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 

[dbfolks166mt]

     I am sure for those businesses that know how to incorporate the true cost of selling into their pricing they are making a good profit such as you. I also imagine there are a lot of sellers that are actually more on the hobby side of things and do this to keep busy more than make money.

     I also think a LOT of sellers are going to be surprised at how little they actually make when they are forced to sit down and do the math, or they have their accountant do it. 

[duffy4444]

   I think it's a beautiful thing that so many on this thread are coming up with a lot of legitimate expense deductions. That should allay a lot of fears from those who think that their gross sales are actually the net for which "the tax man cometh".

   But I believe I'll still have to plug my ears against the screams and blaming of eBay that will happen on this forum come January and February of 2023... maybe even sooner, when January 2022 rolls around and sellers get drift of what is finally here.

   I also expect some defections and downright retirements from online selling by those who have a knee-jerk reaction to the whole 1099-K situation, because they don't want the hassle of developing and keeping sales and expense records for April 15th.

   I'm used to paying taxes on my online sales, so I'm a little more philosophical over the news, and it wouldn't bother me much to see less competition and the field cleaned out a bit.

   I'm just sorry for those few sellers who rely on every penny they get from their sales, and won't take this time to develop or modify their business model in preparation. They're the ones that will scream the loudest, even though there's still plenty of time to prepare and make some decisions. Like I always say on this forum: Successful sellers keep their eyes and ears open and practice Accept > Adjust > Adapt.

Cheers, Duffy

[chapeau-noir]

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@inhawaii wrote:

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.   😉

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Don't forget to deduct square footage of toilet paper.  That's gonna be good money right there.

[duffy4444]

   Square footage of TP - Now THAT would be a sight if some got out their tape measure and kept actual records, then tried to explain it to an IRS Audit Examiner. I wouldn't be surprised if some would try it... LOL

Duffy

[chapeau-noir]

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@duffy4444 wrote:

   Square footage of TP - Now THAT would be a sight if some got out their tape measure and kept actual records, then tried to explain it to an IRS Audit Examiner. I wouldn't be surprised if some would try it... LOL

Duffy

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One would need to be very careful with their claim and provide a proper audit trail.  For instance, when the seat of ease is used for...uh...productive thinking, the 'business' toilet paper roll needs to be installed.  At all other times, the 'personal' toilet paper roll should be used.  The business toilet paper roll can be secured in a locked cabinet on off-business hours, and transported in a small locked satchel to and from the designated seat of ease in the designated bathroom. After the roll is finished, the date and time would be written on the cardboard insert and notarized, this evidence to be secured with the rolls in this locked cabinet.  Of course, it need not be said that the ruff n' tuff Scott scratchy paper will last longer than the loving and soft Charmin, so brand is crucial in proving use.

This is only ONE of the 'hidden deductions' that can be taken to...uh...ease one's tax bill. 

[rosachs]

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@yuzuha wrote:

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@jhr-4800 wrote:

1.  Home Internet

2.  Driving to the post office to drop packages, fedex, or ups.

3.  If you buy packing materials.

4.  Driving to your Goodwill, Salvation Army store's, if that's where you get your stuff for re-selling purposes.

5.  Office space (home office)

6.  Cell phone, if that's how you take pictures and how you do your posting.

I am not a financial advisor.  Just a seller. 

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Adding on to this, if you have a storage unit that you use to store your inventory, you can deduct for that too.

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Many towns/cities/metro areas have zoning regulations that prohibit the storage of business inventory in a residential neighborhood.  Memphis does, and that was one of the first questions the County Clerk's office asked when I registered my business with them.  Fortunately, I'd been renting self-lock storage space for quite a while before that - not far from home, always clean, no leaks, maintained drive lanes - so I had no problems with that.

One other advantage was that, since I had a state business license issued to my home address, I could arrange for FedEx Ground to pick up twice a week (this was early 2000's, before buyers wanted delivery pre-purchase).  This service was not available to non-business account holders, but my license said otherwise.  The truck was permitted (size, weight, etc restrictions by the city & county) in the area, so it worked out well.  And I got a volume discount that more than covered the scheduled pickup fee and allowed me to offer FedEx delivery at USPS prices.

