As an online business owner, you can reach customers all over the country and beyond. But no matter what platform you use to sell your products and services, there’s one thing all businesses have in common: taxes. This guide will give you a crash course on taxes for 3 major ecommerce platforms:
- Facebook Marketplace taxes
- eBay seller taxes
- Etsy seller taxes
But don’t worry, we won’t just throw jargon at you–we’ll explain everything in clear, easy-to-understand terms. To make things even easier, we’ll provide helpful tips on managing your ecommerce tax obligations without breaking a sweat!
Whether you’re a seasoned pro or just starting, our Facebook, eBay, and Etsy seller tax guide will give you the knowledge and confidence you need to succeed. So let’s get started!
Sales Tax for Facebook, eBay, and Etsy
Sales tax is a fee collected on the sale of goods and services, usually calculated as a percentage of the sale price. Use tax is similar to sales tax, but typically applies to purchases made by consumers from out-of-state sellers who don’t collect sales tax from the consumer.
If you’re an online seller, you may have sales tax nexus in multiple states, and each state may require you to collect and remit sales tax.
The specific nexus rules for online sellers vary by state and may depend on the number of sales and transactions made in the state.
Online sellers need to understand their obligations regarding internet sales tax, as failure to collect and remit the appropriate amount of tax can result in penalties and interest. Stay on top of your ecommerce tax game and keep your business running smoothly!
Income Tax and Self-Employment Tax for Facebook, eBay, and Etsy
Anytime you make money, Uncle Sam wants his share. The IRS considers you self-employed if you’re running your own ecommerce business. Self-employment taxes can get complicated. If you anticipate owing over $1,000 in taxes, you may be required to pay estimated taxes to avoid underpayment penalties.
While self-employment taxes can be more complex than those for traditional employees, the right tools and resources can make the process much easier. With careful record-keeping and a little effort, you can confidently handle the tax-related aspects of your business and reap the fruits of your labor.
Facebook Marketplace Tax Info
Do you need help with taxes on Facebook Marketplace? You might not know this, but there are two different parts to Facebook Marketplace: Local Facebook Marketplace and Facebook Marketplace with shipping.
Local Facebook Marketplace is when you post an item and meet the buyer in person. It’s your responsibility to report any gains and losses, and Facebook usually doesn’t get involved.
On the other hand, Facebook Marketplace with shipping will result in Facebook sending you either a 1099-K or 1099-MISC.
- A 1099-K from Facebook will show the gross receipts of customers who used third-party settlement organizations (TPSOs) like PayPal.
- A 1099-MISC from Facebook will show the gross receipts of customers who made a purchase using their bank account.
If you’re a Facebook seller shipping items, you must provide a tax identification number to Facebook. Your tax identification number can be your Social Security Number (SSN) or Employer Identification Number (EIN). This allows Facebook to report any income you earn adequately. Failing to provide a tax ID can result in you not getting paid.
eBay Tax Filing
eBay continues to be one of the largest ecommerce platforms in the world. It allows you to post a product and sell it to the highest bidder. Pretty straightforward, right?
The tax reporting process for eBay is similar to that of Facebook. At the end of the year, you will receive either a 1099-K or 1099-MISC from eBay. Learn more about eBay and Form 1099-K.
The platform automatically collects and sends internet sales tax information to the appropriate states.
It’s important to remember that if you have made international sales, you may have additional tax obligations. Our experienced team of ecommerce lawyers can help you identify any foreign tax reporting requirements you may have.
Etsy Tax Forms
Similar to Facebook Marketplace and eBay, Etsy tax forms include 1099-K and 1099-MISC. You may receive one of these forms if your sales exceed the general threshold of $20,000.
If you own an Etsy store, you should be aware that Etsy will not collect and remit sales tax. It’s entirely up to the seller to collect this information. To collect and remit the sales tax properly, you must register with your working state.
How to Report Online Sales with Form 1099-K
If you’re a Facebook or eBay seller, you will receive Form 1099-K if you meet certain gross sales and transaction thresholds.
According to the IRS, you will receive a Form 1099-K if you have the following:
- Gross merchandise sales of at least $20,000
- More than 200 transactions
The IRS recently announced a delay in lowering the general threshold from $20,000 to $600.
You should report the gross amount of sales shown on Form 1099-K on your tax return, along any other income you received from your ecommerce business. Keep in mind that Form 1099-K does not include all the information you need for tax return preparation. Contact our team of tax lawyers for help!
The IRS reporting threshold is based on gross payment volume for sales of goods or services. Gross payment volume refers to the total amount received for sales, including any shipping and handling, sales tax, and other fees included in payments. Any credits, cash equivalents, discounts, fees, refunds, or other amounts should not reduce the reported amount.
Classifying Online Sales as a Hobby or Business
Determining whether your sales are a hobby or a business can be necessary for tax purposes, as the IRS treats hobby and business income differently.
Here are a few factors that can help you determine whether your sales are a hobby or a business:
- Profit motive: If your main goal is to make a profit, your sales are more likely to be considered a business. If you engage in sales activities as a hobby or to supplement your income, they are more likely to be considered a hobby.
- Business-like activity: If you engage in sales activities professionally, such as keeping accurate records, advertising, and investing in equipment or inventory, your sales are more likely to be considered a business. If your sales activities are casual or sporadic, they are more likely to be considered a hobby.
- Frequency of activity: If you engage in sales regularly and continuously, your sales are more likely to be considered a business. If you only sell occasionally or seasonally, they are more likely to be considered a hobby.
- Dependence on income: If your sales income is your primary source of support, your sales are more likely to be considered a business. If you rely on another source of income as your primary source of support, your sales are more likely to be considered a hobby.
While the IRS has a variety of methods for determining this classification, our ecommerce lawyers are here to help you navigate the process and ensure you remain in compliance based on the specific circumstances of your situation.
Need Help with Your Facebook, eBay, or Etsy Taxes?
If you’ve had a successful year with your ecommerce business, it’s time to ensure you’re fully prepared to file your ecommerce taxes. The IRS is paying attention to your income, so it’s important to make sure you comply and avoid any IRS tax penalties.
That’s where our team of tax lawyers comes in. We can help you navigate the complex world of taxes and ensure that your business remains in good standing with the IRS. Don’t go it alone – let us help you succeed.