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Is Your eBay Income Taxable?


The income you get from selling items on eBay is just like the income you get from any other business: it is taxable, at least in theory. In practice, many get away without declaring profits from their eBay sales just because they're hard for the government to track. If you want to be strictly within the law and legit, though, you should be paying tax.


Income is Income.


If you make money from it, then it's income, and if it's income, then it's taxable. There is a question of scale involved, though, where the more you've sold, the more important it is to declare your eBay income. If you don't, you risk getting yourself into all sorts of trouble.
There are some rules for deciding whether your income counts as taxable or not. If you depend on the income you get from eBay, spend a lot of time on it, or just act as if you are running a business, then you need to file a Schedule C tax form and pay tax as a business.


How Do I Work Out How Much to Pay?


The 'income' you make from eBay is how much profit you make. Remember that you can subtract absolutely all of your costs from this income, like this.
Sale price - cost of item - eBay fees - PayPal fees - cost of postage - cost of packing materials = income.


For example, let's say you sell CDs for $10 each, including shipping. You pay $5 for the CDs at wholesale. That's $10 - $5 (cost) - 25c (insertion fee) - 52c (final value fee) - 30c (PayPal fixed fee) - 29c (PayPal percentage fee) - 37c (stamp) - 50c (packaging) = $2.77 income.

For reference, eBay's final value fee on a $10 item is 5.25 percent, while PayPal's cut is 30c + 2.9 percent for most sellers. These numbers will vary depending on the value of what you sell and the kind of account you have.


When you work this out at the end of the year, you can calculate your overall price for all sales, and then work out how much of that you actually received, remembering to adjust for non-paying buyers. Then just subtract what you spent on shipping and packing. There's no real need to do tax calculations on a transaction-by-transaction basis, although it is advisable to keep a printed record of everything you buy and sell.


However, there could be a few advantages to paying tax on your eBay sales, you might be able to make it back through deducting tax on your business expenses. All of the costs in the sum above that aren't profit are business expenses and so tax-deductable. You may also be able to deduct the cost of any computer equipment you buy, as well as ink and paper for your printer. You could even try something a little unusual, like deducting the cost of renting your home office from yourself.


Whatever you do, though, don't just rely on the information in this email. If you want advice about tax issues, you should really go to an accountant.
Another way to make back the money you spend on tax, of course, is to simply make more profit on each item to begin with. Our next post will show you how to get more bidders with the power of pictures.

eBay doesn't have very many competitors, and the ones that there are remain small by comparison and that's part of what makes eBay so powerful for niche items. If you're selling more common things, though, you might like to list auctions on other sites besides eBay, to increase your potential customer base and avoid some of the occupational hazards of relying on eBay for all your business. But which ones are worth bothering with?

Yahoo Auctions wins in one big way: selling there is free. There are no listing fees or final value fees. What's more, Yahoo is still one of the biggest sites around, and gets plenty of traffic to its auction site. The site benefits from Yahoo's experience in providing good, categorised searching, and the site is easy to use all round.

The rub, though, is that dodgy buyers and sellers are even more rampant on Yahoo than they are on eBay, and that's saying something. Sellers on Yahoo Auctions can expect to run into far more non-paying buyers than they would on eBay. Also, the site is plastered with text ads, which get in the way, and the design in general leaves a lot to be desired, but then, so does eBay's.

uBid's model is to offer more security for less flexibility. They pre-screen everything: sellers must be registered businesses and buyers must pre-register a credit card. It takes some of the 'Wild West' feeling out of selling; but it also takes away most of the fun.

On eBay, you have complete control over what you're doing, while selling on uBid feels like you're just a faceless supplier for a big company. Searching for anything vaguely non-mainstream will come back with no results, to the point that it will quickly get frustrating for your buyers. If you're just selling common consumer goods for the money, though, then by all means do it at uBid.

Amazon Auctions is an underused auction site. The design is quite bad, and searches don't turn up many results. The payment system is the same one people use to buy things from Amazon itself, though, which seems more secure that PayPal.

You might be more interested in becoming an Amazon Marketplace seller, which means that you can list your items on their main pages for people to see when they click the 'Used & New from' link. This can be a good way to make a few sales, as you can simply keep your inventory updated at your Buy it Now prices and someone will occasionally buy something. You don't even have to write a description or upload any pictures. This is probably a better thing to be using than Amazon Auctions.

To sum up, registering your items at a few other auction sites could get you a few extra sales; but compared to eBay, they're all very unimpressive, and have nowhere near as many users.

If you're trying to think of ways to expand your business, then there might be a shock in store for you with what I'm going to tell you next. Did you know that your eBay income is taxable? But stay calm - the next post will explain everything.