Many eBay sellers start out as a hobby, or just to clean out their closets. Many times, this hobby can lead to a profitable business.
A hobby is an activity that you do simply because you love doing it, but it may also earn you some income. That income must be reported on your tax return, even if it is just a hobby.
Some hobbies may actually be businesses, which would allow you to deduct expenses against any income you earn. On the flipside, some businesses may only be hobbies, in which case you would only be able to deduct expenses up to your earnings.
How can you tell if your activity is a business or a hobby? Basically, it's whether you have a profit motive or not.
Learn what factors the IRS looks at when determining whether a business is a business or a hobby. The IRS looks at nine factors to determine if you are trying to make a profit, or if you're just enjoying a hobby:
Here are some things you can do to show that you are indeed operating a business and not just a hobby:
To minimize the income tax on your eBay sales, you should treat your business like a business, not a hobby (even if it is just a hobby!). By following the tips in this lesson you will be able to deduct your business expenses and keep your tax liability to a minimum.
To your financial success,
Kristine A. McKinley, CPA, Certified Financial Planner®, and founder of Beacon Financial Advisors, teaches individuals and families how to invest and plan for retirement, college, and other financial goals. Kristine offers financial and tax planning on an hourly, fee-only basis.
For more information on eBay taxes, sign up for our free special report ‘Tax Tips for eBay Sellers’ or visit our blog.
=> Special Report ‘Tax Tips for eBay Sellers’ - http://beaconfinancialtips.typepad.com/ebaytaxtips/2007/02/free_special_re.html
=> Blog - http://beaconfinancialtips.typepad.com/ebaytaxtips/