Do I Need to Report Expenses from a Garage Sale or Online Store?

With the economic recovering slow, an increasing number of individuals are selling their used items in garage sales or online. Of course, garage sales are nothing new but selling items on eBay, Craigslist, or another auction site has become something of a “digital” garage sale and it may be difficult to determine whether items sold online should be reported on your taxes. Garage Sale

Is it a Business or a Hobby? One of the first things to consider when deciding if you need to report the sale of various items is whether you are operating a real business or if you are just getting rid of a few items you no longer use. In general, most actual garage sales are ‘one-off’ events or at least events they only occur every couple of years. In these cases, it is unlikely that you would need to report your earnings to the IRS. If you sell a few things online, this may also be seen as a hobby and not necessitate reporting your income. Still, if you are able to produce the original receipts for the items you sold, it is best to hang on to them. You may need them if you are ever audited.

Are You Making a Profit On Your Sales? Garage sales usually involve used items that you are selling to get rid of them. As such, you are most likely not making any profit on the sale. Therefore, although you are bringing in some extra money that you would not otherwise have, if you were taking a loss on the item from its original purchase price, it is probably not necessary to report the sale. On the other hand, any item you make a profit on must be reported to the IRS no matter how small the amount.

How Much Merchandise Are You Selling? If you are making a large number of transactions on online auction sites such as eBay and you are earning profit from your sales, then it is highly likely you are operating a business and must report the income. If this is the case, it is important to keep accurate records of the cost of goods versus what you sold them for and other business-related expenses. If indeed you are required to report your garage sale or online sales, you may also qualify for a whole host of deductions that could significantly reduce (or even eliminate) your tax liability.

If you are unsure if your garage sale or online sale falls into a category that needs to be reported to the IRS, it is best to consult with a tax professional that can provide the proper guidance if you need to report these sales and how to keep your tax exposure to a minimum.

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