Tax Considerations When Selling on Ebay

If you are selling things on eBay - regardless of whether you consider yourself a business or not - you are a retail shop in the eyes of the federal government. This means that if you do not report your earnings each year, you could be setting yourself up for a world of hurt later on.

If you made at least $1 in profit on eBay you are required to report that earning to the government - even if you are just on eBay for the fun of it or for hobby's sake.

In addition to paying income taxes, if you make more than $400 on eBay, you will have to pay self-employment taxes. It doesn't seem fair that you are penalized for being a self-starter, but the government sure makes it difficult to see it any other way. These self-employment taxes go towards things like FICA, FUTA and Medicare. It amounts to about 15 percent of your profits.

Sadly, if you make more than $1,000 each month, you will have to pay quarterly estimated taxes.

And to make things seem even worse, you also need to pay state taxes for each item you sell. If you sell something on eBay and the person who buys your product lives in the same state as you, you will need to pay sales tax to your state. To make things a little easier on yourself, make sure to register with the state tax authority.

This means you estimate your income on a quarterly basis and pay during each of those times. These taxes may seem like enough to discourage you from starting a business, but don't let it get you down.

Remember that there are people like accountants who can help you along the way and also help you report deductions that will help to even out the major tax assault you are feeling just from reading this column alone.

Things like the home office deduction is one easy deduction that some people do not report out of fear that they think it will set off alarms to the IRS. This is not true because more people now than ever are starting their own businesses or have an established business and work out of their homes.

To make things easier on yourself, always remember to print out you're My eBay page which records all of your sales and fees for the past 60 days. This eases the whole process come tax time. Not doing this just ends up creating a bigger headache for you and with all of the taxes and other discretions you need to remember listed above, you don't want to make being a small business any more difficult for yourself.