes. Although an itemized deduction on Schedule A might be taken by some aggressive individuals, I would not recommend it. An IRS audit is no fun.
Another factor to consider is whether or not items you sell were depreciated for tax purposes in a prior year on your tax return. The sale of office equipment or vehicles that were used in business and were subject to prior depreciation may result in a required recapture of depreciation, capital gains or ordinary income. See a CPA, Enrolled Agent, or Accredited Tax Advisor for help with preparation of your federal income tax should you have questions about the taxation of online auctions.
Riedell Skates Outlaw Tuner Roller Skate
Freestyler Quad Pedal Go-Kart By Berg
Madrid Pipe Std 39" Complete Longboard - 9x39
Element Hog Forward Complete
Sayshun Drop Dead Complete Longboard Skateboard - 40.75`
Dregs 40" Uptown Push Flame Longboard 10x39
Sector 9 Bolt Quad Complete
Globe Meat Wagon Complete Longboard Skateboard - 9.75" x 33"
Construxx AF Pedal Go-Kart By Berg
Element Travel Well Ez Strata Complete Skateboard - 7.75x30.5
Santa Cruz Screaming Foot Complete
Ladera Mountain Man Complete Skateboard - 9" x 35"
Dregs Skateboards Fiberslide 101 Complete - Black/Green
Sayshun Drop Dead Complete Skateboard - Blemished - 9.7" x 40.75"
Santa Cruz Landshark Rasta Complete
