Making money by selling items on eBay is one of the most common online businesses. However, a lot of eBay sellers do not know that the income they make is taxable, like any other income from any other business.
Theoretically, if you are making money out of eBay, then it is income and if it is income, then it is taxable. Yet, practically, many sellers do not declare their profits from their eBay sales. Why??! just because they do not want to lose any of the profit they made for taxes and in the same time they know that it is hard for the government to track their online businesses and so they get away with it. You, however, do not want to do that. To have a legally solid business, you should be paying taxes. Yet, there is a question of scale involved, the more you have sold, the more important it is to declare your eBay income. Otherwise, there is a chance you might get yourself in all kinds of trouble.
Determining whether your income is taxable or not depends on many rules. If the income you get out of eBay is your main source of living and you count it as your private business, then you need to file a Schedule C tax form and pay tax.
Now you are probabaly wondering how to estimate your income from eBay. It is that simple: the net profit you make on eBay is your income. To calculate this net profit, you need to subtract all of your costs from the money you earned, like: the sale price, the cost of the item, eBay fees, PayPal fees, the cost of postage, the cost of packing materials. The money left after deducting all that is the income that you pay tax for. For instance, if you are selling CDs for $10 each, including shipping. Out of this $10 deduct the following costs: $5 ( the cost of one Cd at wholesale), 25c (insertion fee), 52c (final value fee), 30c (PayPal fixed fee), 29c (PayPal percentage fee), 37c (stamp), 50c (packaging). You will find that out of the $10 you got only $2.77, which is your taxable income.
N.B. eBay’s final value fee on a $10 item is 5.25%, while PayPal’s cut is 30c + 2.9% for most sellers. These numbers will vary depending on the value of the item you are selling and the kind of account you have.
At the end of each year calculate your overall price for all sales and how much you actually earned, not forgetting to adjust for buyers who did not pay, then just take off the shipping and packing costs. The amount of money left is your taxable income. Although it is recommended to have a printed record of all your selling activities, you do not have to calculate your taxes after every selling action you make.
Do not be surprised to know that paying tax on your eBay sales could be useful in some respects. By deducting tax on your business expenses, you can get some of the money back. All of the costs mentioned above in addition to the cost of any computer equipment you buy, as well as ink and paper for your printer are business expenses and so they are tax-deductable. Moreover, you could consider the cost of renting your home office from yourself as business expenses, although it is a bit unusual.
However, the simplest way to win back the money you spent on tax is by increasing the profit you make on each item in the first place. Another great way to increase bidders and thus your earnings is by using pictures. The next email will reveal this in detail.
Finally, let me say that what is mentioned in this email is only hints about how to calculate your taxes. To get a full idea, it is recommended that you visit an accountant.
Theoretically, if you are making money out of eBay, then it is income and if it is income, then it is taxable. Yet, practically, many sellers do not declare their profits from their eBay sales. Why??! just because they do not want to lose any of the profit they made for taxes and in the same time they know that it is hard for the government to track their online businesses and so they get away with it. You, however, do not want to do that. To have a legally solid business, you should be paying taxes. Yet, there is a question of scale involved, the more you have sold, the more important it is to declare your eBay income. Otherwise, there is a chance you might get yourself in all kinds of trouble.
Determining whether your income is taxable or not depends on many rules. If the income you get out of eBay is your main source of living and you count it as your private business, then you need to file a Schedule C tax form and pay tax.
Now you are probabaly wondering how to estimate your income from eBay. It is that simple: the net profit you make on eBay is your income. To calculate this net profit, you need to subtract all of your costs from the money you earned, like: the sale price, the cost of the item, eBay fees, PayPal fees, the cost of postage, the cost of packing materials. The money left after deducting all that is the income that you pay tax for. For instance, if you are selling CDs for $10 each, including shipping. Out of this $10 deduct the following costs: $5 ( the cost of one Cd at wholesale), 25c (insertion fee), 52c (final value fee), 30c (PayPal fixed fee), 29c (PayPal percentage fee), 37c (stamp), 50c (packaging). You will find that out of the $10 you got only $2.77, which is your taxable income.
N.B. eBay’s final value fee on a $10 item is 5.25%, while PayPal’s cut is 30c + 2.9% for most sellers. These numbers will vary depending on the value of the item you are selling and the kind of account you have.
At the end of each year calculate your overall price for all sales and how much you actually earned, not forgetting to adjust for buyers who did not pay, then just take off the shipping and packing costs. The amount of money left is your taxable income. Although it is recommended to have a printed record of all your selling activities, you do not have to calculate your taxes after every selling action you make.
Do not be surprised to know that paying tax on your eBay sales could be useful in some respects. By deducting tax on your business expenses, you can get some of the money back. All of the costs mentioned above in addition to the cost of any computer equipment you buy, as well as ink and paper for your printer are business expenses and so they are tax-deductable. Moreover, you could consider the cost of renting your home office from yourself as business expenses, although it is a bit unusual.
However, the simplest way to win back the money you spent on tax is by increasing the profit you make on each item in the first place. Another great way to increase bidders and thus your earnings is by using pictures. The next email will reveal this in detail.
Finally, let me say that what is mentioned in this email is only hints about how to calculate your taxes. To get a full idea, it is recommended that you visit an accountant.
