Do I Have To Pay Taxes For Stuff I Sell On Ebay?

Hey Hank, I sold about $3,000 worth or my old things on Ebay last year. Do They send a 1099? Do I need to report it? I know the US government wants me to, but do I REALLY need to? – Ed from Kansas

A good question Ed, and let me start it off (to cover my *%$) by saying it is against the law to not report all income to the IRS.

But after saying that, yes, the government wants you to report each and every piece of your pie each year. But are they going to call you on it? Year after year there are BILLIONS of dollars that go unreported, so $3,000 of them might not be noticed.

As of now, eBay hasn’t been required by the IRS to send out 1099s, so it is likely that they won’t ding you unless you’re a big spender/seller that can’t hide the profits. Think of the several million other people selling on there. At 3k per year, I’d guess you’re in the bottom 2% of sellers total. Not saying that you shouldn’t report (because “the man” may be watching and I agree with “everything” the goverment says. 🙂 ) but if I were you, I probably wouldn’t worry about it.

News.com is saying that the IRS is trying to crack down on it in 2008, but nothing I’ve read yet has said anything about it. How many people would likely NOT sell things on eBay if they gave up if sellers were required to submit their social security numbers? I’d say a VERY large number, ultimately hurting eBay’s business. The News.com article says:

“The effort is part of a larger plan, which enjoys enthusiastic support from both Democrats and Republicans, to close what’s known as the “tax gap.” It’s a broad term that covers Americans who don’t file tax returns or those who underreport their income, and the IRS believes it to total around $345 billion for the 2001 tax year.

But the proposal is likely to encounter stiff opposition from Internet auction aficionados, free-market advocates and the auction Web sites themselves, not all of which are large enough to be able to comply with the rules without financial hardship.

“It’s a total nightmare,” said Matt Stinchcomb, vice president of marketing for Etsy.com, which allows people to sell handmade goods. “Our goal as a company is to allow people to make a living making things, and this is just another impediment to that.”

Furthermore, keep in mind that if the stuff you sold on eBay was stuff that you previously paid for, you’re likely selling it for LESS than you paid for it originally, which doesn’t require reporting to the IRS as no gain was realized on it. I think for sure during the 2007 tax season, you’re good to go, but keep an eye out for future info with it.


Photo by:
liewcf

Filed Under: adviceCompensationDebtEmergency fundfinancial educationGiveawaysInterviewsInvestingNet WorthPassive IncomeReaders RequestsTaxes

  • Minimum Wage

    My first thought was that since most of the sales consist of used goods sold in a non-business context at a loss, there wouldn’t be any tax implications in most cases. (A hobby loss wouldn’t be deductiblke.)

    A lot of people find it a convenient venue for raising a little cash by selling items no longer needed – there have been hundreds of blog posts on the topic.

    On the other hand, there are some sellers who are doing it as a profit-making venture, and who should be paying taxes on their profits. Some are paying taxes and some aren’t.

  • Actually if I am not mistaken, there is a clause somewhere that under a particular amount of money you are NOT required to report it to the IRS. Sort of the same thing as a garage sale. I would have to look it up though

  • I was curious about this topic as well. I’ve never even come close to the $3,000 that Ed has racked up, but I didn’t want to run into trouble.

    My understanding after doing some research, was that selling goods for less than their depreciated value does not result in taxable income. For example, if you sold personal goods online (similar to a garage sale), for less than they were originally purchased it would not incur any taxes. However, if you sold machinery on which you had depreciated its value for prior year tax deductions you would need to pay taxes on the sale that exceeded the depreciated value of the item. Also, if you sell a collectible, art work, sporting event tickets, etc for more than the original purchase price, capital gains taxes would apply. Finally, if goods are sold as a business venture and for profit you absolutely should pay taxes, both income and sales tax (or use tax)!

    Be sure to consult your tax professional about all of the ins and outs because obviously the tax code is complex.