[typoon]

http://apnews.myway.com/article/20050328/D893N13O0.html

WASHINGTON (AP) - Hawking baby and children's clothes - along with some garage sale and thrift store bargains - on eBay helps Sunni Wojnarowsky bring in some extra money so she can afford to stay home with her two young boys. The additional dollars are great, but does she really need to hassle with the paperwork and report her small profit to the Internal Revenue Service? Her question, posed to the online auction site's discussion board for sellers, generated much advice - and more confusion.

In tax law, there is no clear, bright line that separates fun from profit, or a hobby from a business. But IRS instructions make it clear that all income - a category that includes bribes, gambling winnings, kickbacks and money made in illegal activities - can be taxed.

"You can't get an answer from anybody," Wojnarowsky said in an interview from her home in Brunswick, Ohio. "It would be nice to have a straightforward answer of yes, you file taxes, or no, you don't."

More than 135 million people have registered to use the auction site that calls itself "the world's online marketplace." Buyers bought more than $34 billion worth of merchandise there last year.

Some people make money by cleaning out items from their closets; others use the site to run small businesses.

"When you're working on the Internet, it's kind of a gray issue," said Bart Fooden, a certified public accountant in Woodbury, N.Y., who advises small businesses and individuals. "The big issue is whether you're doing it as a business or not."

The IRS can apply a list of nine indicators that might prove whether someone's online auctions amount to a business. These indicators include evidence that the taxpayer depends on the income, acts in a businesslike manner, or puts enough time and effort into the activity to suggest a profit motive.

Fooden said the difference between a hobby and a business can often be the seller's intent.

If someone is selling the junk that is collecting dust in a garage or basement, then that person probably is getting less than he paid for it - no profit here. But if someone is buying goods in bulk from a wholesaler and hoping to make a couple extra bucks reselling each one, then that person could have just started a profitable business, Fooden said.

On the other hand, some categories are not so clear.

If a great-aunt's collection of antique china fetched top dollar from collectors, that might mean capital gains taxes are owed. And if someone scours neighborhood garage sales for great deals on comic books to resell on eBay, that might amount to running a business.

It often is best to ask a tax professional, said Bob Miller, who says he spends about 18 hours a day on eBay, selling collectable postage stamps and advising other buyers and sellers from his home in northern Utah.

"When the person that you owe the money to can throw you in jail, it's always a good idea to get professional advice," he said.

eBay spokesman Chris Donlay said the company does not report individual sales to the tax authorities. eBay urges users, in the site's educational materials and seminars, to learn about tax issues.

"It's really up to the seller, just like offline," he said. "We are just a venue, really. We're sort of like the mall landlord or the owner of the parking lot where the flea market happens."

It takes so little effort to set up shop on eBay that some might overlook the tax issues, Miller said.

"If you have an e-mail address, you can start selling. If you're a U.S.-based seller, you need to have a credit card and a bank account," Miller said.

"People have a feeling that they're selling on eBay, they're not a business. It's not true. If you are selling and making a profit, you have to declare it."

An eBay survey last year found that 430,000 of its U.S. sellers make a significant portion or all of their revenue from selling on eBay.

While it might sound like nothing good can come of the headache involved in claiming a small profit from online auctions, consider the perks. Business expenses can be deducted from profits. That includes the cost of the goods sold, fees, supplies and maybe a home office - if the qualifications are met.

Wojnarowsky said she plans to report her eBay profits, which she estimates at roughly $2,000, but she is not looking forward to it.

Last year, the Wojnarowsky paid a $400 tax preparation fee, which included a business schedule to report online auction earnings. This year, they will crunch the numbers themselves using tax preparation software.

"I talked to a friend of mine who does eBay, and she's not filing because she said it's not regulated," Wojnarowsky said. "But my fear is, yeah, but what if you're wrong? I don't want to pay the fine."

[His Dudeness]

Hmmm, all money made including money from illegal activities... How about legaling all illicit drugs, and then taxing the **** out of the profits...

[Cody Dawg]

Ain't gonna happen anytime soon.

The government loves eBay. They aren't going to provide an answer.

