EBay Income and the IRS

People ask it all the time. "Do I have to pay taxes on my eBay income?" The answer is really very, very simple in terms of the IRS. Answer is: You're asking the wrong question!

The question is correct in spirit, but not quite in semantics. The IRS says you must report income. All income. Doesn't matter if that income is from a business or a hobby. Doesn't matter if it's from eBay or your 40-hour-a-week employer. In fact, it doesn’t matter if it’s “just” the $50 gift certificate you won in the local photo contest. It is income and you are required to report it. Whether or not you pay taxes on that income depends on the combination of all your income, deductions, etc. and what happens when you get to that bottom line on the tax form.

So, the correct question is not, "Do I have to pay taxes on my eBay income?" and it's not "When does eBay become a business rather than a hobby?" but rather, "Do I have to report my eBay income?" The answer is yes, you do. You are required by the IRS to report all income. If you want to claim business expenses for your eBay business, you may do that. Just make sure every expense is fully documented. I would suggest obtaining a schedule C form from the IRS (or the IRS web site) so that you will know what types of expenses are reportable and keep records accordingly.

Tax returns can be cumbersome and tax law is long, detailed, and sometimes complicated, but the basic rule is very simple. You earn it, you report it.

P.S. Home Business Tax Deductions: Keep What You Earn is an excellent, well-reviewed resource to learn about what business expenses you can deduct. A very comprehensive resource - recommended!

P.P.S. Don’t like filling out those complicated tax forms? Do you think the tax code is unfair? Then consider supporting this alternative way to pay taxes.