![]() To make sure you're not caught off-guard, you can get a sense of how your income and FICA taxes will shake out using our income tax calculator. Income taxes go to the federal government and - depending on where you live - your state. You’ll also have to pay income taxes on what you earn from your eBay store. Unfortunately, your tax obligation as a seller doesn't stop with FICA. Luckily, you can lower these taxes by quite a bit using business write-offs. Unfortunately, it can lead to some sticker shock for new sellers. When we talk about self-employment tax, this doubled FICA tax rate is what we mean. (If you sell on eBay as a side hustle, this higher rate won't apply to your day job earnings.) Self-employed individuals, though, have to pay both the employee and employer halves, for a total FICA tax rate of 15.3%. Their employers match them for another 7.65%. You see, traditional employees only pay 7.65% of their income in FICA taxes. The tax rates, though, are twice as high for self-employed people like eBay sellers. Self-employment tax is the business owner's answer to FICA taxes, which include Medicare and Social Security taxes.Įveryone has to pay FICA taxes, including W-2 employees. Depending on which state you live in, you might have to collect sales tax too. ![]() What are the specific taxes to look out for? You'll have to pay self-employment tax and income tax on what you earn from sales. That’s what you earned from sales, minus your expenses: not just the money you spent on buying inventory, but also the other costs of running your store - inventory management, shipping and handling, advertising, and more. Unless you’re using eBay for occasional garage sales, you’ll have to pay taxes on your profits. What taxes do you have to pay on your eBay sales? If you are running a business, you can bring this number down by using write-offs. Rule of thumb: Assume you'll owe taxes if you earn at least $400 from eBay sales. Whether your store is a business or a hobby, you'll want to be on the safe side when it comes to budgeting for your taxes. Is it for recreation, or is it to make a profit? (The IRS also has a list of nine factors to help determine if your activity is a hobby.) So how can you tell if your eBay store is a business or a hobby? The difference lies in the intention behind it. You'll have to report your sales income to the IRS, but you can't take any write-offs. If online sales are your hobby, current tax laws put you in the worst of both worlds. Somewhere between the online garage sale and the ecommerce business, there's a third category of eBay store that we're calling the “hobby shop.” These are run by casual sellers who still use eBay more regularly than someone doing an occasional spring cleanout. Hobby sales are taxed - but you can't take any write-offs If you find yourself buying up items for resale, for instance, odds are good that your virtual yard sale has become a real business. What began as a one-off garage sale can easily morph into a business if you end up doing it again and again. Keep in mind, though: there's potential for a slippery slope here. In fact, the IRS doesn't require you to report those earnings at all. If you run a shop like this, you won't be taxed on what you earn. But they don't make anyone an actual business owner. ![]() They let people offload old clothes and appliances to a group bigger than their neighborhood. Think of these as 21st-century versions of the garage sale or yard sale. They’re opened so someone can get rid of their old items. Some eBay stores are essentially one-offs. Let's talk about the tax situations that can arise for each. The IRS treats these two types of stores differently, and both are distinct from actual businesses. You might be thinking, "Aren't all stores businesses?" Almost - but there are two possible exceptions: Who has to pay taxes on their eBay sales?Īny seller who runs their store as a money-making business has to pay taxes on what they earn through the platform. ![]()
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