When Will the IRS See Me as a Real eBay Business?
Even though you may want to declare your eBay selling as an eBay business, there is the chance that the IRS will treat your eBay selling as a hobby even though you declare it as a business on your tax return.
The IRS will treat you as a business if the business makes a profit for three consecutive years, including the present one. For businesses that are more recent or businesses that make money in some years and in the next lose money, the IRS uses a 'fact and circumstances' test to determine if they should treat you like a business. They look at factors like'
' How organized are you in keeping your business records and accounts
' If you have formed a legal business entity like an LLC (limited liability corporation) for your business and you are complying with the laws that apply to those legal entities.
' If you work a regularly amount of hours in your business
' Whether the activity is, by its nature, overly pleasurable or fun. Basically you decide if you want to treat your eBay business as a hobby or as a business for tax purposes. But the IRS decides if you are a hobby or a real business, after they perform an audit.
If you treat your eBay business as a business and during an audit the IRS decides that you're business is a hobby, than you can no longer have the business deductions or losses you may have claimed.
Even if you made money from your eBay business last year, you can still treat your eBay selling as a hobby, but you will have to report your income (profit) from selling on eBay on the 'Other Income' line of Form 1040 and you will have to pay taxes on that money if you don't have a hobby related losses to offset the profit (or you don't have enough hobby-related losses to offset your income entirely).
A good source where you can find a lot of training material about how to start your eBay business is by going to Worldwide Brands. They have the biggest wholesale data available on the internet and they are a certified eBay Solutions provider.
Make sure you talk with a certified CPA or lawyer. These are not financial advices. You should treat them only as an entertainment. We do not assume any responsibility on your losses or gains.
About the Author:
Tudor Ciurescu is a eBay enthusiast. He owns and maintains eBay Triangulation Method a resource for eBay hobbyists.