The question of whether income earned from eBay sales must be reported to the IRS is a common one. Many eBay sellers hope their activities can be classified as hobbies rather than businesses, thus avoiding taxation. However, the IRS typically views consistent selling activity differently. Many argue that small eBay earnings shouldn’t be considered a full-blown business, viewing the income as untaxable. Yet, the IRS considers all income, including that from eBay, taxable. If you buy an item for $10 and sell it for $20, the $10 profit is, in principle, taxable income.
While the IRS likely won’t pursue casual sellers making small, infrequent sales, consistent selling may be deemed a business, requiring the filing of a Schedule C to report income. The IRS assesses several factors to determine if an eBay activity is a business, including whether it’s conducted in a business-like manner, the time invested, and the reliance on the income for livelihood. Answering ‘yes’ to these questions suggests a business, requiring income tax payment.
eBay, as a facilitator, doesn’t issue 1099 tax forms or report sales figures to the IRS. They provide a marketplace without tracking actual payments between buyers and sellers. However, sellers operating as businesses can deduct various expenses, such as inventory costs, listing fees, shipping, and office supplies. Consult a tax professional to determine if your eBay earnings are taxable and what deductions you can claim.