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While many eBay sellers use the platform to occasionally offload old collectibles or merchandise, others treat it like a full-time job. According to Small Business Trends, the average seller makes about $35,000 per year, with top earners making as much as $70,000. Starting in 2023, the IRS will be paying closer attention.
Welcome to the 1099-K!
The 1099-K from eBay reports the gross sales you made on the platform during the previous tax year. (In some cases, the amount may not be the final amount you report on your tax return because it does not include discounts or refunds.)
Traditionally, this form was only required if you met the minimum threshold of $200,000 or 200 transactions during the tax year. That changed with the passage of the American Rescue Plan Act of 2021. As of January 1, 2022, a new threshold of $600 has applied, which means that next year, eBay will be issuing more 1099-Ks to its online sellers.
Despite this adjustment, U.S. tax law itself has not changed, which means that your eBay income is not always taxable. If you’re treating the platform like a virtual garage sale, you probably have nothing to report. Making a profit, however, would probably turn your selling into a hobby from an IRS perspective and you would have to pay taxes.
Hobby vs. Business Sales on eBay?
If you make money from a hobby or a business, the IRS wants to know about it. The tax treatment of businesses, however, is more favorable than that of hobbies: if your eBay sales are done as a business (meaning that you depend on it for income and aim to make a profit), you can decrease your taxable income by writing off expenses like advertising and cost of goods and materials. While hobbyists used to be able to claim expenses up to a point, they have not been able to do so since 2018.
What To Do With Your EBay 1099-K
A hobbyist who receives a 1099-K from eBay must:
- Download their sales reports for the year to determine your eBay sales and expense amounts
- Report your income on Schedule 1 of Form 1040
If you receive a 1099-K from eBay and are considered a business, you must:
- Get your eBay Sales Reports for the year to see your sales and expenses
- Collect receipts or documentation for any expenses you want to deduct, such as original purchase prices for items you sold
- Use Schedule C on Form 1040 to report eBay income and expenses that are tax deductible
Conclusion
If you receive a 1099-K from eBay, it means that a copy was sent to the IRS as well, so be sure to properly report your income as a seller. Classifying business sales as a hobby (or vice-versa) can lead to tax complications like audits, penalties, and more. If you have questions or need representation during a tax controversy with the IRS, contact Weisberg Kainen Mark, P.L. at (305) 374-5544 today.
Weisberg Kainen Mark, PL
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