Paying taxes on Ebay profits

JESSEJAMES

Hi guys... Here's a topic that is sure to get some major action... What is the acceptable procedure on Ebay sales. Is this considered a hobby or are we all supposed to pay taxes on the items we sell... If I sell 50k a year and take in 50k a year, does that cancel out each other?

Does the IRS montitor ebay activity??

thoughts?

Stone193

<< <i>Hi guys... Here's a topic that is sure to get some major action... What is the acceptable procedure on Ebay sales. Is this considered a hobby or are we all supposed to pay taxes on the items we sell... If I sell 50k a year and take in 50k a year, does that cancel out each other?

Does the IRS montitor ebay activity??

thoughts? >>


Jesse
What do you mean by "take in 50K a year?

Do you mean buy?

mike

JESSEJAMES

I meant take in 50k and spend 50k, in other words break even...

JESSEJAMES

Basically, whats the procedure on reporting taxes from ebay sales?

Stone193

<< <i>I meant take in 50k and spend 50k, in other words break even... >>


Jesse
What do you mean by spend?

Do you mean inventory? Depends on "what" you spent the $ for?

mike

shambo2000

If you are not operating as a business you should claim your eBay income as hobby income. You can then deduct hobby expenses that exceed 2% of AGI. Remember purchases don't count as expenses. You should google "claiming hobby expenses" and you will get a lot of good information. irs.gov also has good information on the topic.

Stone193

I guess "hobby" is a specific IRS issue.

My point:

If some did 50K in sales on ebay over the year, they should be able to balance that off with all expenses incurred to include "inventory" cost for the items sold.

Basically, that's just looking at it like a business.

mike

dude

I asked this same question to two dealers who are also accountants and they told me without hesitation that your net profit is taxable regardless if you spend it on restocking your inventory or spending it on your collection. You can write off things such as mileage to and from the post office, eBay fees, Paypal fees and any other expenses related to selling cards.

JESSEJAMES

What are the odds that the IRS would ever find out about how much one sells on Ebay? I am just curious and thought it could be a good topic of discussion.

JESSEJAMES

So I guess the question is "is Ebay regualted?" I was always told the answer is "no."

shambo2000

Here is a link to info on hobby income.

Link

bsfastball

I just reported my eBay dealings for the first time and I classified it as a business (I used turbotax to prepare them). I took in about 65k in sales - 55k in purchases - 4k in expenses. The software took tax on my net income. I dont know how you go about "proving" its a business you're doing, but I imagine its more advantageous to do so.

Im terms of the IRS finiding out about your ebay stuff, I guess it comes through your bank account being larger than it should?

iamthegreatcornholio

I would think it'd be better to look at it as an investment rather than a business. This way you wouldn't have to pay both sides of SS and Medicare, and if you hold on to a card 1+ years before you sell, it's a long term gain and taxed less.

I think anytime you deposit 10k or more banks must notify the IRS and anytime you deposit 2k or more, they kepp track of it.

Treetop

Jesse,

Until Ebay asks for your social security number, I don’t think the IRS will monitor much of ebay’s traffic. But, as Dude stated above, your net profits are still subject to state and federal taxes.

Personally my income from card sells is claimed as a second income and I pay the appropriate taxes. I have a wife and 2 daughters and find that I have too much to lose if the IRS decides to claw up my arse.

Sugar20

My accountant makes me break it down between things owned for less than a year and more than a year, but i report both. It's almost scary how good the records on paypal are so i've started making sure to pay on all that stuff. As far as the discussion between whether it's a business or a hobby, first the items are considered a business if held for less than a year and a hobby if they are held for more, but here are some of the guidelines between business and hobby and i'm guessing few of us can answer these and not consider what we do a business, whether we have another job or not. Here's the link: http://www.irs.gov/faqs/faq12-7.htmlText .... hope that worked.

JESSEJAMES

Nice Bong.

