No matter who's asking the question or what they'd previously assumed, it always seems that people in the United States are surprised to learn just how eBay affects their taxes. Here are the facts. Please note that this does not constitute official legal advice about your tax return; you should consult your tax preparer for official help on these topics.
For Income (Sales)
- Like any other source of income, you must pay federal income taxes on net earnings from eBay.
- Unlike many other types of earnings, you must also pay self-employment tax on net earnings from eBay.
- Check the laws in your state for state income tax questions.
- In most municipalities that collect sales tax, you must also charge other residents of your area sales tax for eBay purchases
eBay will require tax identification information for and will supply 1099-K forms to you as a seller in order to re[prt the gross revenue you've collected on eBay. eBay uses a 1099 form because you aren't actually doing business with or working for eBay when you buy or sell an item, but rather acting as a business in your own right, directly selling to the buyers in question. It is up to you to include the 1099-K data in your annual income taxes, for example using a Schedule C (profit or loss from business) form if you are in the U.S. and are a sole proprietor.
Since no withholding occurs, eBay will never provide you with the conditions for a tax refund, and U.S. sellers should bear in mind that as self-employment income, eBay profits will also be taxed based on self-employment status, in addition to income taxes.
For Expenses (Purchases)If you make eBay purchases for use in your business, you can use and deduct/depreciate them just as you would any other purchases, provided you have the correct documentation. For this reason, you should be sure to get a receipt from your seller if you plan to use an item this way.
Don't forget, too, that many states require that you calculate and pay a "use tax" for items purchased from beyond state lines and shipped to you. Though this information isn't reported by eBay yet, states are increasingly taking a hard line in trying to find and tax online purchases that cross state lines. Once again, consult your state tax commission for details on how eBay purchases must be treated at tax time in your state.