A question from Lisa in Carrollton:

“I just filed my tax return. It occurred to me that I have never reported to the IRS the money I make selling my old junk on eBay. Do I need to report that money on my tax return?”

A great question Lisa.

The answer of course is, it depends.

Occasional garage or yard sale sales are not subject to income tax

Do you use eBay (or a similar site like Craigslist) to get rid of household junk? Are you selling your household junk for less that what you originally paid for it? If so, your sales may qualify for the “occasional garage or yard sale” treatment by the IRS and you don’t have to report the income. But, you also cannot claim a loss on it.

Using an example from my own garage, you sell a stroller you originally paid $700 for 11 years ago for $50. You don’t have to report the $50 income, but you also can’t claim a $650 loss (no matter how long it took you to scrub that stroller clean).

For more information, consult the IRS website.

Hobby sales are subject to income tax

If you and the IRS classify your eBay (or Craigslist) sales as a “hobby,” you have to report the income AND you can use hobby expenses to reduce hobby income. BUT, you won’t be able to use a loss on hobby sales to reduce non-hobby income.

For example, let’s say you are a teacher and your taxable income from teaching is $40,000. Your eBay sales generate a net loss of $10,000.

If your eBay sales are considered a business, you can use the $10,000 loss to reduce your taxable income from teaching to $30,000.

If your eBay sales are considered a hobby, you cannot use the $10,000 loss to reduce your taxable income from teaching.

So the $1,000,000 (hopefully non-taxable) questions is…what is the difference between a hobby and a business?

Like most things with the IRS, this isn’t an exact science. If you want to call your eBay sales a hobby, you have to be able to prove you are not pursing your hobby with the intention of making money (one test requires you to make no profit for two out of five years).

Business sales are subject to income tax

Buying and reselling vintage clothes on eBay with the intent to make a profit? You have to report your income to the IRS (and you can reduce the income by your allowable business-related expenses).

Allowable deductions for business sales on eBay include cost of goods sold, use of your vehicle, advertising expenses, and internet charges related to your eBay business.

Clear as mud? Confusing as heck? Welcome to tax law. When in doubt, consult with a tax professional.

Have a question or topic that you would like The Law Mother to tackle in an upcoming blog post? Send me an e-mail.

Disclaimer: This website is made available for educational purposes only as well as to give general information and a general understanding of the law, not to provide specific legal advice. By using this website you understand that there is no attorney client relationship between you and the publisher. The website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

Copyright © 2018 by Siobhán Fitzpatrick Kratovil. All Rights Reserved.

Tags: ,