Auction and retail sales website eBay is one of the largest marketplaces in the world, with billions of dollars changing hands annually. With that volume of money changing hand, it begs the question: How does the Internal Revenue Service treat income earned on eBay, and more importantly, do you need to report sales of goods on the site as income on your taxes? There isn't a straightforward answer, as different circumstances affect the tax status of your eBay income.
If you're using eBay as an alternative to holding a yard sale, primarily as a means to get rid of clutter and other items from your home, it's unlikely you'll need to report the income you generate from those sales. By the very nature of secondhand goods, it's likely you sell the items for less than you paid for them, and no matter how much money these sales generate, you're not making a profit. Because there is no profit, you don't need to report the sales on your income taxes.
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Your tax situation becomes much more complicated when you start selling collectible items, even if you're only a casual seller on eBay. If you sell anything for more than you paid for it, you must report a capital gain – your profits less selling expenses – on Schedule D. Capital gains rates on many items – real estate and stocks, for example – vary by your marginal tax rate and by how long you owned the item before you sold it, with sales of items you owned for a year or longer receiving beneficial treatment. Collectible items are taxed at 28 percent for a long-term gain, as of publication.
Is it a Collectible?
The IRS classifies precious metals, gems, jewelry, stamps, coins, rugs, works of art and wines as collectibles, and subject to the higher gains rate. The definition of a collectible is muddy, though, and the IRS can classify anything as a collectible. If you sold something for a profit, and you used it in daily life, it's likely not a collectible. Other items, such as comic books, antique furniture or collectible cars that you purchase and display, or store safely, in hope of them appreciating in value, will probably be treated by the IRS as collectibles.
Selling as Business
If you're not a casual, attic-cleaning seller or a collector, and you use eBay as a means to generate a consistent profit, the IRS requires that you report eBay sales as business income. Again, determining whether you operate as a business can be difficult, and is often made on a case-by-case basis. As a general rule, if you purchase items in bulk and sell them individually for a profit or if you purchase raw materials and manufacture goods, you're probably treated as a business. The same goes for sellers who are reliant upon their eBay income, act in a way that presents themselves as a business or puts enough time into the operation to make it look like you're doing it for profit. In these cases, you don't report your profits as capital gains, but a business activity, and the income is taxed at your regular income rate.