Business & Finance Electronic Commerce

Tax information that every eBay seller should know

Tax information that every eBay seller should know

If you are selling products on eBay, you know it's a powerful way to earn money and that many people have created successful businesses selling on eBay. However, did you know that there is all kinds of tax information that every eBay seller should know? Sales tax, income tax, self employment tax, all these things are very important and need to be paid and accounted for in your prices when you sell on eBay. So let's take a look at some of these taxes and see what you should be doing with them.

Sales tax: Whenever you walk into a store and purchase something, the price does not include local sales tax. This can be range from 10.75% (parts of California) to nothing at all in several states, such as Alaska which have no sales tax whatsoever. While technically, all sellers, even those selling things at a garage sale, must collect and pay sales tax to the local authorities, the practical reality is that if you're just selling a handful of items on your eBay site, you won't have to collect and pay sales tax. Not only that, but you probably wouldn't be able to since it can't simply be added on to your tax return at the end of year. Instead, you will need to register with your city and or state as a business which collects the taxes and then deposit them with your local government once per quarter (i.e. every 3 months).

One final note about sales tax: You are only required to collect sales tax in your home state. In other words, if you live in Ohio and someone from Cleveland is placing an order, you should collect sales tax. However, if your purchaser is from Wyoming, you need not collect Wyoming sales tax. That tax should be paid by your customer in the form of use tax on their own tax return and is not your concern at all.

The next tax to consider is self employment tax. Again, if you are just a casual seller, you needn't be concerned. However, if you are running a business where you sell goods all the time on eBay, you will need to pay this tax. In essence, when you work for a company, a portion of your money comes out of your check for social security taxes. Your employer then pays an equal amount to the government on your behalf. When you work for yourself, you are required to pay the full amount of the social security taxes, totaling around 15%.

Speaking of working, here's another bit of tax information that every eBay seller should know: income tax is required to be paid on all income earned. Technically, this even applies to casual sellers of nick nacks from around the house. However, there is an important loophole. You only pay taxes on the profit you made, so if you are a casual seller, you may be exempt simply because you are likely selling something for less than what you paid for it and therefore losing money. However, you should keep documentation available on what something cost and what you earned just in the unlikely event of an audit.

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