eBay has become a household name among online shoppers and sellers alike. Over the years, it has been a reliable platform for many small business owners to sell their products or services. However, as tax season approaches, eBay sellers might start to wonder whether they need to report their sales on their income tax returns.

Today, we will answer some of the most frequently asked questions about selling through eBay and income tax.

Andrea / Pexels | If you are selling through eBay, which is a third-party reselling platform, you are legally obliged to pay income tax.

Do eBay Sales Need to be Reported on Tax Returns?

The short answer? Yes. All income – both online and offline – should be reported on your tax returns. If you have sold items on eBay and made a profit, that profit is considered taxable income. However, there are some exceptions.

According to the Internal Revenue Service (IRS), if you sell personal items that you have owned for more than a year, such as clothes or household items, you do not need to report the transaction on your tax return. However, if you are selling items that you have purchased specifically for resale, you need to report the profit as business income.

What Expenses Can be Deducted from eBay Sales?

As a seller on eBay, you may have incurred expenses related to your business. The good news is that some of those expenses may be deductible on your tax return. For example, eBay’s fees and payments to PayPal can be deducted as business expenses.

Business Wonders | According to the IRS, all income (both offline and online) should be reported on tax returns.

Other eligible deductions include shipping and handling, advertising, and the cost of goods sold. It is important to keep accurate records of your expenses and obtain receipts to support your deductions.

How Can You Report Your eBay Sales on Your Tax Return?

Reporting your eBay sales on your tax return can seem daunting. But it is not as complicated as it may seem. If you are a casual seller, you will report your income on your tax return using Schedule 1, Line 8.

However, if you are an active eBay seller with significant income and expenses, you will need to complete Schedule C to report your income and expenses. Additionally, you should receive a Form 1099-K from eBay that reports your gross sales. This form is only for informational purposes, and you do not need to attach it to your tax return unless you are disputing the reported amount.

Yan / Pexels | Schedule 1 and Schedule C are the most common ways of reporting your tax returns.

The Consequences of Not Reporting eBay Sales on Your Taxes

If you fail to report your eBay sales on your tax return, you risk getting audited by the IRS. The IRS can request documentation to prove that you have reported all your income. And if they find that you have unreported income, they can impose penalties and interest.

Depending on the amount of unreported income, you may also face criminal charges. Therefore, it is important to keep good records of your income and expenses and report all your eBay sales on your tax returns.