Taxing Your eBay Profits

As a small business person-slash-advice columnist I dread the first quarter of the new year. Not because in my mind my own business fortunes start at zero again every January or because I have already dismissed every New Year resolution I made when the clock rang out the New Year.No, the reason I dread the first quarter of the new year is that my email box floods with questions about business taxes and the IRS, my two least favorite subjects on earth. Its not that I am opposed to paying my fair share of business taxes. Its that I consider the IRS to be a little like Beetlejuice, the movie demon who appeared only after his name was called three times in a row.

My fear is if I write too many IRS columns their dark agents may appear on my doorstep, ready to drag me away to an uncertain fate. EIN stands for Employer Identification Number and is also known as a federal tax ID number. The EIN is a nine-digit number that the IRS assigns to businesses and is used to identify taxpayers that are required to file various business tax returns.Again, I went to the horse mouth (at least I think it was the mouth) for the answer. According to the IRS there are a number of factors that help determine if your hobby can be considered a business and thereby make you susceptible to the IRS tax rules governing business. Do you carry on the activity in a business-like manner?

If you conduct your eBay activities like a business, i.e. you keep business records, track your profit and loss, keep a separate checking account, etc. then whether you think so or not, your hobby is considered a business.If you put considerable time and effort into your venture, the IRS may contend that you do so for profit and not fun. It seems the folks at the IRS don’t believe in doing things strictly for pleasure. My guess is, neither do you. If you weren’t making money selling on eBay I doubt you’d be bothering getting up at 4am to hit all those yardsales.

Then again, maybe you would If you depend on income from your eBay activities for your livelihood, its a business, not a hobby. There are a number of other factors the IRS considers to determine if a hobby is really a business, but in your case I think that covers the basics.For detailed answers to any tax question you should consult a qualified accountant or tax attorney. God forbid you rely on a guy who is afraid to mumble the letters three times in a row.