CYBERSPACE – The tax laws are anything but clear. There is no clear demarcation between profits garnered from fun or a hobby, or from a business. But the IRS instructions indicate that all income can be taxed, including bribes, kickbacks and money made from illegal activities.Sunni Wojnarowsky is an eBay user who posed the question on eBay’s discussion board for sellers: Does she need to report and file paperwork to the Internal Revenue Service for the small profit she made selling a few items over the year?
“You can’t get an answer from anybody,” Wojnarowsky said. “It would be nice to have a straightforward answer of yes, you file taxes, or no, you don’t.”
The auction site has more than 135 million registered users. More than $34 billion worth of merchandise was bought by eBay buyers last year.
Some sellers find profits in cleaning out their closets, while others use the site to operate a small business.
“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 has a list of nine indicators to determine whether a person’s online auctions amount to a business, including evidence that the taxpayer depends on the income, acts in a businesslike manner, or invests enough time and effort to suggest a profit.
The difference between a hobby and a business is often the seller’s intent, Fooden added.
Selling items that have been collecting dust in a closet or a garage usually doesn’t amount to much of a capital gain on the item, hence no real profit to declare. However, if a seller is buying goods at wholesale prices to re-sell them on eBay, that could qualify as a business, said Fooden.
eBay spokesman Chris Donlay said the company does not report individual sales to the tax authorities. EBay users are urged to learn about tax issues in the site’s educational materials and seminars.
“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.”
A survey conducted by eBay last year found that 430,000 of its U.S. sellers make “a significant portion or all of their revenue from selling on eBay.”
