Is Your eBay Activity a Business or a Hobby?

Kristine McKinley
 


Visitors: 195

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:

  • Whether you run the activity in a business like manner

  • How much time and effort you put into making a profit

  • Whether you depend on the activity for your livelihood

  • Whether your losses were due to conditions beyond your control

  • Whether you changed your operating methods to improve profitability

  • Whether you or your advisors have the knowledge needed to carry on a successful business

  • Whether you successfully made a profit in similar activities in the past

  • Whether the activity makes a profit in some years, and how much

  • Whether you can expect to make a profit in the future from the activity

    Here are some things you can do to show that you are indeed operating a business and not just a hobby:

  • Get an employer identification number (EIN)

  • Apply for a business name

  • Have a separate checking account to be used for business transactions

  • Hire an accountant to keep your books

  • Create a business plan

  • Keep track of the time you spend each week doing business activities

  • Consult other business owners or advisors to help make your business profitable

    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 McKinley

    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/

  • (565)

    Article Source:


     
    Rate this Article: 
     
    Why You Should Have a Hobby When You Run Your Own Business
    Rated 4 / 5
    based on 5 votes
    ArticleSlash

    Related Articles:

    Is Selling On eBay Just A Hobby Or A Real Business?

    by: Tim Knox (June 10, 2005) 
    (Internet and Businesses Online/Auctions)

    Allowing A Part Time Ebay Hobby To Become A Full Time Income

    by: Mark Kenny (February 27, 2007) 
    (Internet and Businesses Online)

    Turning Your Hobby into a Business - Want to Make It a Successful Business?

    by: Lee Lister (July 03, 2006) 
    (Business/Entrepreneurialism)

    Business or Hobby?

    by: David Breth (December 29, 2005) 
    (Business/Careers Employment)

    Are You Treating Your Home Business Like A Hobby Or A Business?

    by: Chris Keenan (January 26, 2007) 
    (Home Based Business)

    Business or Hobby...What Would the IRS Call YOUR Business?

    by: Vicky Collins (February 17, 2005) 
    (Home Based Business)

    Is Your Home Business A Hobby Or A Real Business?

    by: Andrew Cass (July 06, 2007) 
    (Home Based Business)

    Is It a Real Business or a Hobby?

    by: Dan Milam (June 08, 2005) 
    (Home Based Business)

    Your Band Business Vs Hobby

    by: Mike I. (July 09, 2008) 
    (Arts and Entertainment/Music)

    Why You Should Have a Hobby When You Run Your Own Business

    by: Helen Dowling (July 15, 2008) 
    (Business/Entrepreneurialism)