Thursday, December 01, 2005
Is Your Ebay Income Taxable?
by Kirsten Hawkins
The income you get from selling items on eBay is just like the
income you get from any other business: it is taxable, at least
in theory. In practice, many get away without declaring profits
from their eBay sales just because they're hard for the
government to track. If you want to be strictly within the law
and legit, though, you should be paying tax.
Income is Income.
If you make money from it, then it's income - and if it's
income, then it's taxable. There is a question of scale
involved, though, where the more you've sold, the more
important it is to declare your eBay income. If you don't, you
risk getting yourself into all sorts of trouble.
There are some rules for deciding whether your income counts as
taxable or not. If you depend on the income you get from eBay,
spend a lot of time on it, or just act as if you are running a
business, then you need to file a Schedule C tax form and pay
tax as a business.
How Do I Work Out How Much to Pay?
The 'income' you make from eBay is how much profit you make.
Remember that you can subtract absolutely all of your costs
from this income, like this.
Sale price - cost of item - eBay fees - PayPal fees - cost of
postage - cost of packing materials = income.
For example, let's say you sell CDs for $10 each, including
shipping. You pay $5 for the CDs at wholesale. That's $10 - $5
(cost) - 25c (insertion fee) - 52c (final value fee) - 30c
(PayPal fixed fee) - 29c (PayPal percentage fee) - 37c (stamp)
- 50c (packaging) = $2.77 income.
For reference, eBay's final value fee on a $10 item is 5.25%,
while PayPal's cut is 30c + 2.9% for most sellers. These
numbers will vary depending on the value of what you sell and
the kind of account you have.
When you work this out at the end of the year, you can
calculate your overall price for all sales, and then work out
how much of that you actually received, remembering to adjust
for non-paying buyers. Then just subtract what you spent on
shipping and packing. There's no real need to do tax
calculations on a transaction-by-transaction basis, although it
is advisable to keep a printed record of everything you buy and
sell.
However, there could be a few advantages to paying tax on your
eBay sales - you might be able to make it back through
deducting tax on your business expenses. All of the costs in
the sum above that aren't profit are business expenses and so
tax-deductable. You may also be able to deduct the cost of any
computer equipment you buy, as well as ink and paper for your
printer. You could even try something a little unusual, like
deducting the cost of renting your home office from yourself.
Whatever you do, though, don't just rely on the information in
this email. If you want advice about tax issues, you should
really go to an accountant.
Another way to make back the money you spend on tax, of course,
is to simply make more profit on each item to begin with. Our
next email will show you how to get more bidders with the power
of pictures.
About The Author: Kirsten Hawkins is an Ebay and internet
auction enthusiast from Nashville, TN. Visit
http://www.auctionseller411.com/ for more great tips on how to
make the most from Ebay and other online auctions.
The income you get from selling items on eBay is just like the
income you get from any other business: it is taxable, at least
in theory. In practice, many get away without declaring profits
from their eBay sales just because they're hard for the
government to track. If you want to be strictly within the law
and legit, though, you should be paying tax.
Income is Income.
If you make money from it, then it's income - and if it's
income, then it's taxable. There is a question of scale
involved, though, where the more you've sold, the more
important it is to declare your eBay income. If you don't, you
risk getting yourself into all sorts of trouble.
There are some rules for deciding whether your income counts as
taxable or not. If you depend on the income you get from eBay,
spend a lot of time on it, or just act as if you are running a
business, then you need to file a Schedule C tax form and pay
tax as a business.
How Do I Work Out How Much to Pay?
The 'income' you make from eBay is how much profit you make.
Remember that you can subtract absolutely all of your costs
from this income, like this.
Sale price - cost of item - eBay fees - PayPal fees - cost of
postage - cost of packing materials = income.
For example, let's say you sell CDs for $10 each, including
shipping. You pay $5 for the CDs at wholesale. That's $10 - $5
(cost) - 25c (insertion fee) - 52c (final value fee) - 30c
(PayPal fixed fee) - 29c (PayPal percentage fee) - 37c (stamp)
- 50c (packaging) = $2.77 income.
For reference, eBay's final value fee on a $10 item is 5.25%,
while PayPal's cut is 30c + 2.9% for most sellers. These
numbers will vary depending on the value of what you sell and
the kind of account you have.
When you work this out at the end of the year, you can
calculate your overall price for all sales, and then work out
how much of that you actually received, remembering to adjust
for non-paying buyers. Then just subtract what you spent on
shipping and packing. There's no real need to do tax
calculations on a transaction-by-transaction basis, although it
is advisable to keep a printed record of everything you buy and
sell.
| You can sell over 2,000,000 products from 4,000 brands from your home! |
However, there could be a few advantages to paying tax on your
eBay sales - you might be able to make it back through
deducting tax on your business expenses. All of the costs in
the sum above that aren't profit are business expenses and so
tax-deductable. You may also be able to deduct the cost of any
computer equipment you buy, as well as ink and paper for your
printer. You could even try something a little unusual, like
deducting the cost of renting your home office from yourself.
Whatever you do, though, don't just rely on the information in
this email. If you want advice about tax issues, you should
really go to an accountant.
Another way to make back the money you spend on tax, of course,
is to simply make more profit on each item to begin with. Our
next email will show you how to get more bidders with the power
of pictures.
About The Author: Kirsten Hawkins is an Ebay and internet
auction enthusiast from Nashville, TN. Visit
http://www.auctionseller411.com/ for more great tips on how to
make the most from Ebay and other online auctions.
