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Tackling eBay 1099 Taxes For Sellers

Tackling eBay 1099 Taxes For Sellers

There's nothing like having extra money in your pocket from selling items that were just lying around your house collecting dust. For some eBay users, this is side gig that brings in some additional spending money. For others, selling treasures and collector's items on the platform eBay is a full-time gig. Whatever the case, eBay can be a great place to buy, sell for a profit and find just about anything for sale.

But as with any business, taxes are something to be aware of when you are an online seller. One question most eBay sellers ask is, do you have to pay taxes on eBay sales? If you're earning income from eBay, the answer is yes, that income is subject to taxation. As a self-employed online seller, it's up to you to handle eBay taxes.

Key takeaways:

Most income earned from selling on eBay is taxable, but there are a few exceptions
Self-employment tax, income and sales tax may apply
You should receive an eBay 1099K at the end of the year

Table of contents

Taxes and eBay sales...Read more

Does eBay charge tax?...Read more

Reporting eBay sales on your tax return...Read more

eBay business tax deductions...Read more

Taxes and eBay sales

You have to pay sales tax, but there are a couple of tax exemptions on eBay sales.

Taxes <span style="background: linear-gradient(101.76deg, #19ACA4 1.98%, #3563CD 100.59%);
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Online selling as a hobby business

Most of us probably enjoy a few hobbies, like ping pong, sewing, reading or playing chess. The Internal Revenue Service (IRS) considers a hobby to be an activity done solely for enjoyment, and the intent is not to make a profit. eBay allows users to sell items made from their hobbies, like crocheted hats, personalized name plates or a painting, for example. To help you figure out if your business qualifies as a hobby, the IRS has criteria in place:

Do you depend on this income to make a living?
Do you invest time and money into marketing new customers?
Do you keep business records and run your activity like a business?
Do you make a profit?
Do you have any business expertise helping with the activity?
Have you changed how you do things to be more profitable?

If you answered yes to any of these, your eBay sales are probably not a hobby. It's important to factor in the taxes you'll owe on your hobby business when budgeting. You'll probably owe income tax on eBay sales if your hobby business makes $400 or more in sales.

Online yard sale

With a typical garage or yard sale, you're selling items from your home that you no longer need. People make offers, take the items off your hands, and you pocket the money. No need to report the income to the IRS. You might be someone who created an eBay account to sell belongings you no longer need, in what is essentially a virtual yard sale. Just like with an IRL yard sale, you won't be taxed on the items you sell, and you're not required to report your earnings to the IRS. If this activity turns out to be a business venture, and you're regularly buying items for resale, you would have to pay income tax on eBay sales in that case.

Does eBay charge tax?

Unless you're running the occasional eBay yard sale, you'll be responsible for paying taxes on eBay sales that turn a profit.

Does <span style="background: linear-gradient(101.76deg, #19ACA4 1.98%, #3563CD 100.59%);
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Self-employment taxes

When you work for an employer, you usually don't have to worry about US federal payroll taxes or FICA taxes since both are automatically withheld from your paycheck. Employers contributes 50% of the total tax that goes towards Social Security and Medicare for every employee. When you run your own business, you're both the employer and the employee. You're responsible for paying the 15.3% in self-employment taxes, 12.4% for Social Security and 2.9% for Medicare. A self-employment tax calculator can help you figure out how much tax you'll owe.

Income tax

Sales tax

Sales tax might not be something you need to cover because it might fall on the buyer's shoulders as part of their purchase. Not all buyers collect sales tax, but when it's required, eBay will collect it and remit it for you. The states with no sales tax include:

Delaware
Montana
Oregon
New Hampshire
Alaska (although some cities or towns do charge sales tax)

Not too long ago, you needed to be physically present in a state to pay sales tax. But the online business sector has changed that, and states now have the ability to charge sales tax for online purchases. This is calculated when you enter your shipping address.

Reporting eBay sales on your tax return

If you're wondering how to report eBay income on taxes, you can rest assured the IRS wants it to be fairly simple for taxpayers to make payments. If you make $600 or more in sales on eBay in a year, you'll receive a 1099-K. 1099 forms report the amount of self-employment income you made to the IRS, and it's required for all payers to send an eBay 1099K to them and a copy to you. The 1099-K form is sent to any self-employed individual who uses a third-party payment processor, like Paypal, Venmo or credit card companies. By January 31st, your 1099-K form should be available on the eBay platform, and you should receive one in the mail. It will be the same form that eBay sends to the IRS. If you used Paypal for your online eBay business, you should also receive a 1099-K form from Paypal. Even if you don't receive one from eBay or Paypal, you're still responsible for reporting your income on your tax return. Like every taxpayer, you'll report all your tax information on Form 1040, and you'll record any deductions on Schedule C. Freelancers and self-employed individuals need to pay their taxes quarterly if they expect to owe $1,000 or more in taxes. That means you're responsible for making these quarterly estimated IRS tax payments four times a year.

eBay business tax deductions

If you're running your eBay shop as a business, you might be eligible for business tax deductions. Running a business can be costly, and the expenses can add up quickly, but you deduct those expenses from your taxable income and save money.

eBay <span style="background: linear-gradient(101.76deg, #19ACA4 1.98%, #3563CD 100.59%);
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Some other items you might be able to deduct are:

Shipping and handling fees
Packing including boxes, scales and tape
Service fees
Inventory systems
Freelance copywriter or marketing assistants

You'll need to keep a record of your expenses using receipts, invoices or account statements. Track of all your business expenses can seem like a full-time job, but you can save yourself from the hassle by using FlyFin. All your expenses and income will be in one place, so there's no need to keep receipts or spreadsheets. A.I. will find every possible deduction, saving you time and money. An expert CPA team is available in the app to help you pay income tax on eBay sales and file your tax return.

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