Small Business Q&A with Tim KnoxQ: I made extra money selling things on eBay last year. These were items I picked up at yardsales mostly. My husband says I am responsible for paying income tax on
money I made, but I disagree. This is just my hobby, not a business. What do you think? -- Gladys A.
A: With so many people selling on eBay these days this is a question I get all
time. To many eBay sellers
thought of running an actual business is about as appealing as getting negative feedback, so they go out of their way to convince themselves that selling on eBay is really "just a hobby" and therefore, should not be susceptible to income tax laws.
While you might think selling on eBay is just a hobby and
extra money you're making is not reportable as income, depending on
circumstances,
IRS just might disagree with you.
The IRS rules are clear: you must pay taxes on all personal and business income and that includes money you make selling on eBay.
In its most basic sense,
IRS rules mean that if you buy a vase at a garage sale for $10 and sell it on eBay (or elsewhere) for $20 you made a $10 profit and therefore must report it as income and pay Uncle Sam his fair share.
In reality, if you are a casual seller who only sells a few items on eBay every now and then it's doubtful
IRS is going to lose much sleep over
few bucks you make.
However, if you consistently sell on eBay
IRS may deem your activities to be business oriented and you will be required to file a Schedule C and claim
income.
The IRS uses a number of factors to determine if a hobby is really a business. These factors include:
1. Do you carry on
activity in a business-like manner?
If you conduct your eBay activities in a business-like manner, i.e. you keep business records, track profit and loss, keep a separate checking account, etc. then whether you think so or not, your hobby is really a business.
2. Do you spend considerable time working on your hobby?
If you put considerable time and effort into your eBay sales,
IRS may contend that you do so for profit and not fun. It seems
folks at
IRS don't believe in doing things strictly for pleasure. My guess is, neither do you. If you weren't making money selling on eBay I doubt you'd bother getting up at 4 a.m. to hit all those yardsales.