As an eBay seller are you running a business or a hobby

[dbfolks166mt]

     The questions on the 1099 issuance that is coming in 2022 and for some is already here depending on what state you live in. I thought I would post the link to the IRS guidelines on how to determine if you are selling as a business or doing it as a hobby. There is some ambiguity in the language as there are with many tax laws but it should give you a starting point.

 https://www.irs.gov/newsroom/hobby-or-business-irs-offers-tips-to-decide 

[sin-n-dex]

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@luckythewinner wrote:

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@skatefool wrote:

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@luckythewinner wrote:

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@caldreamer wrote:

When you file as a business there are numerous deductions you can take (so you rarely would have any tax liability anyway).

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Please give some examples of these numerous deductions I can take that are likely to eliminate my tax liability. 

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https://www.irs.gov/businesses/small-businesses-self-employed

I'm sure you'll be able to find something.

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I'm not looking for "something". 

I'm not looking for pennies per mile that every sensible seller already deducts. 

I'm not looking for routine shipping supplies that every sensible seller already deducts. 

I'm not talking about a camera or a cell phone. 

The post I was responding to stated that there are numerous deductions so that sellers would "rarely" have a tax liability at all. 

I'm looking for those numerous deductions that will offset many, many thousands of dollars in income so I will have no tax liability as the poster I was responding to suggested. 

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Seeing as how I remit significant revenue to the B&M store, what I do deduct greatly offsets my revenue. I do turn a profit and pay tax on that, but it's not a very large amount.

C.

[sin-n-dex]

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@buyselljack2016 wrote:

When you file as a business there are numerous deductions you can take (so you rarely would have any tax liability anyway).

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If you rarely have any tax liability......................     then you don't have much of a "business model".

Tax liability is based partially upon making a profit.   If you don't make enough profit to have a "tax liability"...............................   well, you may as well just go fishing, or golfing.

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Being self employed I'm deducting tons of house related expenses... that's what motivates me to run the business. As a result I have affordable housing in Canada.

C.

[luckythewinner]

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Every room in my house (except my roommate's bedroom) is being used for one business purpose of another.

In the USA, the business use must be exclusive. If you sleep there, eat there, shower there, watch TV there, or play with your kids there, you cannot deduct it. 

[sin-n-dex]

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@luckythewinner wrote:

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Every room in my house (except my roommate's bedroom) is being used for one business purpose of another.

In the USA, the business use must be exclusive. If you sleep there, eat there, shower there, watch TV there, or play with your kids there, you cannot deduct it. 

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Like I said, your mileage may vary.

There's a formula in Canada... how much of the house, and how many hours spent doing business in that space. Since 50% of my house is storing business related stuff all the time, then I can deduct 50% of what I pay for the total space. For office space that consultants use, it would be how many hours are worked each day on average multiplied by the space. My partner can only deduct expenses on 1/3 of the day for 1/3 of the space.

C.

[dbfolks166mt]

     That is not quite accurate. You can write off a portion of your house that is used for business stated in terms of square footage using a simplified square footage method. In 2020 that rate was $5 per square foot with a maximum of 300 square feet. The space must be dedicated to business activities. 

[inhawaii]

I sell on ebay so that i can do some of the FUN  things in life .........   like eat.   😉 

[mr_lincoln]

General information:  go to irs.gov and download a Schedule C PLUS the instructions.  Go through each line item on the form and the instructions explains what they are.  There a numerous deductions and I think last year you were allowed $ 0.575 cents a mile driving a personal vehicle for business purposes.  That meant if you drove 10,000 miles you could deduct $ 5,750 off the bottom line and not owe taxes on that money.  That is significant.

[dbfolks166mt]

     In addition you can write off some of the often overlooked ones. 

Start up expenses

Deprecation

Inventory

Bad debt expenses (result of scams)

Professional service fees (layer, CPA......)

Salaries and benefits if you have employees

Charitable contributions

Education - Courses or forums you take that pertain to your business

Advertising and promotions  

[luckythewinner]

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@dbfolks166mt wrote:

     That is not quite accurate. You can write off a portion of your house that is used for business stated in terms of square footage using a simplified square footage method. In 2020 that rate was $5 per square foot with a maximum of 300 square feet. The space must be dedicated to business activities. 

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Understood. But whatever space you are deducting still has to be used exclusively and regularly. 

I suspect that most sellers - even those with a home office - do not have a dedicated space where they do eBay and nothing else. So it works for my space where I store my inventory, but not my home office because I also use it for my day job. 

And since the deduction is capped at $1500 per year, it still leaves me miles short from eliminating my tax liability 🙂  

[dbfolks166mt]

     You can also show a loss. However, the IRS may in fact  classify your business as a hobby on their own if your business claims a net loss for too many years, or fails to meet other requirements. This would prevent you from claiming a loss related to the business. If the IRS classifies your business as a hobby, you'll have to prove that you had a valid profit motive if you want to claim those deductions.

     The sales tax remitted to the state by eBay is in the name of the buyer not the seller. It is the buyer that pays the sales, use tax .

[oldcoin007]

Don't forget to deduct ebay's high fees. 

[luckythewinner]

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@mr_lincoln wrote:

That meant if you drove 10,000 miles you could deduct $ 5,750 off the bottom line and not owe taxes on that money.  That is significant.

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Wow!  I'm armed with a spitball straw in the middle of a Howitzer battle.

During the past 18 months of COVID, I drove my truck 3,000 miles in total - for business purposes, maybe 250. My business mileage for 2019 was only 336 miles. 

10k business miles for me would cost more than the $5k deduction in gas, oil, and my time. Thankfully, I have more inventory than I need sitting in my basement. 

[dbfolks166mt]

     Agreed and that is what I stated. While it is capped it is still a $1,500.00 write-off. Fortunately I do have a dedicated room in my house, actually basement, that is dedicated to business use although it is not 300 square feet so I don't get the full deduction. 

[luckythewinner]

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@theteamsetguy wrote:

1. Cost of goods you sold.

2. Mileage traveled to buy items and going to the post office.

3. Ebay fees

4. Postage

5. Home office deduction

6. Shipping supplies costs

7. Internet connection fees

8. Cell phone fees

9. Medical insurance premiums if you are self employed and no covered by employer plan.

10. Contributions to a SEP plan.

11. Bank service charges

12. Business use of your car

13. Interest on debts used for business purposes

14. Office equipment expenses used for your business. (PC's, printers, camera, and ect)

15. Business related travel.

I'm sure there are many more items you can deduct that I've missed. My suggestion is to hire a professional tax preparer. They will save you a lot more money in taxes than the fees charge.

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I find this to be a fascinating thread, because of the many different perspectives people have about what having a tax liability means. 

When I talk about having many thousands of dollars in income, I am talking about the net income that is left over after deducting all of the routine business expenses that any 8th grader should know about - eBay fees, PayPal fees, postage costs, packing supplies, bank fees, printer, paper, returns, refunds, mileage, the cost of goods sold, home office deduction, etc.  

After all of the routine business expenses that you have mentioned, I still put 60+% of my selling price into my pocket as profit. 

I was just intrigued by the suggestion that there are numerous deductions so that eBay sellers should "rarely" have a tax liability at all. That sounded to o good to be true, so it implied to me that there must be a few lesser-known deductions or tricks I did not know about.  

But I think I'm beginning to understand now.

"eBay sellers should rarely have a tax liability" is just a polite way of saying that eBay sellers rarely do more than break even. 

[inhawaii]

I'm deducting my bathroom as a business space. 

When i sit on the throne i come up with some of my best business ideas.   😉