Sugar20

nice fro.

pandrews

that bong used to be mine..

you may have it..

JESSEJAMES

Was the bong originally yours or did you steal it from a former member also?

dude

I've kept meticulous records about my buying and selling since 2002. One thing to do keep down your large gains is to sell off your past hobby "mistakes". I bought a lot of modern crap in the early '90's and around November of 2002 and 2003 when I was worried about the IRS and having to declare $5K or $7K in hobby income for that year, I cleared out a big portion of a closet get rid of stuff for pennies on the dollar and pretty much offset my profit for the entire year.

pandrews

<< <i>Was the bong originally yours or did you steal it from a former member also? >>



i stole it also..

frankhardy

Hypothetically speaking, what could happen if a person is audited and they find that a person did not claim Ebay profits? I am sure they would have to pay penalties, but could that person go to jail? How bad does it have to be for that person to go to jail?

Sugar20

I actually googled the bong and found just the right one about 3-4 years ago when I was another member, but i lost all of my passwords and was never able to find them again, thus the newly formed Sugar with the bong from my past username. Weren't we talking about taxes, though?

JESSEJAMES

We WERE talking about "taxes" until you piped in here with that snazzy neon-green drug paraphanial icon

JESSEJAMES

So, what should I do for ebay stuff? Should I start keeping track right now and feel like I am scott-free or worry about past transactions that I never really kept track of...

SDavid

Just curious - how many of you collect sales tax for in-state sales?

How many of you pay sales tax from your online purchases if your state has a sales and use tax? Or do you have some form of a reseller's certificate that exonerates you from paying taxes on purchases for resale? I just recently signed up for the latter as my ebay activity has increased and I will have to start collecting sales tax on in-state transactions.

Boopotts

<< <i>Hypothetically speaking, what could happen if a person is audited and they find that a person did not claim Ebay profits? I am sure they would have to pay penalties, but could that person go to jail? How bad does it have to be for that person to go to jail? >>



It has to be pretty bad. They want their money-- they don't want to get tied up in an expensive criminal case.

yawie99

Bongs are way better than taxes.

TheCARDKid

I don't think I've ever read of anyone going to jail because of small time ebay profits.

I forget the numbers, but there's 500,000 people that make their living from ebay? And untold millions more that probably derive a decent portion of their income from it. Even if only 1% had tax problems....I don't see tens of thousands of people being marched off to jail for selling their pez dispensers or collectible coins.

If you're Richard Hatch and you don't declare a million dollar windfall...then I'd be worried.

Still to be safe, keep records and talk to a professional. I can't imagine doing deals like this without keeping records:

52 Topps PSA 9 flip

52 Topps PSA 9 flip

alnavman

How do you account for cards purchased years ago that you decide to sell??? do you just consider the pack prices and then figure anything above that???

Stone193

On the situation of the IRS nailing you.

If you have "unreported" income - they would have to prove "intent" or conspiracy to withold taxes - and that IMO would probably be "evasion."

But income tax "avoidance" is making mistakes out of ignorance?

Not sure on this but IMO, not reporting ebay income would be viewed as an error if one plead ignorance of the law.

I don't sell. Does ebay have something in all that red tape you sign?

mike

5STAT

simply put...if you're making a profit..you OWE!!
If you buy a card and resell it...it's considered a business transaction. Now over the course of a year....or two or ten......let them go unclaimed....and WHAM....they WILL get you!!

If you work and make say $45K a year....less taxes...and other weekly/bi-weekly deductions...you can really only be expected to take home say $25-$30K...and let'say you put it all in the bank. Period...
Now throw in another $50K in Ebay sales and you're putting $75-$80K through your bank.....do the math...
And when they catch up to you...they can go back 7 years..

Is the IRS watching Ebay....yes...and taking notes. Are your Ebay bills and Paypal invoices in a system and leaving a huge paper trail....yup!!

