Taxes that You Probably Aren't Paying on Your EBay Items

Most eBayers who put up an item that they no longer have any use for up for auction here and there never even consider that there might be tax implications for what they're doing. They put up the item, collect their money, pay eBay it's cut, and ship out the item. Like it or not, the Internal Revenue Service and your state government has some other plans for your eBay proceeds. There are a number of taxes that eBay sellers are technically responsible for, but rarely ever pay in.

Most states impose a sales tax on each item sold. Every state has different rules as how much sales tax you're supposed to collect, how you're supposed to pay it, which items you have to collect sales tax on, etc. You'll have to check with your state and local government to be sure. In addition you'll have to collect the tax, mail it into whichever locality is collecting it, and send in one of their reports detailing the amount of sales you've had and the amount of sales tax you've collected.

If you have a larger eBay business, you might have one or two other employees. In this case you would be responsible for paying the payroll tax. If you have any employees, you'll have to withhold federal income tax, Social Security tax, Medicare tax, and state income taxes and submit them on a periodic basis.

Finally, you'll have to pay regular income tax on the items that you sell regardless of how your business is actually setup. Most eBay sellers are sole proprietors and can calculate what they should send in for quarterly estimates using Schedule C (Profit or Loss from a Business).

Unfortunately, just like any other business, taxes are going to eat quite a bit of money away from your eBay profits. The IRS has made statements that they're going to target individuals who don't pay their income taxes on the items that they've sold on eBay this and next year, so if you're a major eBay seller, you'd better be sure that all of your T's are crossed and all of your I's are dotted, otherwise the IRS might be coming after you. Fortunately there are so many items sold by individual sellers that they'll never be able to go after 99% of eBay sellers.

Whether this practice of forcibly collecting taxes is fair, moral, just or not is up for discussion, but like it or not, that's what the current laws are in the United States. EBay sellers are going to have to collect their sales taxes and pay income taxes on the items that they sell. There's tax liability there, whether or not the seller wants to admit to it.