Will ebay report sales to irs 2022

Not All eBay Sales are subject to income tax

Not every eBay sale is subject to income tax, but most are. If you use the site to get rid of household articles you've used in the past, you may qualify for the "occasional garage or yard sale" treatment. According to the IRS, if your online auction sales are the Internet equivalent of an occasional garage or yard sale, you generally do not have to report income from those sales.

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Assuming that you originally bought the used items for more money than you are selling them for, you don't have to report the income received from the eBay sale. For example, if you sell a bicycle that you paid $500 for two years ago for $350 on eBay, you usually don't have to notify the IRS—and you can't claim a loss on it.

Hobby sales must be reported

If you and the IRS classify your eBay sales as a hobby, you'll have to report the income on Form 1040. For tax years prior to 2018, you report your expenses as an itemized deduction on Schedule A. Beginning in 2018, you are no longer eligible to take a deduction for hobby expenses.

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 at many factors including:

• Frequency of your eBay sales
• How much you earn
• How much time you spend working on the hobby/business

For tax years beginning with 2022, if you have transactions totaling $600 or more then you should receive a 1099-K form reporting this income to the IRS. For tax years prior to 2022, the threshold is more than $20,000 in gross sales and 200 or more transactions on eBay.

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Using eBay to make profits is usually a business

If you sell and buy articles on eBay in order to earn money, the IRS will likely classify your sales activities as a business. This means you will have to report net income from eBay sales. Report your total gross income on Schedule C, then reduce it to net income by subtracting the amounts you spent for allowable business-related expenses.

For example, if your income is $45,000 and you have “business-related expenses” that total $10,000:

• $45,000 - $10,000 = $35,000
• $35,000 is your net income on your Schedule C

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 deduction, 56 cents a mile in 2021. For the first half of 2022, the rate is 58.5 cents per mile and increases to 62.5 cents per mile for the last half of 2022.
• Advertising expenses
• Apportioned amount of phone and Internet charges related to your eBay business

If you're still unsure if something is deductible, check out a more comprehensive list of common small business expenses.

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If you sell items online, you’ve probably heard about new IRS reporting thresholds that went into effect this year. These new requirements have caused some confusion for sellers on eBay and other online marketplaces.

To help keep sellers informed, TaxAct® and eBay have partnered to help you understand these tax changes and what they will mean for the tax returns you’ll file for tax year 2022.

Recap of the IRS reporting changes

Prior to 2022, eBay and other online payment platforms were not required to report transactions to the IRS until you hit an annual threshold of 200 transactions and $20,000 in gross payments.

Beginning Jan. 1, 2022, these thresholds dropped significantly. With the change in these requirements, platforms like eBay must now report payments totaling $600 or more in a calendar year, with no transaction minimum.

What eBay is doing to help online sellers

Though you will receive your Form 1099-K from eBay, it’s crucial to remember that eBay and other online platforms are not responsible for these new thresholds.

In fact, the Form 1099-K threshold changes imposed by the IRS prompted eBay and similar companies to form The Coalition for 1099-K Fairness, an alliance pledging to advocate for “an accessible and fair online sales market for entrepreneurs, microbusinesses, and casual sellers selling used and pre-owned goods” online.

The Coalition maintains the new law is unnecessarily confusing for millions of Americans who use online marketplaces for casual selling and burdensome for many small businesses that are just starting out. To help promote change, eBay has set up a page where you can share your story or easily send a letter to Congress expressing your concerns.

How eBay sellers can prepare for income tax filing next year

TaxAct and eBay have put together three key steps to help you accurately file your income tax return next year.

1. Practice good bookkeeping.

It doesn’t matter if you are a casual seller or operating as a small business — keeping detailed records is essential for tax purposes.

The best thing you can do is save your receipts and keep organized documents of your transactions, even if those happened outside of eBay. Some of the most important records to keep track of include your cost of goods sold (usually what you originally paid for the item you are selling), shipping costs, fees paid to eBay, and any expenses for packing and shipping supplies. Be sure to keep track of any refunds paid to customers as well.

Tracking this information will help you determine your taxable income and prevent you from overreporting income that can result in an overpayment of income tax. Expenses like shipping and supply costs are generally deductible business expenses, so keep track of each item’s cost basis and the final sale price to determine the cost of goods sold. It’s also a good idea to take photos of the items sold and place them with your records.

Organized, detailed records will help streamline your income tax return whether you file on paper or use an online tax filing software like TaxAct.

Tax Tip: How long should you hold onto receipts? The IRS can typically audit tax returns filed within the last three years, so long as there is not a substantial error. Because of this, it is recommended that you keep receipts and other supporting documents for at least three years after filing your return, or until the statute of limitations expires. This can vary depending on when you filed (or didn’t file) — if you’re unsure, it’s probably best to hold onto the receipts and consult a tax professional.

2. Make sure eBay has your full TIN (SSN, EIN, or ITIN) on file.

When you registered for your eBay account, you may not have provided your full Tax Identification Number (TIN), which can be a Social Security Number (SSN), Employer Identification Number (EIN), or Individual Taxpayer Identification Number (ITIN). Once you reach $600 in sales, eBay will ask you to provide your TIN to comply with IRS reporting requirements.

Confirm that the information you provide to eBay is accurate and matches what the IRS has on file for you or your business. This can be found in the Personal Information section under Account settings on eBay. If the TIN you provide does not match IRS records, eBay will require that you upload a W-9 to correct your TIN. In the absence of a valid TIN, the IRS requires eBay to withhold 24 percent of your gross proceeds.

For more information on this topic, check out eBay’s helpful page of answers to seller FAQs.

3. Know how to use your Form 1099-K.

The Form 1099-K you’ll receive from eBay is an informational document designed to help you file your income tax return.

When filing, it is best practice to compare the Form 1099-K against your detailed eBay transaction report and personal records to ensure all your transactions are accounted for. The amounts reported on your Form 1099-K are gross proceeds, not necessarily income. To determine the income associated with each transaction, you will need to determine the cost basis of the item(s) sold.

It’s also important to note that transactions included on your Form 1099-K are based on the transaction settlement date, not the sale date. For example, if you sold an item on Dec. 31, 2022, but the funds did not settle to eBay until Jan. 2, 2023, that transaction would show up on your Form 1099-K for 2023 instead.

How you report your eBay income depends on what you sell and whether you run a business. If you are a self-employed sole proprietor, you will report your business profits using Schedule C. If you are a consumer selling capital assets as a hobby, you will report any profits as either short-term capital gains or long-term capital gains, depending on how long you had the item you sold.

If this is starting to sound like a lot, don’t panic. Reporting income from eBay as a first-timer is not nearly as daunting as it sounds. If you choose to file with TaxAct, our intuitive tax prep software will ask questions about items you sold and pull all the necessary tax forms for you to file.

For more detailed information on this topic, read TaxAct’s answers to common eBay seller FAQs and unique scenarios you may run into when selling certain types of items.

Bottom line

There’s no need for eBay sellers to stress about their taxes next year. To learn more about what eBay is currently doing to advocate for sellers, head over to eBay Main Street.

Think of the Form 1099-K you receive as a guide designed to help you determine your taxable income. Keep good records, understand that only profits are taxable, and verify that eBay has your TIN to prevent delays or complications with your online sales.

By following these essential steps, you’ll be setting yourself up to file with confidence next tax season.