Many eBay sellers have turned a hobby that earns extra cash into a full-time source of income. Unfortunately, one of the most oft-overlooked responsibilities is paying taxes on eBay sales, which many sellers have no idea how to pay; some may not realise they need to pay taxes from eBay sales in the first place. If you don't already, you should start organising and tracking your sales and income now so you can pay your taxes from eBay sales come tax time.
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Determine if you need to file an income tax return. Any individual whose self-employment net earnings totalled £260 or more for the taxable year is required to report that income on an income tax return, regardless of whether the individual owes taxes or is owed a rebate. If your earnings exceed £260, you should complete and file a tax return.
Obtain and complete IRS Form 1040 (Individual Income Tax Return), which includes Schedule C (Profit/Loss from Business) and Schedule SE (Self-Employment Tax). You must complete and file Form 1040 and these two schedules if you are required to pay taxes from sales on eBay. You can visit your local IRS office to obtain them in person, or request they be mailed to you by contacting the IRS at (800) 829-1040. You can also download the forms from the IRS website.
Calculate your adjusted gross earnings. Start by adding all of your sales; this is your gross earnings. Calculate your total costs, including purchases for items you sold, eBay listing and selling fees, PayPal fees, and other costs you incurred. Do not include shipping and handling fees as a cost unless you included the shipping and handling fees you received from buyers in your earnings. Subtract your total costs from your gross earnings; this is your adjusted gross earnings.
Determine if you are required to pay taxes from your sales on eBay. Subtract any allowable deductions and calculate your adjusted net income by following the form's instructions. If the calculated amount is positive, you owe taxes from your sales on eBay.
Pay your taxes from your sales on eBay in one of three ways: by mail, by phone or online. To pay by mail, write a check or obtain a money order for the amount you owe, made out to "United States Treasury." Send the check or money order, along with your complete tax return form, to the appropriate IRS office in your state. To pay by phone, contact the IRS at (888) 729-1040 after filing your tax return. You can use the automated system to pay by credit card or debit card. To pay taxes from sales on eBay online, visit the IRS website after filing your return and use your credit card, debt card or bank account.
Tips and warnings
- If you sold only your own used items that you no longer wanted, you likely do not need to report these sales. Unless you made a significant profit--i.e., you purchased an antique clock for £16, decided you no longer wanted it, and then sold it on eBay for £2,275--this is not counted as income. Think of it this way: if you were selling items on eBay the way you would sell your old belongings at a yard sale, you are not required to pay taxes from sales on eBay. If you are buying and selling items on eBay with the intention of turning a profit or earning income, however, you will need to report your earnings and pay taxes.
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