The lady in the article is stupid. It sounds like she's asking the IRS to tell her to pay taxes on her income.

HELLO! What is she thinking?

My motto is: Better to beg for forgiveness than to ask for permission.

She should just shut up.

[His Dudeness]

Waitress: Tips? What tips? I don't get any tips...

[SimeyTheLimey]

Originally posted by His Dudeness:
Hmmm, all money made including money from illegal activities... How about legaling all illicit drugs, and then taxing the **** out of the profits...

That's how they got Al Capone -- tax evasion on his illegal income.

I saw a case a while back where a pot dealer was smart and declared his drug business income (thus keeping the IRS happy). He eventually got busted for dealing and so he had to disgorge all his illicit earnings to the government. Once that happened, he figured he no longer had a business profit to pay income tax on, and so he applied to the IRS for a refund on the taxes he paid. They said no.

[His Dudeness]

Well, the way I see it, the IRS needs to invent new ways of taxing our asses off. The tax code keeps getting bigger and bigger, they need more money
to pay for the paper it's printed on.

[Cody Dawg]

I'm sure it's coming down the pike (extra taxes.)

Before you know it they'll start taxing social security income. (Or do they already do that? )

[E's Lil Theorem]

What a bunch of crap. Pay taxes when you buy something, then pay taxes again when you sell that very thing? Crap, crap.

Originally posted by Cody Dawg:
...

My motto is: Better to beg for forgiveness than to ask for permission.

...

When I was growing up, this was my motto as well. Needless to say, it didn't go very well with those who were raising me.

[SimeyTheLimey]

Originally posted by His Dudeness:
Well, the way I see it, the IRS needs to invent new ways of taxing our asses off. The tax code keeps getting bigger and bigger, they need more money
to pay for the paper it's printed on.

This issue has nothing to do with the tax code getting bigger. The basic definition of gross income hasn't changed in decades.

Section 61. Gross income defined

(a) General definition
Except as otherwise provided in this subtitle, gross income means
all income from whatever source derived, including (but not limited
to) the following items:
(1) Compensation for services, including fees, commissions,
fringe benefits, and similar items;
(2) Gross income derived from business;
(3) Gains derived from dealings in property;
(4) Interest;
(5) Rents;
(6) Royalties;
(7) Dividends;
(8) Alimony and separate maintenance payments;
(9) Annuities;
(10) Income from life insurance and endowment contracts;
(11) Pensions;
(12) Income from discharge of indebtedness;
(13) Distributive share of partnership gross income;
(14) Income in respect of a decedent; and
(15) Income from an interest in an estate or trust.

26 U.S.C. Sec. 61(a).

I'm not going to go into the specifics of the article as it is specific enough and potentially applicable enough to someone reading this that anything I say could be construed as legal advice (which I cannot give). But suffice to say, the AP article is making something sound more complicated and novel than in fact it is.

[ManOfSteal]

I blame eBay. I always blame the IRS.

[wdlove]

If you earn income, you should be honest, declare it, and pay taxes.

[His Dudeness]

Originally posted by wdlove:
If you earn income, you should be honest, declare it, and pay taxes.

LOL!!!! That's the funniest thing I've ever heard!!!!

[Eriamjh]

I knew this was gonna happen. There is no way the IRS was going to ignore ebay profits for taxation. Easily traceable (through ebays computers) makes it taxable.

But if the IRS is gonna tax ebay profits, then I should be able to declare losses when I sell at a loss, even if I used the item. No way that will happen.

[andi*pandi]

if the government wants to tax this, then they should be prepared for everyone who sold a $5 baby outfit to then turnaround and deduct the cost of their computer, home office, postal scale, work vehicle... it's absurd.

It's a virtual yard sale.

[typoon]

The Gov't never met a tax they didn't like.

[malvolio]

Originally posted by andi*pandi:
if the government wants to tax this, then they should be prepared for everyone who sold a $5 baby outfit to then turnaround and deduct the cost of their computer, home office, postal scale, work vehicle... it's absurd.

Bingo! When you consider all the legitimate expenses you can claim, you would need to make a huge amount of $$$ on eBay before you would owe any income tax.