EBay Sellers Try To Get Moral Support For Income Tax Evasion

from the one-of-two-things-in-life-we-can-be-certain-of dept

It’s almost April, which means that we’re in the thick of the tax season. For the eBay power sellers who make a living at buying and reselling goods on eBay, they clearly need to pay income tax on their profits. But what about the millions of smaller scale eBay’ers that supplementing their income by selling their used goods online? Is that income taxable? Each year, as we near tax season, there is increasing confusion over whether or not to report eBay profits as income. The tax code seems pretty straightforward — any income, even from a hobby, is taxable. Income = Sale Price – Cost of Goods Sold. The accountant quoted points out that the tax code is vague when distinguishing a hobby from a business, which is true. However, this distinction should only be used when deducting hobby expenses from the hobby income. Honestly, if there are truly people who consider selling things on eBay a “hobby”, I have a whole attic full of crap that I’ll happily sell to you for exactly what you get for it on eBay (and I’ll happily pay the income tax on that). Sounds like people are (as usual) trying to get out of paying taxes, which is why we have auditors. It’s a recognized imperfect system, designed to only catch those who grossly try and cheat the system. Income tax evasion is nothing new, and for those millions of people that don’t report their eBay income, it’s doubtful that the IRS will audit every one of them (nor will they catch all the people that don’t report their online state sales taxes). As with income tax evaders in all arenas, it’s likely the IRS will chase the big whales worth the chase. Sold a few pairs of grandma’s old shoes? You’re probably ok. Sold a grilled cheese sandwich for $28,000? I’d recommend you report that.

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Comments on “EBay Sellers Try To Get Moral Support For Income Tax Evasion”

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Oliver Wendell Jones (profile) says:

And the reverse?

Most of what I’ve sold on ebay is older computer items and other equipment that I purchased, used and later resold at a loss. Do I get to deduct those losses as a tax write-off, even though they have nothing to do with any “business”?

If not, then why should I be expected to pay taxes on items that I did sell for more than I originally paid?

Redchrome says:

Re: Do we really need an income tax?

This all goes to show just how silly the income tax system is. It’s punishment for working hard and doing well.

It should be noted that even the most despotic of the French kings never dreamed of accounting for every centime that every Frenchman made during the course of a year.

Today, most people don’t dare start a small buisness, because the government takes half of everything you make. It’s not economically worthwhile to work harder and work for yourself.

This country got by just fine for well over a hundred years without an income tax. The one enacted in 1913 only taxed 1% of the income of people who made more than $20,000… but it was a step down a slippery slope, because it allowed the Federal government to grow larger…. which required more taxes to feed it… which made it larger… and there’s nothing to keep it in check, because the government *can’t go out of buisness*.

For all of the trouble that it causes, the income tax still only accounts for 1/6th of the federal budget. Why not eliminate the tax, and cut away some of the useless cruft in the federal budget instead?

“Congress can raise taxes because it can persuade a sizable fraction of the populace that somebody else will pay” – Milton Friedman

Rick Colosimo (user link) says:

Re: And the reverse?

The main distinction between hobbies and businesses is the ability to deduct losses beyond the amount of income. If the activity isn’t designed to make a profit, it’s generally a hobby.

Life is a like a hobby, only less so. You pay taxes on virtually all income, and you get to deduct only certain expenses (e.g., 2% thresholds on miscellaneous deductions, 7.5% thresholds on medical expenses, no deduction for consumer interest).

The comment below is partly correct. In many cases, the amount of net income from sales of personal property will be zero. If, however, you have a sale of something that has appreciated (think collectibles here – such as my Star Wars figures that cost $4 each) and sell it, the net income is taxable.

cow (user link) says:

Re: Re: if we could get the enron's to pay their share

By far the governement loses more moeny from big corporations then mom and pop on ebay.. It is the big companies that greese their palms so they go after mom and pop instead. And how come only the first 100,000 of income is taxable.. so if i make 200k i get 100k tax free
awesome to be rich…
sure i think some of the larger stores on ebay should pay their fair share in taxes.. but need to leave alone the people basically having online yard sale

beezle (user link) says:

Re: And the reverse?

only items bought and then resold for profit (either flipped or reconditioned) would be subject to income tax. If the item is originally made by you (say some craft thing) then the net would, in theory, be taxable.

I seriously doubt that the IRS is coming after too many people on ebay. The time and expense for the amounts involved (don’t forget they only get a fraction of the net income) just isn’t worth it.

Taxman commeth says:

Re: And the reverse?

You are correct. If you have a hobby/business that is loosing, then it eventuallly has to show a profit. The key here is the valuation of the item. If you both a hardrive for$200 and sold it one year later for $100 is that a loss?? The value of that item in one year is probably $50-100 so you may have broke even. Keep clear reocords with justifications for your valuations and you are golden.

Anonymous Coward (user link) says:

But the taxes have ALREADY been PAID!

Assuming the money that bought the items which are being sold on ebay was generated in a legitimate manner (for simplicity’s sake, let’s assume this person has a regular job where taxes are withheld automatically). So the taxes HAVE been paid. If this wage-earner purchases something and then, for *whatever* reason. sells it on ebay (profit or not), the taxes have ALREADY been paid. To tax any income and/or profit realized on an ebay sale is most likely double taxation.

Of course if someone is in the BUSINESS of buying and selling on ebay, WITHOUT SIGNIFICANT OTHER INCOME, I could see this scenario being different. (Think about some, though not all, of the PowerSellers here …)

ryumon says:

"recognized imperfect system" is right!

Actually, I’ve never understood how people didn’t call “unfair” a long time ago on the entire process of goods taxation, for the following reason:

If a retailer responsible for adding sales tax is supposed to calculate that sales tax, not to the unit price they paid for the item ($5, for example), but to the price they sell it to the customer for (say $7), isn’t that tax amount technically paying taxes on the profit of the item ($2) already? …So why does the government turn around and charge taxes on the profit of that item AGAIN, only under the category of ‘income tax’ the second time around? Didn’t the income (i.e., profit) tax already get paid, albeit by the customer instead of the retailer? That whole setup just seems like a way to allow for double taxation on a rather poorly hidden technicality. Shouldn’t the sales tax be calculated from the original unit price rather than the selling price? …Maybe I’m missing something here.

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