Selling on eBay can be a great side hustle. If you are a seller, you're probably wondering how to file your eBay 1099 taxes. That's why we created this blog post with all the information you need.
In this article, our goal is for it to be easy enough that anyone can understand and do their own taxes as a freelancer without help from a professional accountant (although we always recommend you seek tax advice from a proper expert or CPA).
It is the eBay seller's responsibility to follow all tax regulations that apply to sales. Yes, there are some complex parts like filing quarterly taxes or tax deductions you qualify for but they'll make sense as soon as we walk through them step-by-step together. Ready? Let's get started...
Note: If you need a little help managing your eBay seller taxes, try Bonsai Tax. Our app tracks tax deductions, sends filing reminders, and estimates your taxes. All in one place. In fact, our users typically save $5,600 off their tax bill with our software. Try a 14-day free trial here.
As an Etsy or eBay seller selling stuff online, you have to pay self-employment taxes on your income. Self-employment taxes are composed of two parts: Social Security (12.4%) and Medicare (2.9%). So, the total tax liability would be 15.3% on your eBay sales.
You can quickly calculate how much you'll owe with our free self-employment tax calculator tool.
Only when required by law in the appropriate state, eBay will collect and remit sales tax on your behalf (there's a CSV spreadsheet you can download that has all the seller-collected sales tax on it).
Unless you earned money as a hobby and NOT a business, you'll have to pay self-employed taxes. We'll go more about the difference between a hobby and a business below.
The IRS does not view all sellers the same on their online marketplace. According to the IRS, if you sell every now and then on eBay, your online sales would essentially be a physical garage sale and you would not have to report your gross sales.
For example, if you sold old clothes or toys you outgrew to make more space in your house occasionally, you would not have to report your gross sales to the IRS.
The income you generated would be considered as a hobby and NOT as a business. You would not be responsible for self-employment taxes. However, unlike business losses, taxpayers can typically only deduct qualified expenses up to the total of the hobby income. Put simply, you cannot claim a loss for hobby income.
The lines to determine if you are selling as a hobby or business can be quite confusing. You can learn more about the differences on the IRS's website.
As a self-employed worker, you'll need to file quarterly taxes. Quarterly or estimated taxes were designed by the government to help business owners from paying one large tax bill at the end of the year. Hence, the U.S. operates on a pay-as-you-go system.
If you expect to owe more than $1,000 in taxes for the year, you are required to file estimated tax payments four times a year.
Your payment is calculated by taking the total tax liability (self-employment tax, income tax, and any other taxes) from the previous year and dividing that number by four.
You can use Form 1040-ES, or an online calculator to determine how much to send.
These taxes are due on the 15th of April, June 15, September 15, and January 15 of the following year. You can easily send these payments online via IRS direct pay.
Mark your calendar because if you miss the deadline or underpay your taxes, you'll have to pay a penalty. If you send in your money late, you are subject to a penalty of .5% for every day after the due date. There is a 25% penalty limit on the gross amount owed.
If you send the IRS less money than you owe for quarterly tax payments, they will not be happy. The money you send must equal at least 90% of 100% of the taxes shown on the tax return for the prior year.
If you don't meet that, you'll have to pay an IRS tax underpayment penalty rate on your owed taxes at the end of the year.
The most common IRS tax form you'll need to deal with as an eBay 1099 business, is the 1099-K. A freelancer typically reports non-employee compensation on a 1099-NEC, but since you are using an online platform, you have a different form. You should receive your 1099-K from eBay after January 31. We'll discuss the requirements for receiving this form as well as the information presented on it.
The 1099-K is an information return that reports the gross amount of all reportable payment transactions from eBay within a calendar year i.e. discounts, credits, fees, refunds, and other adjustable amounts.
An IRS Form 1099-K tracks payments received through third-party payment methods/ transaction networks such as Venmo, credit card, PayPal, and other payment methods. In addition, Form 1099-K does not include the sales tax when it is automatically collected by eBay. Later in the article, we'll talk about where to find eBay's collected sales tax info.
If you sell goods in any European country or in the United Kingdom, you could be required to register for Value Added Tax or VAT and to collect it on every sale.
The requirements to receive an IRS Form 1099-K is if:
A new law has been passed with new requirements to report gross sales or receive a 1099-K for sellers on certain platforms like Etsy and eBay. Next year, online eBay sellers would receive a 1099-K if they made at least $600 in gross sales instead of the $20,000 threshold. With these changes, mostly everyone selling on eBay will now get a 1099-K
Some States have a minimum reporting way below the thresholds which means you wouldn't have to receive more than $20,000 in gross payments and had more than 200 payment transactions. For example, if you live in Massachusetts or Vermont and have over $600 in gross payments, then you will file a 1099K.
