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Do you make money on eBay or Etsy? The IRS wants to know how much

Sigrid Forberg
·4-min read
Do you make money on eBay or Etsy? The IRS wants to know how much
Do you make money on eBay or Etsy? The IRS wants to know how much

Do you sell quirky jewelry, taxidermied rodents or homemade stuffed animals online? Well, the IRS now wants its share.

Starting next year, online sellers who use platforms like eBay, Etsy or even Uber — and make more than $600 — will have to report their income to the tax agency.

These platforms will have to send both you and the IRS a form reporting your earnings that you’ll have to submit when you file your taxes.

Here’s how that will work and how you can handle these new rules.

What’s changed?

Young man looking intently at paper, hand to chin
fizkes / Shutterstock

Previously, you only had to report your income from online sales to the IRS if you made more than $20,000 over 200 transactions.

But thanks to a provision in the stimulus checks bill, the federal threshold will drop starting in 2022.

That means when you file your taxes in 2023, if you’re an online seller, you may receive a form, whether you consider yourself a full-time salesperson or not.

It’s important to note that you may not be taxed on the money that you made, it just needs to be accounted for in your tax return for the IRS to make that determination.

You may want to enlist the help of a tax prep professional or a financial planner to help you figure out what your tax situation is and what you need to do.

Online marketplaces like eBay also have a part to play in these tax changes. For instance, a Social Security number is required to issue a 1099-K. This makes some online platforms worry the requirement would be a turnoff to sellers, a senior policy analyst at the Tax Foundation told CNBC.

The change in policy comes amid news that the IRS has been grappling with a massive tax gap. The difference between what taxpayers owe and what they actually pay is an estimated $381 billion every year, according to a 2019 IRS report.

What is considered taxable?

Young woman writing on box with laptop open in front of her
Have a nice day Photo / Shutterstock

It all depends on how you look at your online store. If it’s just an opportunity to clear your closet and make back a small amount of what you paid initially for your belongings, then you’re probably not going to have to deal with taxes.

That will be the case for most eBay sellers, as 85% of users are mostly selling preowned items they no longer use, according to a recent report from the company.

But if your online store is how you make — or supplement — your income, you may be seen as a small business or independent contractor and you’ll be expected to pay taxes.

That principle extends beyond the digital world. If you’re shopping yard or estate sales for vintage items that you’re then selling online at a profit, that counts too.

The same goes for those who’ve turned hobbies or skills into profitable side hustles.

Any net earnings (what you make above your losses or expenses) that exceed $400 should be reported to the IRS. If you’re struggling to sort out whether your hobby makes you an independent contractor in the eyes of the agency, the IRS offers some helpful tips.

What can you do if you are facing a tax bill?

Close up female hands holding credit card and smartphone
fizkes / Shutterstock

There are a few ways to lessen the impact a bigger tax bill would have on your income.

  • Make paying off debt easier. If you get stuck with a tax bill and you have other existing debt, you could fold all of those bills into a debt consolidation loan that has a lower interest rate. This can make paying off your debts easier and faster.

  • Lower your other bills. Having insurance is a must, but overpaying is not. If you think your car insurer is taking you for a ride, it may be time to shop around for a better deal. Have you revisited your homeowner’s insurance recently? Why not also save hundreds on homeowners insurance by comparing rates to find a lower price?

  • Make sure you’re always paying the lowest prices. Finding the best deal online doesn’t have to mean flipping between 12 different tabs, comparing prices to the penny. Download a free browser extension that will automatically scour for coupons or better deals every time you shop online.

  • Make your money work for you. You can invest your spare change using a beginner-friendly investing app and potentially earn some returns from the record-shattering stock market.