Do I Need a Business License to Sell on Ebay?
The requirement for a business license to sell on eBay depends on factors such as your business structure, your sales volume and where you live. Registering as a business may entitle you to commercial or volume pricing on packaging and shipping. There may also be tax advantages.
Although eBay doesn't issue or require a business license, your state or local government might.
If you're just selling used items from your attic or garage, you probably don't need a business license to sell on eBay. It's much like a yard sale, although be aware that in some jurisdictions, you must report yard sale income. Businesses that need a license or permit include the following:
- Wholesale-to-retail: Buying items wholesale and selling them on eBay at marked-up prices
- Handcrafted items: Items that you make and sell, grossing more than $400 a year.
- Wine: Requires approval from eBay along with state and local liquor licenses; other types of alcohol cannot be sold on eBay
Visit a local office of the Small Business Development Center or your city clerk's office to find out what type of license or permit you need to start your eBay business. At a minimum, you need to provide a Social Security number or Employer Identification Number (EIN). You can obtain the latter for free on the IRS website. You may need to register an eBay business address if it's different from your home.
If you're the only one working in your business, you're considered a sole proprietor. As a self-employed person, you need to report your income on 1040 Form SE. You can use Schedule C to deduct businesses expenses from your gross income, such as packaging materials, shipping costs and fees charged by eBay and PayPal. You can also create a single-member LLC if you would like liability protection for your personal assets.
If you're working with someone else, you can create a partnership, limited liability company or S Corporation. Talk with an accountant or an attorney to find out if any of these business structures might be right for you.
There are several ways to sell items on eBay. One is via auction, where you list an item with a starting price, and customers bid what they're willing to pay, with the item selling to the highest bidder. The "Buy It Now" feature lets customers purchase an item immediately for the advertised price without having to go through the bidding process. There is also a feature that lets a customer make an offer on an item, which the seller can accept, reject or counter.
EBay makes its money with listing fees and a percentage of the final sales price of an item. Sellers get 50 free listings per month. After that, listings are 35 cents each for most categories of items. For most sellers, eBay takes 10% of the final sales price, although this varies depending on the type of items sold.
Open an eBay Store to take advantage of a variety of online tools, including a bulk listing feature, lower fees, shipping help and payment options. The cost to run an eBay Store ranges from $4.95 a month for basic users to $2,999.95 annually for enterprise level.
Both buyers and sellers must have PayPal accounts to send and receive money electronically. Opening a PayPal account is free, but there is a cost for each transaction. EBay bills sellers monthly, but PayPal debits its fee immediately. For most U.S. transactions, the PayPal fee is 2.9% of the sales price (including sales tax) plus 30 cents. For international transactions, the fee is 4.4% plus 30 cents.
Whether you must report income and pay taxes to the IRS depends on the items you sell and the volume of your sales. If you occasionally sell used items, the IRS will likely treat your activity as a virtual yard sale. For example, if you purchased an item for $200 several years ago and sell it on eBay for $100, there is no income to report to the IRS, although you cannot take a deduction for a loss.
If you're using eBay as an online marketplace, however, you must report income to the IRS. You can also take deductions for business losses. The IRS looks at the frequency of your eBay sales and how much you earn. If you make more than $20,000 in gross sales and have more than 200 transactions on eBay, you receive a copy of the 1099-K form that reports income to the IRS. When filing taxes, you report your gross income on Schedule C and then reduce it to net income by deducting your business expenses.
As of 2018, the IRS no longer distinguishes a hobby from a business. For example, say you enjoy making jewelry for yourself or family and friends. If you also sell the jewelry on eBay, the IRS considers your sales as business income. You can no longer deduct losses from hobby expenses.