If you and the IRS classify your eBay sales as a hobby, you'll have to report the income on Form 1040.
Since you cannot use hobby expenses to reduce your hobby income, you won't be able to use a loss from hobby sales to reduce other income. This can be important if you make money in other activities.
However, if your eBay activities are considered a business, you can use your loss as a deduction to reduce your other business income, say from landscaping. For example, let’s say that you have:
- A net loss of $5,000 from your eBay sales operation.
- A taxable income of $15,000 from a landscaping business.
- $15,000 (income) - $5,000 (loss) = $10,000 (business income).
Distinguishing between a hobby and a business is not an exact science. The IRS looks to many factors, including:
- Frequency of your eBay sales
- How much you earn
- How much time you spend working on the hobby/business
If this was just a one-time sale of tickets, it may be classified as a hobby. Review the factors that the IRS considers in determining if your sale is for a hobby or a business to see which category you are in.
Click here for more information for determining if you have a business or a hobby.
The general equation to determine profit is Profit = Revenue - Cost.
TurboTax Tip:
If your eBay activity is classified as a business, you may be able to deduct a number of business expenses, including the costs to purchase or repair items you sell, advertising expenses, and the portion of your phone and internet charges related to your business.
Business tax deductions for eBay sellers
The only tax deductions you can use to reduce your gross eBay sales income are those authorized by the IRS, but you'll have quite a few to choose from. Consider whether you qualify for:
- Costs to purchase or fix up the items sold
- Deductions for business use of your vehicle, either actual expenses or the standard mileage rate. For 2023 the standard mileage rate is 65.5 cents per mile. For 2024, the standard mileage rate increases to 67 cents per mile.
- Advertising expenses
- Apportioned amount of phone and Internet charges related to your eBay business
