Although many casual sellers may not initially think of it, selling items on eBay is a form of income, in the same way that earning a wage via a job is. And income, no matter how it is earned, is liable to be taxed. No one wants to be on the wrong side of the law, but where to start? First, let’s clarify Bay’s position on the matter before getting further into tax responsibilities and considerations.
eBay’s tax policy
It is standard eBay policy that sellers are fully responsible for paying all fees and taxes associated with selling on the site. It is important to know, however, that eBay will not assist or advise sellers with paying applicable income taxes.
When required to by law, eBay will share sales information with the relevant government authorities. In addition to legal action via the relevant authorities, eBay sellers who do not fulfil their tax responsibilities may be subject to:
- Restrictions or suspension from buying, selling or using eBay site features
- Listing removal
- Penalization of listings in search results
- Forfeit of special account statuses or discounts
In summation, it is best to stay on the good side of both the government and eBay when it comes to taxes. The first step to staying above board is to work out whether you need to file a tax return as an eBay seller.
Income tax responsibilities for eBay sellers
The rules vary from country to country (and, of course, eBay is a global marketplace with many international sites) but the following is a good guideline.
If you are selling:
- With the clear intention of making a profit
- Items you have purchased with the specific intention of reselling
- At a fixed price, similar to a retail store
- Consistently and often (i.e. more than the average family would have a garage sale)
- Items you have repaired or fixed
If one or more of the above statements are true, it is likely that your eBay selling is considered a business and a tax return may be required. Some countries have a casual ‘trading allowance’ to allow for a small amount of self employment income via websites such as eBay before an individual needs to file a tax return. In the UK, the trading allowance is currently £1,000.
eBay sellers who occasionally list unwanted items from around the home are usually considered hobbyists and typically would not need to file a tax return. Each country, however, is different and for this reason, it is imperative to check before making an assumption. In some countries, there is a penalty for not filing a tax return when required, even if no tax is due.
Besides income tax considerations, eBay sellers should also research sales tax responsibilities. eBay.com sellers, in particular, should also be aware of recent changes with the administration of internet sales tax within individual states. Use this sales tax table as a guide.
Tax returns for eBay sellers
Sellers who need to file a tax return should prepare for tax season by:
- Keeping accurate and detailed accounts of purchases, sales and profits (using a spreadsheet is recommended)
- Researching key tax season dates and deadlines
- Ensuring previous tax returns have been taken care of (if applicable)
- Recording relevant expenses of your eBay business
- Reviewing applicable tax regulations
- Searching for, and hiring, a tax professional if required
Keeping accurate records of relevant eBay business expenses is beneficial as it is usually possible to use these expenses to reduce your tax bill. Relevant expenses for an eBay business may include:
- Inventory costs
- Shipping/postage supplies including boxes, bubble wrap, tape, labels
- Office furniture and supplies such as printer ink, elastic bands, pens
- Mileage to the post office and when sourcing items
- Storage unit rental
- Organizational equipment including shelving, bubble wrap, boxes
- Cleaning supplies including stain removers and lint rollers
- Display items such as mannequins or white screens
- Electronic devices such as cameras, computers, printers
It is not always necessary to submit original copies of receipts for a tax return but it is best practice to keep all itemized receipts for your own records regardless. The cost of using the services of a tax professional (accountant, bookkeeper) can often also be considered a business expense.
No matter where you live and which eBay site you use, the most important advice to remember about filing taxes as an eBay seller is to: know your responsibilities, declare your income and always be on time.
Veteran eBay sellers, do you have any tax return advice to share?