IRS May Tax Ebay Sales

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More bad news. BusinessWeek reports that the IRS is starting to scrutinize the massive amounts of money (and therefore potential taxes) that people are making on eBay. I knew that this would happen some day, with the explosion of eBay and the ability of anyone to buy something cheap (like toast) and resell it at a profit. I think it’s a matter of time before eBay must report sales figures directly to the IRS. I’ve easily sold over $10,000 of stuff on eBay.

Of course, I also spent thousands of dollars to buy those things. Back in a previous not-so-frugal life, I was a gadget-addict. I’ve owned 8 laptops and 12+ PDAs, everything from the original US Robotics (Palm Pilot) 5000 to a Dell Axim. I would basically try to buy things cheap at, play with it for a couple weeks, and resell on eBay when I got bored. Sometimes I would make money, sometimes break even, sometime lose some money. I was even a “PowerSeller”, which mostly meant that PayPal was a happy camper.

I do think that people running true businesses should pay the appropriate taxes. If you’re selling 10,000 cell phone boosters a month, you are a business. However, having someone like the woman in the article who made $2,000 selling old baby clothes pay taxes on it may be overkill. I mean, she probably paid more than that for the clothes, so she is probably technically not making any profit. Maybe on some of the thrift store flipping. But for the people who are simply scared of the big bad tax man, they may pay too much, and you can bet the IRS isn’t going to go “Oops, you paid too much, here’s your money back”. I mean, am I going to have to keep a Schedule D and record the cost basis or receipts for all my old CDs or lawnmower?

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  1. This may hurt EBAY.
    A lot of people on EBAY now are people who overspent and are trying to pay off debt by selling the junk they bought.
    No one has original receipts for their junk.
    You shouldn’t have to pay taxes on stuff you didn’t make a profit on.

  2. Anonymous says:

    According to the Marketplace story on public radio this morning, it will only apply to people who are already in the IRS category “traders and dealers.”

    Granted, some of those people who only engage in these activities on eBay may not realize they fall into that category. But if you have a regular business of selling stuff on eBay and you haven’t been paying taxes on that income, you probably should have realized the IRS would eventually catch on and make you pay.

  3. I don’t think the little guy selling his junk is going to be prosecuted by this, they go after where the money is. I imagine most major sellers declare income because it makes sense to (esp. after 9/11 and how they scrutinize the movement of money) so they’re going after second tier sellers and those big fish who foolishly don’t file.

  4. As long as eBay does not report your revenue to the IRS, I think what you guys are saying is true – If you have $5,000 a month of PayPal transfers coming into your checking account, the IRS will have some questions. Otherwise nobody will notice.

    BUT, if eBay DOES start reporting all of our revenue, then it may be a pain in the butt. eBay is of course to fight it with their “we are just a meeting place for buyers and sellers” argument.

  5. I think the IRS should just leave eBay sellers alone. A lot of people sell on eBay to pay off a lot of debts and get food to survive.

  6. Once the IRS audited my parents’ business and actually found that my parents had overpaid the government by about $50 (my mother keeps excellent records of EVERYTHING). The IRS wrote them a check. It does happen every once in a while…

  7. So has this happened yet?

  8. kevin covington says:

    I sell on ebay and I would never charge my buyers taxes. Like others said, I’m not making a profit on the stuff I’m selling cause I bought it for much more. The IRS is such a scam to begin with!

  9. what are they going to do? throw the ebay sellers in jail who don’t pay taxes? there are hundreds of thousands of us. Are they going to fine us? what if we don’t pay the fines. What then? Are they going to garnish us all? Hundreds of thousands of garnishments? How many people will the IRS need to hire? and I’m not talking about the level of employee they have been hiring, I’m talking intelligent people they would need to hire. Thousands of them. Not the ones with brains the size of walnuts that they have now, who come in at 8:00, get up a lunch order by 9:00 (you wants fish or chilken girl?) and don’t start working till 10:30…come on…they don’t have the talent. EBAYERS KEEP YOUR MONEY AND SELL SELL SELLL!!

  10. Taxing ebayers is rediculous we are taxed enough. All of the money made on ebay is not pure profit. What the hell is the irs going to tax next, yard sales. I mean come on. we pay phone tax, gas tax, vehicle tax, sales tax, federal income tax, state income tax, dog license tax, building tax, driver license tax, vehicle license tax. trailer license tax, boat license tax, Yes all of those are taxes hidden as a license.

    So, now we have to pay taxes on stuff we had already payed taxes for. Makes no sense. Half the time sellers sell stuff at a loss. Stupid pure stupidity. Our government needs to get their foot out of our rearend. Enough is enough.

  11. Larrybud says:

    Kevin, right, you’re not making a profit… ::rolls eyes:: That’s why everybody goes into business, to NOT make a profit. Gimme a break. Anyway, if that IS true, then you’ll make out on the deal because you’ll declare your business at a loss, and write off those losses. Taxes are paid on PROFIT, not revenue. If the junk you’re selling cost $1000 and you sold it for $800, then you’ll have a loss.

    Now, I’m all for everybody keeping what they earn, but let’s face reality. The government doesn’t need to throw you in jail to make your life a living hell. If they say you owe an extra grand or two in taxes, you have to PROVE that you don’t. It costs money to hire accountants and lawyers, and in many cases, you’re going to be better off paying the extortion… I mean, taxes, instead of fighting.

    The government is a legallized mafia.

  12. money blog says:

    Is the an update post on this, does ebay report sales now

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