eBay Selling & Your TaX Return: Part 2, The Hobbyist

In Part One we went over The Casual Seller, someone that sells here and there when they have an extra something to get rid of, don't use anymore, and happened upon.


In Part Two we'll cover The Hobbyist.

THE HOBBYIST

If you sell items on eBay more frequently but your sales aren't profitable (your expenses exceed your revenue), you may be looked upon by the IRS as merely having a hobby, rather than a business. Unless you can prove that you have a profit motive, then income is ordinary income reported as "Other income" on Form 1040, but deductions can only be claimed to the extent of this income. If you make $1,000, your deductions cannot exceed $1,000.

These limited deductions from a hobby are treated as miscellaneous itemized expenses deductible to the extent that they exceed 2% of adjusted gross income (AGI).

Trap: Individuals subject to the alternative minimum tax (AMT) lose any benefit from hobby write-offs because miscellaneous itemized expenses are not deductible for AMT purposes.

In Part Three we will go over The Business Owner...