Posted on 03/28/2005 12:02:48 AM PST by ajolympian2004
WASHINGTON - 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 (news - web sites)? Her question, posed to the online auction site's discussion board for sellers, generated much advice — and more confusion.
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.
"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.
"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. But 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.
On the other hand, 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. And if someone scours neighborhood garage sales for great deals on comic books to resell on eBay, that might amount to running a business.
It often is best to ask a tax professional, said Bob Miller, who says he spends about 18 hours a day on eBay, selling collectable postage stamps and advising other buyers and sellers from his home in northern Utah.
"When the person that you owe the money to can throw you in jail, it's always a good idea to get professional advice," he said.
eBay spokesman Chris Donlay said the company does not report individual sales to the tax authorities. eBay urges users, in the site's educational materials and seminars, to learn about tax issues.
"It's really up to the seller, just like offline," he said. "We are just a venue, really. We're sort of like the mall landlord or the owner of the parking lot where the flea market happens."
It takes so little effort to set up shop on eBay that some might overlook the tax issues, Miller said.
"If you have an e-mail address, you can start selling. If you're a U.S.-based seller, you need to have a credit card and a bank account," Miller said.
"People have a feeling that they're selling on eBay, they're not a business. It's not true. If you are selling and making a profit, you have to declare it."
An eBay survey last year found that 430,000 of its U.S. sellers make a significant portion or all of their revenue from selling on eBay.
While it might sound like nothing good can come of the headache involved in claiming a small profit from online auctions, consider the perks. Business expenses can be deducted from profits. That includes the cost of the goods sold, fees, supplies and maybe a home office — if the qualifications are met.
Wojnarowsky said she plans to report her eBay profits, which she estimates at roughly $2,000, but she is not looking forward to it.
Last year, the Wojnarowsky paid a $400 tax preparation fee, which included a business schedule to report online auction earnings. This year, they will crunch the numbers themselves using tax preparation software.
"I talked to a friend of mine who does eBay, and she's not filing because she said it's not regulated," Wojnarowsky said. "But my fear is, yeah, but what if you're wrong? I don't want to pay the fine."
Sunni Wojnarowsky poses next to her computer at her home Wednesday, March 23, 2005, in Brunswick, Ohio. Hawking baby and children's clothes, along with some garage sale and thrift store bargains on eBay, helps Wojnarowsky bring in some extra money so she can afford to stay home with her two young boys. (AP Photo/Ron Schwane)
save for later
Just one more reason to get rid of the IRS.
I think this is a gray area for the IRS... It depends more on if you sell on Ebay as a fulltime business rather than someone trying to get rid of extra junk. If it was up to me I would just scrap this whole taxation system all together and just either have a flat tax or a tax on goods. I run my own businesse(s) which means I do a ton of different things to make a living and I can`t tell you the living hell I go through every year. Just as an example, last November I finally got straight with the IRS on what I owe them. That`s 8 months of my time I spent working on taxes. The system is a buearocratic nightmare from hell and every year I get sick to my stomach when April 15th rolls around.
(Denny Crane: "Sometimes you can only look for answers from God and failing that... and Fox News".)
Millions of cottage industries will go out of business. 'C'est la vie' (God I hate the French socialist mentality) but that is my prediction since we are continuing to sink into the socialist cesspool mentality. IMOHO
I know RINO Bloomberg of NYC is going after people who bought cigarettes through the internet, and if he`s doing that I would imagine he is also going after people who sold stuff on Ebay as well since he`s a `Rat in disguise. Someone has to pay for those corrupt unions and the city councils office decorating fee and vacations.
(Denny Crane: "Sometimes you can only look for answers from God and failing that... and Fox News".)
And how many of those items would you actually be able to sell at a profit (capital gain). Probably not many, excluding collectables maybe.
Yeah I heard about that, Jackass Chirac and his "world tax". A world tax, how can I send my middle finger to Chirac? I swear if it was up to the socialists nobody would be working, then they`d start wondering why all the supermarkets have no food, why electric doesn`t exist anymore, and why everyone lives in the street. They`d probably blame it on Bush. They truly don`t understand how high taxation really screws up the economy. I mean let me put it this way, last year I ended up having to pay the IRS $9000 bucks which I am now paying in installments. April 15th I have no doubt I will owe even more. Guess how much stuff I buy? Nothing, only bare essentials. The only economy I am currently supporting is food, electric and rent. If there was a different tax system such as taxing just goods or just a flat tax I would probably be buying that new computer or those new clothes or that nice couch I see at my local furniture store.
Wow... you must be making up for a person I know in Salt Lake City, UT who owns a small business and grosses over $80,000+ a year and doesn't pay a dime in federal or Utah state income tax. Believe it or not this person simply does not file a return and brags about it. She says there is no way that she'll ever be caught. She even hires employees and doesn't file any tax info for them including Social Security. It's just so amazing the people can cheat like this and not care one iota about it.
Are you kidding? $80k a year? How can she think she won`t get caught? That`s crazy, one audit and forget it, the IRS will totally destroy her, make her life a living hel, and that`s once she gets out of jail. Like my accountant says "There`s no law that says you have to pay income tax, but there`s also no law that says they can`t throw you in jail"...Screw that, there is no way in hell I would ever take the slightest risk of going to jail. 15 years ago I spent a 3 day weekend in jail (it`s a long story) and talk about hell, you can`t imagine what it is like to be locked up like a caged animal. It was nothing like I ever imagined. If you want to get some idea, lock yourself in your bathroom for a weekend and never leave and then imagine that for the entire time people are watching you. You go freggin nuts.
This is no joke... one of her reasons for not filing a tax return is to make up for when her daughter was turned down for a Pell grant to help out with college tuition about 10 years ago.
Well she is totally playing with fire. She might get away with it but she is gambling with her freedom, something I would never do. And not only that, her financial freedom. The IRS is like the Mafia, probably worse, if they feel they have been wronged they will not hesitate to destroy every aspect of her life. She could lose everything, her house, her car, her life savings, her paycheck if she gets a job. She`ll be a life long slave to the IRS. Just to give you an example what kind of SOB`s the IRS is, a few years ago I lost $20,000 on the stock market but I made $30,000 for the year from other areas, other jobs. So naturally I thought I could claim that $20,000 as a tax deduction. Wrong! The maximum they allow to declare when it comes to stock losses is $3000 a year and every year thereafter until I reach $20,000. So even though I lost $20,000 I still had to pay taxes on $27,000 bucks. This is why I am in debt up to my azz with the IRS. I have been paying them off forever and every year that bill gets bigger and bigger. I still owe them $5000, after April 15th it`ll probably go back up to over $10,000.. And what ticks me off is if I made $20,000 instead of losing it, the IRS would want all the tax on that $20,000 at once.
Can you tell me just who it was that said that the tax code was to make sense?
And, if you think the income tax is too onerous, then elect somebody to change it.
Why are you sympathetic to the IRS? The IRS is an organization dedicated to punish those who are successful in business.
Why wouldn't it be taxable income? I don't see what is so grey about it. If you are cleaning out your closeet and selling stuff for less than you paid then it is obviously not, but if you are making money it is income.
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