Simply put..CYA (cover your butt)!!

You're better to do the math and prove little or no income was made..and file it accordingly...than to just ignore it. And IF you're making the $$$$ pay up...better now than when they cath up to you with files and penalties!!

Stone193

<< <i>The ignorance defense doesn't work in tax cases. I have a general contracter friend that has all of his banks accounts and credit cards frozen by the IRS over the "I didn't know defense."

The rule is simple, you have to declare all of your income to the IRS. When it comes to "hobby income", you can only deduct the amount over 2% of AGI.

You can always roll the dice. The audit rate is a little over 1%, unless the IRS convinces Congress to increase their budget. >>


nd
Let make this clear - I didn't mean you plead ignorance and you're off the hook.

What I'm saying is - if you plead ignorance and they can't prove conspiracy or intent - they won't try to nail you for evasion and send you to jail.

They will do worse - nail you for back taxes and large penalties - to include fines and interest on back taxes - this is what I believe.

Just wanted that to be clear.
mike

dontippet

I understand what you are saying Stone and I totally agree. That is why my motto is....when in doubt take the deduction. Whatever it is, if you're not 100% sure if you can claim it or not, take it. If you don't, you will miss deductions you should have taken. If you mess up and end up owing money after an audit, you have to repay the deduction plus penalties. But like Stone said, they won't throw you in jail for making a mistake or misunderstanding a certain rule. You do need to read the rules and try to be as knowledgable as possible, but many times, rulings are based solely on past court rulings due to the laws being unclear.

Now if ebay is a significant portion of your profits, then yes, you should report it.



Don

softparade

What about the guys who sell part time, are collectors and gross less than a $1,000 per year? I don't think even the straightest arrow is putting that on his return.

gemint

For me, the hardest part is determining what my profit is (if any). I may purchase a complete set and sell of a handful of cards and keep the rest in my collection. So how much did I pay for those cards I sold? Divide the total purchase price by the number of cards in the set or take a ratio of Beckett or SMR vs the total set and apply that % to the purchase price of the set (in the case of star cards)? It becomes very complicated. It would be extremely difficult for an auditor to work through those numbers. Especially when many purchases off eBay have no receipts (e.g., card shows). Then there are cards I purchase and put in my "inventory" or collection. Does the purchase price for those cards get deducted from my profits (if any)? After all, I probably will sell the cards in my collection at some point in time. Then there are trades. If I trade a card I paid $20 for in exchange for $100 in cards, is that considered an $80 profit?

I think if you apply common sense you'll be ok. If you're making a living selling cards, then you need to report that income. If you are a small time collector/seller, then the IRS probably isn't going to come after you to try to claim a few hundred bucks that may be unreported.

bishop

Everyone here is well intentioned, but tax questions, both state if applicable, and federal, can often depend on very specific facts and circumstance. I would talk to your tax preparer, accountant or an attorney before deciding what to do if you are more than a casual seller. The IRS is looking at how to deal with e-bay income and Congress has just allocated them more money to look into systematic underpayment of taxes in that and other venues

magellan

<< <i>Everyone here is well intentioned, but tax questions, both state if applicable, and federal, can often depend on very specific facts and circumstance. I would talk to your tax preparer, accountant or an attorney before deciding what to do if you are more than a casual seller. The IRS is looking at how to deal with e-bay income and Congress has just allocated them more money to look into systematic underpayment of taxes in that and other venues >>



Best advice on this thread thus far........ there are oftentimes too many variables from person to person.

kennylow

How about this one:

I buy two cards in January, each costing $5,000
In December, I sell them. One I sell for $6,000, the other I sell for $4,000.

In total, the profit is $0.

What is my income? $0 or $1000?
Do I have to pay any taxes?

dirtystarfish

Does ebay provide you with a w-2 or a w-9 form?

bsfastball

<< <i>How about this one:

I buy two cards in January, each costing $5,000
In December, I sell them. One I sell for $6,000, the other I sell for $4,000.

