Are you an eBay seller? Well, then, we are sure that your product sales must be going great, given how popular this online forum is. However, in between making great sales, you mustn't forget about the possible tax obligations that need to be followed.

According to the new law, more online sellers will not be receiving the Form 1099-K Ebay. This form doesn't necessarily mean that you owe some amount in tax, but it does specify that your eBay sales are on the IRS radar. Want to know more about this form and how to use it? This article has you covered.

What is the eBay 1099-K?

The 1099-K form any seller receives from eBay consists of the gross amount of sales that they have made on the eBay platform in the past taxing year. What needs to be considered is that this amount does not include any discounts, refunds, or adjustments and, hence, will not always be the finalized amount that you may have to report when filing your taxes.

While in the past, this particular form was only received by those eBay sellers who met the threshold of 200 transactions or $ 200'000 worth of sales on eBay within the year, the rules have changed. According to the American Rescue Plan Act 2021, any seller worth more than $600 of sale is liable to receive a Form 1099-K. This clearly means a lot of eBay sellers will not be receiving this form.

Who Doesn't Need to Report Their eBay Income?

While a majority of the sellers on eBay will be receiving a 1099-K form, not everyone will have to report their eBay income. Why is that? Well, this is because many people use eBay as a virtual garage sale where they sell a lot of their items at a price lesser than they were initially bought. This eventually means that they did not make any profit on the sales, right? Hence, they will have nothing to report when it comes to their sales on eBay.

However, if someone does make a profit on such sales frequently, then their sales would be considered a hobby and not business, but they will still have to pay their taxes on it. What is the difference between hobby selling and business income? We have it listed for you below.

Hobby Selling Vs. Business Income

The businesses on eBay are those sellers that sell each item on eBay, all while keeping a profit for themselves. These businesses have to report their sales and file proper taxes at the end of the year like any other business would do.

Hobby selling refers to selling old or used items occasionally on eBay from time to time. In cases where you are not making a profit out of those items, the IRS doesn't need any reports on your sales. However, if you are someone who frequently sells items on eBay from time to time and is generally making a profit, then you may have to report your sales to eBay. However, your sales will still be considered a hobby because you aren't doing it as a means of living or on an everyday basis as the business does.

While there is no clear-cut way of defining a hobby vs. a business in many aspects, the IRS takes into consideration several facts and circumstances that help it determine whether a particular seller is actually a business or someone who simply puts up sales from time to time as a hobby. A few of these aspects are:

• Does the seller often make a profit or has the potential to make one?
• Have they made any profit in the last three to five years
• Does the seller depend on the income which they make?
• Do they have the potential to succeed in the line of business which they are carrying out on eBay?

On the basis of all these answers that a seller provides, would the IRS conclude as to whether a seller is a business or simply sells as a hobby? However, what one should understand is that they should be truthful with their answers. Misclassifying themselves as hobby-sellers when, in reality, they are running a business can lead to a proper tax audit on them and can lead to severe financial penalties.

What to Do With Your eBay 1099-K?

Now that you have understood what an eBay 1099-K form is and who does and doesn't need to report this form, the question is, what will you do if you receive this form in the first place? Well, when one receives a Form 1099-K from eBay, there are a bunch of steps that they have to carry out in order to prove their sales. These steps differ between hobby-sellers and businesses and have been listed below for you:

As a Hobbyist

• Download your yearly sales report and gain an accurate report of the sales you made and the overall expenses directly from eBay.
• Then, report your eBay income on the Schedule 1 Form 1040.

As a Business:

• Down your Sales Report to get an insight on sales and expenses from Ebat.
• Gather all the receipts and documentation for any other additional expenses that might have to be written off.
• Now, report your eBay income and all your tax-deductible expenses on the Schedule C Form 1040.

Wrapping Up!

If you have read this article up until now, then we hope that it was sufficient to answer all questions that you had about the eBay Form 1099-K and how to use that form to file your taxes. The particular taxing method is different for both hobbyists and businesses. Hence, it is ideal to decipher into which category you fall and then choose that taxing method to proceed.