Quote:
Originally Posted by JoeD
It's the same with how people selling their used goods on ebay don't have to declare it as an income for tax purposes. However, there's a point where selling items on ebay becomes classed as a business venture and then you're going to be in trouble if you don't start declaring your income.
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This is not quite correct.
When you sell an item on ebay, the amount you are paid for that item is, legally, "income". All of it. It doesn't matter whether you are in business or not.
However, all of that income is not
taxed. You only have to pay tax on the amount of the income in excess of what the item cost you in the first place - i.e., on the profit.
So if you buy a Hawaiian shirt for $100, and later sell it on ebay for $40, you have $40 in income - but you don't owe any income tax on it since there's no profit.
However, if that shirt is bid up to $150, you have $150 in income, but you will only owe income tax on the $50 profit. (Actually, you can adjust that $50 to a lower figure, based on subtracting Amazon's cut, shipping fees, etc.)
The "business" angle comes in when it turns out that you sell a lot of shirts, and on some you make money, and others you don't. Basically, if you are
not selling enough shirts to be "in business," you have to figure out your profit on each shirt separately, and pay tax on the profit. But you don't get to take into account the loss you have on the other shirts. OTOH, if you are in business, you get to lump all the profits and losses together, and only pay tax on the net profit.
To sum up using the above figures:
1. sell one shirt on ebay, for less than it cost you = a loss of $60 and no tax.
2. sell one shirt on ebay, for more than it cost you = a profit of $50, on which you must pay tax.
3. combine 1 and 2, and if you are NOT in business = a loss on the first sale, a profit of $50 on the second sale, and you pay tax on the $50.
4. combine 1 and 2, and if you ARE in business = a loss of $60 on the first sale, a profit of $50 on the second sale, which added together means a net loss of $10, and you owe no tax.