Over the years, we find ourselves with hoards of belongings in our homes. It’s easy to keep adding to your belongings, but if you don’t purge anything, you will find yourself with little room for activities in your own home.
Instead, you may turn to the wonderful world of eBay, where you can resell some of your old belongings — freeing up space in your home while simultaneously filling your wallet!
Making some extra money on the side through eBay is an exciting venture, but it’s important to remember that taxes aren’t automatically deducted from your earnings, unlike a standard paycheck. This doesn’t mean that you are exempt from paying taxes on your eBay earnings. It just means you have a different process to follow.
The Internal Revenue Service (IRS) distinguishes you as a self-employed individual as an eBay reseller. This means that you are required to cover your income tax and self-employment tax when filing your taxes each year. If you aren’t prepared for this, you may find yourself with a large tax bill that you can’t afford.
AA Tax & Accounting Services, LLC has put together a quick guide on the tax implications of starting an eBay reseller account to help you prepare for taxes.
Utilize your 1099-K form
If you are selling items on eBay, you need to use a 1099-K form, a sales reporting form that includes the gross amount of all reportable payment transactions throughout the year. However, this is not something you need to fill out independently. The online platform, eBay, where you are selling your belongings, will fill out the 1099-K form if you meet the criteria.
You will receive the 1099-K form from eBay by January 31st each year if you have received payments above the minimum IRS reporting thresholds in the previous calendar year:
- You received more than $20,000 in gross payments
- You had more than 200 payment transactions
The provided 1099-K will include the gross amount of all reportable payment transactions and does not include any adjustments, for example, credits, discounts, fees, refunds, or any other adjustable amounts. As a result, there is a chance the gross amount reported on your 1099-K does not match the final reportable amount on your tax return. When this happens, you should consult a tax advisor for financial reconciling.
We’d also like to note that certain states have minimum reporting thresholds lower than those outlined above. If you live in one of these states as an eBay reseller, it is recommended that you consult a tax advisor to understand which threshold applies in your state.
Form 1099-K and multiple eBay accounts
Depending on the items you are selling on eBay, you may find yourself with multiple accounts associated with the same Tax ID. If you have multiple eBay accounts, your annual thresholds are calculated by combining all payment transactions from each account.
If your combined sales across your accounts exceed these thresholds, you will receive a 1099-K for each account (even if the individual accounts don’t meet the thresholds).
Deductibles come in handy
Since you are viewed as a self-employed individual by the IRS when selling items on eBay, you should be mindful of the different deductibles available to you when filing your taxes.
Hold onto any invoices or receipts for business transactions related to the following deductions:
- Cost of goods sold
- Shipping costs
- Home office costs
- Related education courses
- Software for taxes and inventory
- Advertising materials
- Employee salary and benefits
- Consultant fees
Tax consulting services in Cedar City, Utah
We recommend consulting certified public accountants like AA Tax & Accounting Services to understand how much you should be paying to the IRS quarterly, especially if you’re new to eBay selling.
The AA Tax & Accounting Services team can help you execute the right self-employment tax strategies for peace of mind. Contact us to schedule an appointment.