In the past, I have featured several articles (shown below) about how to earn a side income selling items on eBay and/or Amazon.
- Comparison of Selling on eBay and Amazon
- Describes the postive and negative aspects of the selling experiences on Amazon and eBay (fees, customer service, user interface/features, etc).
- Unlock Extra Money Around Your House By Selling Your Unused Items on eBay
- Describes several simple steps you can take to ensure your items sell on eBay.
Overall, using the advice in these two articles can get you started and fairly proficient at selling items online.
However, several more advanced question topics were not answered in these posts.
For example, at what level of income from eBay/Amazon sales do you need to go “legit” and report your income to the government/pay taxes? When do you need to pay state-specific taxes?
These questions will be the subjects of today’s post. Let’s get started!
At what level of sales income do you have to report/pay taxes?
In my mind, there are really two categories you will fall in if you are selling items on eBay/Amazon – 1) you will be doing it as a home business and have a state sales tax ID number already (see previous post – My Personal Finance Journey – How to Start a Business – for more information) or 2) you will be doing it on the side, only selling items every-so-often throughout the year.
If you have a business selling items on eBay and/or Amazon…
If you fall in to this category, the rules are fairly easy.
As can be seen in the link below, you have to report your income / pay taxes if your net profits (so sales – all costs involved) exceed $400 per year. Pretty simple right?
If you are just selling items on the side, unofficially…
If you do not have an official business set up, are selling items on eBay/Amazon, and your earnings are slowly beginning to add up, it’s time think about if you need to report your earnings to the IRS.
However, when does it become mandatory? In other words, when do you risk being audited if you do not report that source of income? The answer to this is quite tricky.
Officially, the IRS’s rules are that any and all income, whether personal or business, should be reported as income. However, at what point does the amount of income hit the IRS’s radars?
After looking around on the internet, unfortunately, I have to report that I was not able to find a specific income level at the IRS will penalize you. This is probably due to the fact that they want all income to be reported.
The only guidance I could find was similar to that shown at the link below. Essentially, it states that if you conduct your selling similar to a business (i.e. if you spend signficant time and purchase items specifically for resale on eBay instead of using them yourself), you should report your earnings.
I think this approach does make a lot of sense. For example, back in 2006, I was actively purchasing items from distributors, retailers, and 2nd hand stores only to resell on eBay. It is plainly obvious that this would be a case where you cannot hide the fact that you are making money from eBay. Therefore, I reported my earnings are self-employment income.
Even though I did not find this to be official guidance listed in any source documentation, another thing to think about relates to the amount of the standard deduction and personal exemptions you are allowed to file on your taxes.
For example, if you are single and not listed as a dependent on someone else’s taxes, you get the standard deduction ($5,700) plus your exemption ($3650). This means that you pay no tax on the first $9350 that you make.
What does this mean for eBay/Amazon sellers? It means that your probability of flying under the IRS’s radar increases if your income from your sales is lower than these levels (However, still not totally advisable to do this practice).
When do you have to pay state sales tax?
The answer to this question is much more straight forward, fortunately.
You only have to pay state sales taxes whenever you sell/ship an item to someone in the same state as you.
Proof of this can be seen in looking at a product by any top rated Powerseller on eBay. For example, let’s look at the one I picked at random – BananaRoad, at the link below.
If you click on one of his/her items and look at the shipping specifics, you can see that the “Seller charges sales tax for items shipped to: OH (6.75%).” What this means is that BananaRoad’s business is based in Ohio, and therefore, has to pay Ohio state sales tax for items bought by people in the same state.
I hope this article clarifies some of the confusion that can result from online selling and gets you thinking about if you need to change your method of tax operations going forward.
Thanks for reading!
How about you all out there? How do you all handle sales on eBay/Amazon and paying taxes? Do you sell items on eBay as a business or just a hobby?