Selling Online?

Millions of Americans sell items online every year, using sites such as eBay to hold virtual garage sales. Perhaps you’ve sold an item or two, or you’ve found an online market for your crafts and made some decent money along the way. Do you have to claim the extra cash when you file your income tax return? The answer is: it depends.

There is a difference between someone who makes a living selling online and someone who wants to get rid of a gaudy heirloom lamp. There is also a difference between selling off the tools cluttering your garage and auctioning a collection of Beanie Babies or Indian-head pennies.

If you sell an item for less than you originally paid for it, the money you make is a loss rather than a profit, so it is not considered income in the eyes of the IRS. That’s where most ‘clean the junk out of the house’ sales fall. However, if you sell an item for more than you originally paid, then that money is a profit and is considered taxable income.

Say you’re selling off a personal collection of stamps or some of the antiques you’ve collected over the years. These types of collectibles are frequently sold for a profit, which means the income is taxable. But there is another tax that applies here: capital gains. Collectibles which have risen in value must be reported the way stocks and other investments are, on Schedule D of your tax return. Worse yet, profits from sales of collectibles are taxed at the maximum rate, 28%.

What if you are selling paintings or handmade jewelry or crafts? You’ll need to report the income, and your allowable deductions for materials to make the items and such will depend on whether your activities are classified as a hobby or a business.

If your selling activities are just a hobby, then you can deduct your expenses associated with selling the item, up to the amount of money you made. If your selling activities are a business (even if you don’t have an official business license), then your profits and deductions fall under business tax rules.

Naturally, the IRS has a host of rules to determine whether you have a business or just a hobby. If you need help sorting out the results of your online selling activities for your taxes, consult your CPA. If you need help getting organized or need to find a CPA to prepare your returns, give us a call at 678-377-2545.

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