eBay Sales May Be Subject To Taxes

IRS Has No Clear Separation Between Hobbies And Businesses

(AP)  Hawking baby and children's clothes, along with some garage sale and thrift store bargains, on eBay helps Sunni Wojnarowsky bring in some extra money so she can afford to stay home with her two young boys.

The additional dollars are great, but does she really need to hassle with the paperwork and report her small profit to the Internal Revenue Service? Her question, posed to the online auction site's discussion board for sellers, generated much advice — and more confusion.

"You can't get an answer from anybody," Wojnarowsky said in an interview from her home in Brunswick, Ohio. "It would be nice to have a straightforward answer of yes, you file taxes, or no, you don't."

More than 135 million people have registered to use the auction site that calls itself "the world's online marketplace." Buyers bought more than $34 billion worth of merchandise there last year.

Some people make money by cleaning out items from their closets; others use the site to run small businesses.

In tax law, there is no clear, bright line that separates fun from profit, or a hobby from a business. But IRS instructions make it clear that all income — a category that includes bribes, gambling winnings, kickbacks and money made in illegal activities — can be taxed.

"When you're working on the Internet, it's kind of a gray issue," said Bart Fooden, a certified public accountant in Woodbury, N.Y., who advises small businesses and individuals. "The big issue is whether you're doing it as a business or not."

The IRS can apply a list of nine indicators that might prove whether someone's online auctions amount to a business. These indicators include evidence that the taxpayer depends on the income, acts in a businesslike manner, or puts enough time and effort into the activity to suggest a profit motive.

Fooden said the difference between a hobby and a business can often be the seller's intent.

If someone is selling the junk that is collecting dust in a garage or basement, then that person probably is getting less than he paid for it. No profit here.

If someone is buying goods in bulk from a wholesaler and hoping to make a couple extra bucks reselling each one, then that person could have just started a profitable business, Fooden said.

Some categories are not so clear.

If a great-aunt's collection of antique china fetched top dollar from collectors, that might mean capital gains taxes are owed.

If someone scours neighborhood garage sales for great deals on comic books to resell on eBay, that might amount to running a business.