Do You Get Taxed On Borrowed Money

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If you lot sell on eBay or i of the many online marketplaces, you might be wondering if you have to pay taxes on your eBay income? You lot certainly don't desire to go far hot water with the IRS! Then what is the right reply when it comes to taxes and eBay income? The short answer is if you made a turn a profit, you have to report the turn a profit as income and pay income taxes on it.

Dissimilar Types of Sale

Selling at a LOSS

In general, if you lot are just selling your used stuff, you'll nigh likely sell your items for less than what y'all paid for them. You would have sold at a LOSS. In this case, your sales are non taxable, but you should notwithstanding keep a good record of it in case eBay reports the income on 1099-K, you volition want to be able to show that some of your income is not profit.

For instance, let'due south say you lot paid $100 for a pair of shoes and sold it for $75, it's a internet loss, and that'south before eBay and PayPal expenses. Yes, you got $75 income, simply it'southward not profit, it's a $25 loss.

According to the IRS Publication 525, Taxable and Nontaxable Income, folio 33:

Sale of personal items. If yous sold an item you endemic for personal use, such equally a automobile, refrigerator, article of furniture, stereo, jewelry, or silverware, your proceeds is taxable equally a capital proceeds. Report it as explained in the Instructions for Schedule D (Form 1040). You can't deduct a loss.

Selling for PROFIT

If yous're selling items to make money on eBay, so report these activities to the IRS. In brusk, you lot need to keep track of what you received and your costs, such as

What you've paid for your products
Procurement costs — i.due east., shipping or price of traveling to the store, etc.
eBay listing and selling fees
Cost of shipping to your buyers
PayPal fees
Whatever other expenses related to your eBay activities

You only pay taxes on the turn a profit — the divergence between your total income minus your full expenses.

Tips from Other Bloggers

Here's a response from David at My Two Dollars:

I would recommend June Walker's book: Cocky-employed Tax Solutions — which while written for freelancers and the similar, has dandy taxation data within likewise for anyone making money on the side. I read the book for my own web log income, and I tin run into where some of the data is relevant to making money on the Cyberspace.

And yeah, you lot do have to pay taxes on eBay income…at least by law you lot practice. Most people who sell a few things probably don't study information technology, but if y'all start selling a lot, I would most certainly claim information technology on my taxes.

Do y'all do this every bit a hobby or a business? Do you have plans to brand a profit, or simply to unload some of your junk? Merely to exist on the safety side, if you start selling a ton of stuff, I would proceed track for the yr and then talk to a revenue enhancement pro at revenue enhancement fourth dimension. Lilliputian sales over 12 months can really add up to quite a bit of money!

Hither'south a response from Patrick at Cash Money Life:

I recommend reading Lower your Taxes Large Time, by Sandy Botkin. The volume is aimed primarily at people who ain a small business or earn culling forms of income through things such every bit consulting, crafting, selling things on eBay, or anything else. At less than $xiv, the volume should easily pay for itself — or only borrow a copy from your local library.

Concerning items sold on eBay, yes, you will have to pay taxes on them. However, you merely pay taxes on your profits, not on all items sold. The other thing to keep in mind is that you tin can deduct expenses every bit well. Common expenses for eBay include listing fees, shipping and insurance, PayPal fees, etc.

Example ane: Yous accept a designer dress that you bought for a Christmas ball. You lot spent $100 on it, wore it once, and then decided you won't wear it once again, so you list it on eBay. If you lot sell it for $75, you didn't make any profit on it, and so yous shouldn't have to pay any taxes on information technology.

Example 2: You go to several yard sales and notice a couple items that you think might be worth more than the request price. You pay $five for a box of 10 widgets and turn around and sell them on eBay for $20 each. That $5 investment just turned into $200! Great deal! But y'all will need to pay taxes on your $195 turn a profit (less expenses).

I highly recommend buying a tax book or speaking with a tax professional for more details. Each situation is different and there may be other things you may be able to deduct, or other things you lot may need to pay taxes on.