The biggest change I saw switching from hobby to business back to hobby are all the deductions allowed to businesses, and the ability to roll-over losses from year to year.  As a hobbyist, your deductions cannot exceed your gross sales.  And no carry over to later years.  Once & done.  This was per my CPA and per the IRS auditor who reviewed my 2005 taxes (first year fully self-employed).

Hire a good CPA - they are deductable and a wonderful source of information when it comes to what you can and cannot deduct, and how to lower your odds of an IRS audit.  Can't eliminate them (apparently some are just randomly chosen), but having someone who understands the rules on your side is a good thing.

-Bob.

[luckythewinner]

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@duffy4444 wrote:

because they don't want the hassle of developing and keeping sales and expense records for April 15th.

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Translation - because they can't cheat on their taxes any more. 

[postingid7659]

The only good news is unless laws have changed you may be able to count the value of your inventory against your tax liability and reduce it that way.   

[farmalljr]

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@luckythewinner wrote:

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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. 

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IF you are a part time reseller and you have a CPA/accountant, they should be finding/suggesting ways to further reduce your tax burden. If not, you need to find a better one. Totally elimination of your tax burden? Not likely if you are actually doing it right. Paying WAY less then the average Joe? Definitely. 

If you are actually running this like a business, you are already light years ahead of an "employee" with all the deductions you can take as a business.  Employees can't deduct expenses unless they are over the standard deductions allotment by the IRS. 

And for the sake of the argument, an 8th grader knows NOTHING about tax code or business deductions. That is not taught in school typically, let alone how to balance a check register.  So lets not act like deductions are a common knowledge thing. Most people know little to nothing about that subject. 

I get your point, a good business isn't going to be "tax free" unless you are huge like the River. However point was that you can eliminate the majority of your liability if you do things right. The average small scale seller who isn't doing this as a full time/large portion of their income, should be able to nearly eliminate their tax burden on sales. 

I rolled six figures last year and I had a very low tax liability, in comparison to an "employee".  If it were not for all the extra write off's I get as a business owner, I would be someone's employee.

[jklfindings]

I've seen a lot of great deductions here, but always remember the most important one....  The original cost of the item you sold.  If you are selling at a loss like I've seen multiple people complain over, that loss will decrease your overall tax burden too. 

[sin-n-dex]

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@postingid7659 wrote:

The only good news is unless laws have changed you may be able to count the value of your inventory against your tax liability and reduce it that way.   

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In Canada inventory is just that, inventory. It can't be deducted from your sales until sold, and then you deduct the cost of what it is that sold. So in my case with eBay, all my cancelled cheques to the B&M store go down as the cost of the inventory. In my business model I don't own any inventory, so my inventory level is at zero, and my purchases for the year are also the cost of what sold.

This will change for 2021 as I'm buying inventory of my own now, and I set up a separate business to keep a separate set of books for it so it doesn't get confusing when tracking inventory costs.

My understanding with US taxes is  you can use one of two methods of accounting when it comes to inventory and what you purchase is deductible for that tax year... But I think it would catch up with you eventually unless you want to be indefinitely buying inventory to keep your taxable income down. At some point you'll have enough inventory and being paying taxes on all your net profit and not be able to reduce it any more.

C.

[craft-stash]

My "Hobby" IS making💰💰💰💰💰💰🏦😎

[luckythewinner]

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@farmalljr wrote:

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However point was that you can eliminate the majority of your liability if you do things right.

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No, you are mistaken. The point was this: 

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

The poster's point was not "eliminate the majority". The poster specifically said "rarely have a tax liability". 

As someone married to an IRS agent for 33 years, I was curious how the poster was going to back this statement up.  

[flyboy77772b63]

Like most casual eBay sellers, I sell stuff on eBay instead of throwing them in the trash.  The IRS has just shifted a substantial burden on the taxpayer.  Sad to say it, but most of my unwanted stuff will now wind up in a landfill.  It's just not worth the extra effort for me.  😞