I first started the Ebiz Tax Tips blog because I was getting a lot of questions from eBay sellers about taxes – whether they needed to report their income, what they could deduct, etc.

That was a couple of years ago.  Since then the number of bloggers, affiliate marketers and other people making money on the internet has exploded.  And the IRS has taken notice!

The number of 1099s that will be issued and received this year will probably be much larger than ever before.

So, you may be wondering, will you get a 1099?  And what should you do if you do receive a Form 1099?  How do you go about reporting 1099 income?

Most people are aware that they must report wages, salaries, interest, dividends, etc. on their tax returns, but many people do not realize that they also have to report other income, such as cash earned from side jobs, barter income when you exchange services or goods with someone else, awards, prizes, and even gambling winnings.

Basically, you have to report ALL income from all sources, unless it is specifically exempt from taxes.

That means if you earn money from ads on your blog, selling items on eBay, selling products for a commission, or providing a service to another person (if you are a VA, web designer, coach, etc.), then you must report that income.

If you are a sole proprietor or an independent contractor and you earn $600 or more for the year (from an individual or a company), you should receive a Form 1099-MISC reporting your income.  This income is reported to you and the the IRS. 

Even if you don’t receive a Form 1099, your income is still reportable.  There is a common misconception that if you don’t receive a form 1099, you don’t have to report your income.  Wrong!  If you are earning money from a product, service, or other activity (blog, ad revenue, affiliate commissions, whatever the source) you have to report that income to the IRS.

The good news is that you can deduct ordinary and reasonable business expenses against that income.  So you are only taxed on your net profit, not your total income.

To report your income and expenses from your online business, use
Schedule C: Profit or Loss From Business, which is then attached to
your Form 1040 (your personal tax return). You must also complete
Schedule SE to calculate your self employment taxes if your net profits
from your business exceed $400 for the year.

Note: As a self employed business owner, you are responsible for the self employment tax on top of your regular tax on your net profits.  The SE tax is 15.3% and can add up very quickly!

To minimize your SE tax, it’s important that you understand the deductions and credits available to you as a small business owner.  For a list of tax deductions for online business owners, please read “List of Tax Deductions for Online Biz Owners”.

Recommended Resources:  If you are a new business owner, and you have questions about reporting your income, what you can deduct and how to minimize your taxes, consider signing up for the New Biz Tax Consultation.

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Recently, a subscriber to the ‘Tax Tips for eBay Sellers’ special report asked:

Q. I’m somewhat confused on the "hobby" vs "business" debate. I made about $5,000 on eBay last year.  I wasn’t really conducting myself in a business like manner – it wasn’t a regular thing, it was just something fun I liked to do. But I knew I was making money at it, as well.  Basically, I just don’t know how I am supposed to file this. Do I report my eBay income as a hobby or a business?

A. If you were just selling on eBay as a hobby, your income is reported on line 21 (Other Income) of Form 1040.  Expenses relating to your hobby income are deducted on Schedule A, as a miscellaneous deduction, subject to the 2-percent floor.

This means if you do not itemize you could lose the ability to deduct any expenses against your hobby income; and even if you do itemize, you can only deduct the amount of expenses that exceed 2 percent of your adjusted gross income.  This is the least favorable tax treatment of your eBay income.

If you were selling collectibles (artwork, stamps, coins, etc.), then you report your gain on the sale on Schedule D, Capital Gain or Loss.  The capital gains rate for collectibles is 28 percent.  Losses are not deductible.

Finally, if you were selling on eBay with the intent to make a profit, and you are a sole proprietor (not incorporated, and not a partnership), then you should report your eBay income on Schedule C, Profit or Loss from Business.

Your net profit is subject to income taxes and self employment taxes when you are a sole proprietor, but you are allowed to deduct reasonable and necessary expenses, such as the cost of inventory, shipping supplies, business use of your car, expenses associated with the business use of your home, and more.

Because you are able to deduct expenses against your eBay income, reporting your income on Schedule C is generally the most advantageous for eBay sellers.

For more great eBay tax tips, please read our free special report, Tax Tips for eBay Sellers.

Tags: income tax on ebay profit, ebay tax, ebay hobby or business

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If you are operating your eBay business as a sole proprietor, and you’re not using your own name as your business name, you should register a DBA “doing business as” name with your state.  This is also called a fictitious name.

Most banks require that you register a DBA before they will allow you to open a bank account for your business.

More importantly, establishing and registering a business name helps establish that you are a business with the intent to make a profit in the eyes of the IRS.  This is one factor that the IRS looks at when determining if your business is really a business or a hobby for tax purposes.

You do not need to register a DBA if you are incorporated, unless you are operating under a different name than the legal name on your incorporation documents.

For more great eBay tax tips, please read our free special report, Tax Tips for eBay Sellers.

Tags: ebay business

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• Top 5 Missed Business Tax Deductions

1. Whether you run the activity in a business like manner
2. How much time and effort you put into making a profit
3. Whether you depend on the activity for your livlihood
4. Whether your losses were due to conditions beyond your control
5. Whether you changed your operating methods to improve profitability
6. Whether you or your advisors have the knowledge needed to carry on a successful business
7. Whether you successfully made a profit in similar activities in the past
8. Whether the activity makes a profit in some years, and how much
9. Whether you can expect to make a profit in the future from the activity

• 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

Tags: income tax on ebay sales, ebay tax, business or hobby

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