If you meet these requirements, eBay is required to send you Form 1099-K. A copy of your 1099 will be reported to the IRS and the correct State tax authority. Since a 1099-K from eBay reports gross payments or sales you received from the platform, it would show the total amount including fees.
This form does not report tax-deductible expenses (that will be reported on a Schedule-C). The IRS 1099-K is only the gross amount of money coming into your account.
You can download the form directly from your eBay account. When managing tax for your business, you'll need access to all your sales/transactions information. Your account will have the information for payouts, sales tax charged/collected by eBay, pending payments, Tax ID, address, items sold, etc.
Instead of scrambling around to find the correct documents to help you file your taxes, here are the instructions for how to get them.
Head to eBay's Seller Hub:
eBay's reports are a little messy but you'll be able to sort and find all the information you need to file. Make sure the numbers on the form line up with your own records. If there's an issue with your Tax ID or personal information, contact eBay immediately to update your account details to the correct information.
If you have two eBay accounts belonging to the same Tax ID, you may receive separate forms for the two accounts. For example, if you have made over 200 transactions and received $15,000 on one and $5,500 on the other, you'll receive a 1099K from each account.
Just because you did not receive a 1099K, does not mean you are off the hook for reporting income to your taxes. All your gains from a sale online should be reported on your taxes. The IRS requires anyone whose net earnings from self-employment are $400 or more. If your net earnings on eBay are less than $400, you do not have to pay self-employment taxes.
If you did not receive a tax form in the mail, and you know you should have got one, you can access your 1099 online.
Head over to the Seller Hub, and go to the "Payment" tab. From the menu, select "Reports'. Then select the detailed 1099K report from the drop-down menu. You can select the preferred date range, then click "Create" to download your report.
Remember, eBay reports your income to the IRS so they'll catch a missing 1099 form and you'll be penalized.
There are federal laws set up by the IRS that require PayPal to send you a 1099-K if you meet certain requirements. These help the IRS track down sellers who don’t report their profits. After all, eBay sales are all trackable through PayPal.
Taxpayers who use a third-party payment processor such as PayPal or a service similar will receive a 1099-K in most cases.
To get the form, simply log into your PayPal account and download it from the platform. If there is no option to download a 1099 form and you know you met the requirements, contact PayPal immediately.
The wonderful thing about being an eBay 1099 self-employed business is that you can subtract expenses from your business income. You'll need to file a Schedule-C along with your 1099 form to show the IRS what you spent in order to run your business.
A Schedule-C reports profits and losses for a business and has different line items to start deducting expenses to figure out your gross income.
Let's go over a list of qualifying tax deductions most eBay business owners could claim.
Sellers should keep clean records of all business expenses to report to the IRS. Here are some common deductions eBay sellers could claim.
Fill out the IRS 1040 Schedule C Profit or Loss Form to claim these write-offs. Be sure to keep all your receipts safely. The IRS requires you to hold your receipts for at least three years after filing if you ever get audited.
Note: Bonsai Tax is an app that can automatically track and organize your business receipts. Our software will discover all the potential tax-write-offs from your credit card/ bank statements to maximize your deductions. Sit back and watch as our tool does all the hard work for you. Try a 14-day free trial here.
If you're an eBay 1099 seller, then you'll need to be prepared to file your 1099-K tax return. Understanding how taxes work as a 1099 seller is important so that nothing slips through the cracks and your business receives all of the deductions it's entitled to.
We hope our article helped eBay sellers understand this process. Bonsai Tax offers easy-to-use software that simplifies everything from quarterly filing deadlines, calculating sales totals for specific items, and even creating customized invoices if needed.
It doesn't matter what kind of online selling experience you have - Bonsai has got your back when it comes time to file those pesky IRS forms, calculate your income tax on independent contractor earnings, and organize all your write-offs.
Try our software today for 14-days free here.
If you have any questions on what you can deduct from your taxes or how to file your 1099, consult with a licensed tax professional or CPA for tax advice.
When tax season rolls around, the cost of a CPA or tax professional far outweighs the price and hassle of receiving unnecessary penalties or fines.
A professional or CPA's services can help you stay compliant with reporting your 1099 taxes to the IRS.
A verbal contract (formally called an oral contract) refers to an agreement between two parties that's made —you guessed it— verbally.
Formal contracts, like those between an employee and an employer, are typically written down. However, some professional transactions take place based on verbally agreed terms.
Freelancers are a good example of this. Often, freelancers will take on projects having agreed on the terms and payment via the phone, or an email. Unfortunately, sometimes clients don't pull through on their agreements, and hardworking freelancers can find themselves out of pocket and wondering whether a legal battle is worth all the hassle.
