SOLD! on eBay could mean PAY! your taxes
All income from auctions, traditional or online, and consignment sales is generally taxable unless certain exceptions are met. This income is usually considered either “business” or “ordinary” income. In certain circumstances such income can qualify for capital gain treatment. There are also some exceptions where income can be excluded from taxable income.
Business income from these sales is subject to the same taxes as the income from any other retail or service business. They include income tax, self-employment tax, employment tax, or excise tax.
A person must report a gain from a sale whether he or she operates a business or not. A reportable gain is the income above the original cost or basis of the item. These gains may be business income or capital gains.
Income resulting from an occasional garage or yard sale is generally not required to be reported.
Some people sell a product or service online as a hobby. This income generally must be reported and deductible expenses are limited. The deductions cannot total more than the income reported and can only be taken if deductions are itemized on Form 1040, Schedule A.
What’s a Deductible Expense?
Traditional or online auction and consignment sellers in the business to make a profit can generally deduct expenses that are both ordinary and necessary. An “ordinary” expense is one that is common and accepted in a trade or business. A “necessary” expense is one that is helpful and appropriate for a trade or business. Verifiable auction and consignment fees and commissions are examples of allowable business expenses.
The occasional sale would be considered a hobby. Most people probably do not think that this would have to be reported. It is time to think twice. PayPal will be issuing 1099’s starting in 2013 to individuals who meet certain dollar and transaction limits. We suggest that you contact your ShindelRock tax professional to assist you in this analysis along with the deductions that maybe allowable.