Should I report my ebay sales to the IRS?

January 18, 2006 7:32 PM

Should I report my ebay sales to the IRS?

I sell quite a few things on ebay yearly, and while I'm not even a powerseller ($1000 a month), I probably average about $300 a month in sales (with about 3/4s of that profit). So, that puts me right about $3000 dollars for the year.

While I incur some expenses (mainly I buy and sell CDs, although I also sell some that are sent to me as a music reviewer, which explains my higher profit-margin).

Should I be worried about this at all, or am I just feeling a bit paranoid? Does anyone have any greater experiences with this sort of thing?

posted by anonymous to law & government (15 answers total)

Does the idea of an IRS audit worry you? Do you engage in other questionable tax reporting practices (don't answer this, obviously) that the IRS would uncover if your EBay winnings triggered an investigation?

You could look up the penalties for underreporting income, and then multiply them by the probability of getting a random audit, and come up with an expected value for the cost of not reporting your income.

You should just pay your taxes and tell yourself if I'm paying taxes, I must be making money!
posted by b1tr0t at 7:38 PM on January 18, 2006

eBay has your taxpayer ID number (social security number) and will be, or at least can, report your income to the IRS. If you are selling things for profit on eBay, then yes, you should report the income on your taxes on Schedule C. You will also need to pay both the empployer's and employee's portion of social security on that income (Schedule SE).
posted by kindall at 7:46 PM on January 18, 2006

The question isn't really ebay-specific. It's more like: should I pay less in taxes than I would owe under the law?

Practically speaking, there is very little chance of being caught -- they hardly audit anyone. But from an ethics/peice-of-mind standpoint, is it worth $900 (or whatever) to (a) feel like a cheat; and (b) be worried about getting caught, even years from now?

People face the same choices every year when they pay taxes. Most, I think, fudge a little but generally pay what they owe.

For you, the fudge would probably be in calculating your gains from each item sold--I'm guessing you don't have great records on how much you paid for each item you sold. I don't think anyone would be shocked if you remembered that information in a way that was helpful for your tax return.
posted by Mid at 7:59 PM on January 18, 2006

Yes. And look into whether this will entitle you to take some extra-deductions. For example, if you're running this business out of your home, could you deduct some of your household expenses?
posted by duck at 8:26 PM on January 18, 2006

Dodgy deductions in a home business are historically a great way to get audited. So watch out for that.
posted by smackfu at 9:02 PM on January 18, 2006

I'm 99.9% sure eBay doesn't keep SSNs/TaxIDs. I never give that number out, and wouldn't have joined eBay if I had to. Perhaps if they required one to be an eBay store? Their half.ebay.com section doesn't require it..
posted by vanoakenfold at 9:13 PM on January 18, 2006

I am pretty sure they don't either - since they're not directly paying you, I don't think they have any reason to. My understanding is that they would only be required to report your earnings if they were the ones who were writing you the check.
posted by tastybrains at 4:53 AM on January 19, 2006

Was it income? Is income taxable? Do you pay taxes by, in part, reporting to the IRS?

It seems the answers are, yes, yes, and yes.

So, yeah.
posted by oddman at 7:38 AM on January 19, 2006

I'm 99.9% sure eBay doesn't keep SSNs/TaxIDs. I never give that number out, and wouldn't have joined eBay if I had to. Perhaps if they required one to be an eBay store? Their half.ebay.com section doesn't require it..

Ebay owns paypal, so they can get that info if they want (if you use paypal, anyway)
posted by delmoi at 7:44 AM on January 19, 2006

"If you are a law-enforcement officer, all you have to do is send us a fax with a request for information, and ask about the person behind the seller's identity number, and we will provide you with his name, address, sales history and other details--all without having to produce a court order."
posted by reverendX at 8:12 AM on January 19, 2006

Keep in mind that you may have additional expenses, such as a computer, an ISP account, travel to buy cds, etc. It's a small business, but a business nonetheless, and your actual profit is less than Sales - Cost of Goods Sold. Ebay/PayPal is legally required to report the $ paid to you, and to provide you with a W-2, so you should learn how to file Business taxes.
posted by theora55 at 10:58 AM on January 19, 2006

It's illegal not to report your income to the irs... it is legal to not pay them.

at the very least you should report it and not pay them. the only problem is if you are in the 1 percentile that gets audited... then you have to pay them what you owe as well as a small amount in fines.
posted by cusack at 8:31 PM on January 19, 2006

It's pretty illegal to not pay tax on income. I can't see how reporting the income but not paying the tax could be legal. That's why you would have to pay a fine, as you note.
posted by Mid at 5:39 AM on January 20, 2006

Ebay/PayPal is legally required to report the $ paid to you, and to provide you with a W-2, so you should learn how to file Business taxes.

Well, I don't think that is true, since eBay/PayPal are not really paying you (unless you work for them.) They are more acting in the role of a bank here, and money withdrawn from a bank is not considered income.
posted by smackfu at 6:52 AM on January 20, 2006

eBay.com does not currently report sales of their customers to the IRS, however from what articles I have read over the past few years they have received a lot of pressure from the IRS to do so.
For those who own Premier and Business accounts/Merchant accounts on PayPal.com, these accounts are interest-bearing and PayPal does issue W2s for these earnings if applicable.
I am a long time seller on eBay and user of PayPal; I asked the very same questions you have asked a few years ago. I highly recommend you seek the guidance of a tax attorney, if anything it could at least give you a clear understanding of your options. I am not in favor of telling you NOT to report, but at the same time I have no grounds to judge your situation and tell you TO report. The best move you can do at this point is to seek advice from a professional/expert, it’s better to be informed before making your decision.
posted by lutzla23 at 8:02 AM on March 7, 2006