If you're easily depressed, skip this article.
You know all the time you spent finding auction items to sell? The hours you invested researching, taking pictures, listing and shipping your items? Recall the pleasant feeling you got, watching the constant stream of checks flowing into your mailbox each day? Well, guess what, folks...it's taxable.
Apparently, not everyone feels that it SHOULD be, however. According to a recent poll taken on the AuctionBytes Web site, over 75% of the respondents felt that the money they made online should not be taxed.
Several organizations are attempting to push legislation to make the Internet a "tax free" zone. Congress is considering imposing a moratorium on E-commerce taxes. This moratorium would be in place to study Internet sales taxes which are "special, multiple and discriminatory." But this relates to SALES tax. Don't confuse it with not having to pay federal and state INCOME tax on what you've earned online.
So, with April 15th just around the corner, what does all that extra income you've made on eBay mean to your tax return?
"If you make a profit selling something like an old collectible or old doll that's been sitting around your house, it can be considered a capital gain much like when you sell a stock at a profit," says an IRS source cited by Alan Mendelsohn (www.moredeals.com). "If you sell old 45 RPM records for a gain, you should list that gain on your Schedule D of your 1040." You must determine "cost basis," and you may factor in commissions - it can be pretty complicated, so read the instructions and consult your accountant.
And don't forget State income taxes. Many states are aggressively pursuing this new source of tax revenue.
But, suppose you only sell a few inexpensive items a week? If you're only selling casually, is there a threshold that you can reach before you must begin declaring income? "There is no de minimis exemption for small income items," explains Tax Practitioner Michael Batsimm, CPA, MST. "They are included as taxable income. It's more a practical matter of enforcement than an actual exception in the law."
If you are doing eBay regularly as a business (even if you have a full-time job), you can file a Schedule C and deduct your auction-related expenses. (Don't forget about paying quarterly estimated taxes.) According to Batsimm, you should consult your accountant for specific tax advice. Records that you should keep (and that will aid your tax preparer) include:
Date of sale
Sales proceeds
Dates of original purchases
Purchase price
Expenses related to the purchase
Expenses related to the sale
Any other related business expenses. These could be office expenses, supplies, telephone bills, vehicle expenses incurred (except for commuting), insurance expense related to the business, advertising, any fees or commissions paid to the auction site or any other expenses incurred in the course of the business.
Remember, there is no such thing as free money. Not even in cyberspace.
For More Information on Income Taxes
-Visit the IRS Web site for forms and instructions: http://www.irs.gov. If you have Adobe Acrobat Reader (available free from http://www.adobe.com), you'll be able to download the forms to your computer and print them.
-Purchase a book. We like the Ernst & Young Tax Guide. (Tax laws change every year - make sure you have the CURRENT edition of the book!)
-Nolo Press publishes self-help law books and software including tax guides like "Stand Up to the IRS" and "Tax Savvy for Small Business." http://www.nolo.com [AOL keyword NOLO]
-Visit Web sites of tax firms, for example, H&R Block: http://www.hrblock.com.
For More Information on the Internet Sales Tax Debate
Read the following articles:
http://www.wired.com/news/politics/0,1283,35087,00.html
http://washingtonpost.com/wp-srv/business/feed/a49525-2000mar21.htm
