Longtime eBay buyers and sellers are pondering whether the revenues they gain from sales on the popular Internet auction site could be considered taxable income by the IRS, according to various reports last weekend.
The question reportedly arose during a discussion on eBay's message board, where it came out that current tax law seems to lack clear lines that distinguish what one report described as "fun from profit" or "hobby from business," even if the IRS itself says all income–from winnings at your weekly poker game to bribes and kickbacks–is taxable.
The IRS, in fact, uses nine indicators that can prove whether your online auctions equal fun or business. They include whether you absolutely depend on that income, act like a businessperson, or put so much time into online auctions that you could be seen as doing business and seeking actual profit.
EBay does not report individual sales to the IRS or to any other tax authorities, but urges its users to learn applicable tax laws and report earnings honestly. "It's really up to the seller, just like offline," said spokesman Chris Donlay. "We are just a venue, really. We're sort of like the mall landlord or the owner of the parking lot where the flea market happens."
Buyers bought a reported $34 billion worth of goods on eBay during 2004, and while many sellers use eBay to clean out their closets or swap favorite collectibles–from antique toys and electric appliances to vintage records and sports memorabilia–with others of similar interests.
The line seems to be whether a seller is doing it for fun or primarily business activity, according to Long Island accountant Bart Fooden. "When you're working on the Internet, it's kind of a gray [area]," Fooden told The Associated Press over the weekend. "The big issue is whether you're doing it as a business or not."
Bob Miller, an eBay member who told AP he spends about 18 hours a day on the site selling collectable postage stamps and advising other buyers and sellers, said the best thing to do if you're not sure is ask to a tax professional. "When the person that you owe the money to can throw you in jail," the Utah man told the wire service, "it's always a good idea to get professional advice."
It takes so little effort to set up shop on eBay that some might overlook the tax issues, Miller said.
"If you have an e-mail address, you can start selling. If you're a U.S.-based seller, you need to have a credit card and a bank account," Miller said.
"People have a feeling that they're selling on eBay, they're not a business. It's not true. If you are selling and making a profit, you have to declare it."
An eBay survey last year found that 430,000 of its U.S. sellers make a significant portion or all of their revenue from selling on eBay.
While it might sound like nothing good can come of the headache involved in claiming a small profit from online auctions, consider the perks. Business expenses can be deducted from profits. That includes the cost of the goods sold, fees, supplies, and maybe a home office—if the qualifications are met.
Sunni Wojnarowsky said she plans to report her eBay profits, which she estimates at roughly $2,000, but she is not looking forward to it.
Last year, Wojnarowsky paid a $400 tax-preparation fee, which included a business schedule to report online-auction earnings. This year, they will crunch the numbers themselves using tax-preparation software.
"I talked to a friend of mine who does eBay, and she's not filing because she said it's not regulated," Wojnarowsky said. "But my fear is, yeah, but what if you're wrong? I don't want to pay the fine."