The main differences between written and oral contracts are that the former is signed and documented, whereas the latter is solely attributed to verbal communication.
Verbal contracts are a bit of a gray area for most people unfamiliar with contract law —which is most of us, right?— due to the fact that there's no physical evidence to support the claims made by the implemented parties.
For any contract (written or verbal) to be binding, there are four major elements which need to be in place. The crucial elements of a contract are as follows:
Therefore, an oral agreement has legal validity if all of these elements are present. However, verbal contracts can be difficult to enforce in a court of law. In the next section, we take a look at how oral agreements hold up in court.
Most business professionals are wary of entering into contracts orally because they can difficult to enforce in the face of the law.
If an oral contract is brought in front of a court of law, there is increased risk of one party (or both!) lying about the initial terms of the agreement. This is problematic for the court, as there's no unbiased way to conclude the case; often, this will result in the case being disregarded. Moreover, it can be difficult to outline contract defects if it's not in writing.
That being said, there are plenty of situations where enforceable contracts do not need to be written or spoken, they're simply implied. For instance, when you buy milk from a store, you give something in exchange for something else and enter into an implied contract, in this case - money is exchanged for goods.
There are some types of contracts which must be in writing.
The Statute of Frauds is a legal statute which states that certain kinds of contracts must be executed in writing and signed by the parties involved. The Statute of Frauds has been adopted in almost all U.S states, and requires a written contract for the following purposes:
Typically, a court of law won't enforce an oral agreement in any of these circumstances under the statute. Instead, a written document is required to make the contract enforceable.
Contract law is generally doesn't favor contracts agreed upon verbally. A verbal agreement is difficult to prove, and can be used by those intent on committing fraud. For that reason, it's always best to put any agreements in writing and ensure all parties have fully understood and consented to signing.
Verbal agreements can be proven with actions in the absence of physical documentation. Any oral promise to provide the sale of goods or perform a service that you agreed to counts as a valid contract. So, when facing a court of law, what evidence can you provide to enforce a verbal agreement?
Unfortunately, without solid proof, it may be difficult to convince a court of the legality of an oral contract. Without witnesses to testify to the oral agreement taking place or other forms of evidence, oral contracts won't stand up in court. Instead, it becomes a matter of "he-said-she-said" - which legal professionals definitely don't have time for!
If you were to enter into a verbal contract, it's recommended to follow up with an email or a letter confirming the offer, the terms of the agreement , and payment conditions. The more you can document the elements of a contract, the better your chances of legally enforcing a oral contract.
Another option is to make a recording of the conversation where the agreement is verbalized. This can be used to support your claims in the absence of a written agreement. However, it's always best to gain the permission of the other involved parties before hitting record.
Fundamentally, most verbal agreements are legally valid as long as they meet all the requirements for a contract. However, if you were to go to court over one party not fulfilling the terms of the contract, proving that the interaction took place can be extremely taxing.
So, ultimately, the question is: written or verbal agreements?
Any good lawyer, contract law firm, or legal professional would advise you to make sure you formalize any professional agreement with a written agreement. Written contracts provide a secure testament to the conditions that were agreed and signed by the two parties involved. If it comes to it, a physical contract is much easier to eviden in legal circumstances.
Freelancers, in particular, should be aware of the extra security that digital contracts may provide. Many people choose to stick to executing contracts verbally because they're not sure how to write a contract, or they think writing out the contract terms is too complicated or requires expensive legal advice. However, this is no longer the case.
Today, we have a world of resources available at our fingertips. The internet is a treasure trove of invaluable information, platforms, and software that simplifies our lives. Creating, signing, and sending contracts has never been easier. What's more, you don't have to rely on a hiring a lawyer to explain all that legal jargon anymore.
There are plenty of tools available online for freelancers to use for guidance when drafting digital contracts. Tools like Bonsai provide a range of customizable, vetted contract templates for all kinds of freelance professionals. No matter what industry you're operating in, Bonsai has a professional template to offer.
A written contract makes the agreement much easier to prove the terms of the agreement in case something were to go awry. The two parties involved can rest assured that they're legal rights are protected, and the terms of the contract are sufficiently documented. Plus, it provides both parties with peace of mind to focus on the tasks at hand.
Bonsai's product suite for freelancers allows users to make contracts from scratch, or using professional templates, and sign them using an online signature maker.
With Bonsai, you can streamline and automate all of the boring back-office tasks that come with being a freelancer. From creating proposals that clients can't say no to, to sealing the deal with a professional contract - Bonsai will revolutionize the way you do business as a freelancer.
Why not secure your business today and sign up for a free trial?