IRS Tax Filing Rules for eBay Sales

When that auction closes and the items are mailed, a profit on a large capital asset is a reportable capital gain.
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Maybe you got some good auction bids and your long-garaged item finally sold on eBay for a tidy sum. Although may have earned some money on the deal, you may not need to report it. Internal Revenue Service rules cover the online auction world in great detail, but the nut is whether or not you have sold a capital asset for a significant profit or have recurring sales and are operating a viable business. If so, the revenue is reportable as business income, as with any "bricks and mortar" venture.

Capital Gains and Losses

In the case of a one-time eBay sale of an asset, the proceeds realized over the cost basis is the capital gain, and it is reportable to the IRS. The asset could be a car, a piece of furniture, a work of art, an antique, a collection or real estate. Whether you sell it through an online auction or through some other method, such as a classified ad, the capital gains rules still apply. If you owned the asset for more than a year, it's a long-term gain. Assets held for less than a year are short-term gains, and a different tax rate may apply. You report capital gains and losses on Schedule D of your annual tax return. The occasional online sale of an inexpensive item, for all practical purposes, does not need to be reported.

Brokers and Sellers

The IRS does not, as of the time of publication, require eBay or other online auction sites to report sales proceeds. Nor does eBay report sales to any state tax agency. If the IRS eventually decides to reclassify eBay as an online broker, however, the rules will change: If this happens, eBay would be forced to identify its sellers by their Social Security number or business tax ID number and also report all sales proceeds. In that case, you would get a notice from eBay and a request for the required information, and your auction sales would be tracked and reported.

Where Schedule C Comes In

If you're regularly selling auction items on eBay or depending on the site to support yourself, you've got a business by the IRS rules. The simplest approach is to set yourself up as a sole proprietor. That means filling out Schedule C, Business Income or Loss, to report your sales as well as your deductible expenses. Business income is then added to any other income you have and taxed at the same rate. In addition, you will be completing Schedule SE to figure self-employment tax. You can deduct a variety of costs on Schedule C, including eBay fees, travel and vehicle expenses, advertising, shipping expenses, insurance and office supplies.

Sales Taxes

If your state requires retailers to impose a sales tax, you must add that tax to the cost of your item if your buyer is also a state resident. You must report the amount of sales taxes you collect and submit that amount to the state with the proper form. If you are buying inventory for resale, you can avoid sales tax on the items by using a seller permit or tax exemption certificate. States have different rates on different items and may also exempt certain commodities, like food or clothing. Request a sales tax guide from your state's tax agency to keep current on the rules.

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