Tax tips for eBay sellers
If you’ve got an eye for trends and fixer-uppers, eBay may be the perfect place to make some extra cash. This worldwide marketplace offers new and used items you can buy and sell. According to Business of Apps, eBay generated $10.8 billion in revenue in 2021, with millions of sellers on the platform. Because margins can be narrow on goods sold on eBay, you’ll want to make sure you maximize your profits by being smart about taxes. Here are a few tips to keep in mind as you build your eBay empire:
Hobby or business?
If you’ve been around the eBay community for a while or have researched the tax implications of your eBay business, you’ve probably heard the debate about whether eBay revenue is incurred under the “hobby” category of IRS taxation or as a business. This is important because the rules vary between hobby and business, and you’ll want to be sure you’re on the right side of that. As a rule of thumb, if you use eBay to make a profit, you’re generally considered to be a business by the IRS. There is some interpretation when deciding whether to report your eBay sales as hobby income or business income. Generally, the IRS will look at how much time you spend on your eBay sales, how much you earn, and how frequently you sell. Most of the tax benefits are on the side of considering your eBay sales a business and not a hobby. Keep that in mind if you intend to be serious about eBay sales.
Look for eBay-seller-specific deductions
As an eBay seller, you may have deductions that other online businesses may not. For example, if you buy items on eBay, fix them up, then resell them at a profit, these costs may serve as deductible expenses. Keep track not just of the purchase price of the item but also of all materials used to fix up or otherwise enhance the price of the item for resale.
If you use your car or truck for your eBay business, your vehicle expenses may be deductible. (Think trips to rummage sales or thrift stores to find items to fix up and list on eBay.) Keep track of your mileage, the purpose of the trip, and other expenses related to it. You can deduct either your actual expenses or you can choose to take the standard mileage rate. For the first half of 2022, this rate was 58.5 cents per mile. The rate went up to 62.5 for the second half of 2022, starting July 1st, 2022, to keep up with rising energy costs. The amount has yet to be determined for 2023, so keep checking the IRS website for any increases to the mileage rate.
If you use your phone for eBay business (for example, for contacting potential sellers of items you plan to resell, you may be able to deduct some or all of your phone expenses). Because eBay selling is a business conducted largely online, you may be able to deduct internet costs as well.
| If you’ve got an eye for trends and fixer-uppers, eBay may be the perfect place to make some extra cash.
Don’t forget labor costs
If you outsource any of the labor associated with getting your items ready for sale on eBay, you may be able to deduct the cost of paying for that. So, for example, if you fix up antique cash registers and need to pay an expert to fix the mechanism of the keys, keep track of those expenses. They may be deductible when you file your taxes. Keep track of all the help you pay for: packing, wrapping, cleaning, photographing, and bookkeeping, to name a few. Labor costs can significantly reduce profits and, therefore, taxes owed, so don’t forget to keep track.
Being smart about deductions and staying on top of your taxes is integral to running a profitable eBay business. Avoid late fees so as to not eat into the savings deductions can bring. With ComplYant, you’ll never miss a deadline. Get started managing your taxes with a free account today.