In total, the profit is $0.

What is my income? $0 or $1000?
Do I have to pay any taxes? >>



The way I accounted for it, your income would be zero. For tax purposes, I did

Total Sales
- Cost of cards purchased
+ Inventory (cards purchased but not yet sold)
- expenses (ebay fees, shipping expenses, etc.)
Profit

Taxes were then asessed on the profit. I treat my card activities more as a business (its all ebay, naxcom, and thepit.com stuff) than a hobby, although there are some cards I wont sell. I guess the best advice I could give anyone is KEEP GOOD RECORDS!

doncherry

Am i wrong or did i ready somewhere on these boards that paypal automatically reports any paypal activity over $2000 in one month to IRS

JESSEJAMES

I highly doubt it.

Jersey

<< Just curious - how many of you collect sales tax for in-state sales? >>

I sell very few items over the course of a year but, yes, I do collect sales tax for those items sold in-State. The thing is, you have to register with the State to do so and those periods in which nothing is sold in-State, you still have to report it, even though it's zero. It's a bother but I believe in keeping complete and honest records. Better to be careful IMHO.

alnavman

Great thread .....just wondering if anyone uses any special software to track their inventory for tax purposes??? Something that you can add your inventory with purchase prices and sale prices that will provide you with a result at the end of the year.

bobwilley

Acounting Software geared to Internet Selling


Here are some other great resources:
Auction Resources


Great Resource for Family Ebay'ing and EBay selling in general !!

RobBobGolf

I am pretty sure I read or heard that the "Red Flag" for this situation is a threshold amount equal to 20% of AGI. Stay below that level and most likely you will never hear from the IRS.

Jersey

There is a LOT of money involved here considering how many items are sold per day. I can't believe that it won't be looked at closely as potential tax revenue. So, best to report it.

alnavman

Ok, so if I understand this correctly I purchase a set of 10 cards for $40. I send in 10 cards for the $5 special and get them back, list them on ebay and receive $10 for five of the cards and $4 for the other five. Is my amount to report for taxes $30 I"ve broken out the 10 card example below:

10 cards purchased at $40 - cost per card is then $4

Cost to grade $5 each

5 cards sold for $10 each, my cost for tax purposes is $30 - 5 cards x $6 (profit per card over initial cost)

5 cards sold for $4 each - my cost for tax purposes is 0

I itemize the cost for grading and postage approximately $1.50 postage plus $5 grading fee - I can deduct $6, is that true???

I can deduct nothing for the 5 cards that sold for my cost and would also not have to claim anything, is that true??

this can get confusing fast.

thanks
al.

shambo2000

Al, you should really consult a tax professional because there are a lot of variables that may be specific to your situation. That said, if you're claiming the $70 in sales as hobby income you wouldn't be able to take any deductions for the grading fees etc. unless you are itemizing your deductions and all your deductions (including hobby deductions) are greater that 2% of you adjusted gross income. Then you can only deduct the the amount over 2%.

If your claiming the $70 in sales as business income then you can claim all of the grading fees, eBay fees, mileage to the post etc. as a deduction. Use the schedule C to figure. Remember if you claim these deductions as a business make sure you are registered with your state to collect sales tax. Your local jurisdiction is probably also going to require you to register with them and pay some sort of business tax.

I'm not an accountant but I did stay at a Holiday Inn express last night. In all seriousness everyone with any questions concerning taxes should consult a tax professional in your local area. Every jusrisdiction has different laws and policies and what is the right answer for one person may be totally wrong for the next person.

alnavman

Thanks SHAMBOO....loved the line about staying at the Holiday Inn last night......I also forgot to include that I only do this for hobby....wish I could do it as a business but I don't think I could survive without my real job so I just sell my extras and items I tire of..which usually doesn't happen often.....it seems once I buy a set of cards they end up mine forever!!