Many people, myself included, enjoy estate and garage sales as buyers. It's fun to browse and buy stuff interesting things. We keep some things forever, other things we well after a while on eBay. It's a fun hobby and done right most of us make a couple of hundred dollars of month. I call it a positive cash flow hobby. But as my accountant points out, if your hobby makes you money instead of costing you money, it's a business and not a hobby. No one cared until now - the year 2022.
As of now if your eBay sales exceed $599 per year on eBay you will get a 1099-K for that year. That means you have to report that as income on your tax return and pay income tax. Your hobby just became a business.
This means, you better start keeping records on your estate/garage sale purchases and other expenses. If you don't you will end up paying more in income tax than you have to. Don't panic. Once you understand this, it's easy.
Let's assume you make $10,000 during the year 2022 on eBay. They will send you a 1099-K saying you had $10,000 in sales which is true. But come tax time, if your cost of goods sold and other expenses add up to $6000, you will only have to pay income tax on $4000.
The trick is to make sure you document those expenses. It's simple with a spreadsheet or Google sheets. Get receipts and documents on the spreadsheet items you bought and how much it costs. Same when you buy packing tape, bubble wrap, boxes. Just add it to your spreadsheet as an expense. Also. track your mileage to and from the post office.
When it's time to do your income tax, you will now be doing a Schedule C form. Using my example, you will have a 1099-K from eBay for $10,000 as income and now - on your Schedule C, you can deduct the cost of doing business. Don't forget to get a year-end report from eBay because that will have the fees and postage you have paid all year.
The cost of goods sold, boxes, tape, packing materials, labels, eBay fees. postage and 58.5 cents per miles driven that (in my example) adds up to $6000. $10,000 in sales, minus $6000 leave me $4000 of profit that I will be paying income tax upon.
I'm no tax expert but I have been selling on eBay since 1999 and generally, that's the concept. Do your own research and speak with your tax expert, especially if you are selling high amounts on eBay.
I notice new sellers often confuse income tax with sales tax. Don't confuse the two and they have nothing to do with each other. At the time I write this eBay is collecting sales tax and submitting it to the proper jurisdiction on the seller's behalf. I don't think that will change. Thanks, eBay for that.
If you buy a lot of products to resell and pay sales tax on them, then you should get a tax certificate and a tax-exempt reseller form. But this example is just for the small seller. If you want to know about sales tax, shoot me an email and I will steer you in the right direction.
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