Howdy psuchunliu-ga,
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for informed professional medical, psychiatric, psychological, tax, legal,
investment, accounting, or other professional advice."
To answer your questions in order:
1) It is not the amount of money involved that is the criteria to determine
the differences of business and personal activities on eBay, but rather the
intent, or end result of the activity, to a great extent.
Although the following are definitions from some state levels, the general
definition of "doing business" is essentially the same no matter the level
of government.
This is from the Michigan Appellate Digest.
http://courtofappeals.mijud.net/Digest/newHTML/21850321.htm
"... 'business activity' is the transfer of legal or equitable title to or
rental of property, whether real, personal, or mixed, tangible or intangible,
or the performance of services, or a combination of such, made or engaged in,
or caused to be made or engaged in ... with the object of gain, benefit, or
advantage, whether direct or indirect, to the taxpayer or to others ..."
West Virginia states the above in a bit simpler language.
http://www.state.wv.us/taxrev/taxdoc/WV-TAA/taa98002.htm
"'Business activity' is defined as 'all purposeful revenue generating
activity engaged in or caused to be engaged in with the object of gain or
economic benefit, either direct or indirect ...'"
So, technically, if someone sells anything on eBay, and the object is to
make a gain, they are engaged in a business activity.
Is the Internal Revenue Service (IRS) going to chase down everyone that
bought a black velvet painting of dogs playing poker at a garage sale for
$1.00 and sold it on eBay for $20.00, but didn't report it on their taxes?
I haven't seen it yet, but maybe I haven't lived long enough.
Will the IRS go after someone that brings in cargo containers of those
same paintings, and makes $100,000 profit selling them on eBay, but makes
the same error of nondisclosure? It is a lot more likely than the first
example.
2) So, if someone does go ahead and brings in thousands of those paintings,
and it is the latest fad, so they make $100,000 doing so, how do they report
the taxes?
This about.column by William Perez, tells us one way.
http://taxes.about.com/od/taxglossary/g/BusinessIncome.htm
"An individual person, conducting business as an independent contractor
or as a sole proprietor, reports the income and expenses of the business
activity on a Schedule C."
There are other "small" details, such as self employement tax, determination
if the business is a hobby and business expenses, that are mentioned by the
article, but the above is one way to report taxes.
The details of the IRS Schedule C can be found on the IRS web site.
http://www.irs.gov/pub/irs-pdf/i1040sc.pdf
"Use Schedule C (Form 1040) to report income or loss from a business you
operated or a profession you practiced as a sole proprietor."
Someone could also form a "Limited Liability Company" or LLC, etc. and
run the business, and report taxes, as a different business entity than
that of a sole proprietorship. There are other ways to form a company
and do business, etc. as well.
To your specific example:
- As seen above, "large monetary amounts" is not really the issue.
- Doing business in the US while here on a student visa is generally
against the visa regulations.
- Not reporting such income, and thus not paying taxes on that income, is
against IRS regulations.
- The storage of merchandise in a residence is usually a matter of local
law, and might or might not be illegal.
To get back to your questions, there is this "Wired News" Associated Press
(AP) article, dated March 27, 2005, and titled "IRS May Tax Your EBay Sales"
that speaks to the "fuzziness" of this subject.
http://www.wired.com/news/ebiz/0,1272,67035,00.html
"The IRS can apply a list of nine indicators that might prove whether
someone's online auctions amount to a business. These indicators include
evidence that the taxpayer depends on the income, acts in a businesslike
manner, or puts enough time and effort into the activity to suggest a
profit motive."
The above article is interesting to read in full, so you might want to
do just that.
The bottom line might be that if it looks like a business, and sounds like
a business, then the IRS will probably consider it a business.
If you need any clarification, please feel free to ask.
Search strategy:
Google search on: tax "business activity" "doing business" definition OR defined
://www.google.com/search?q=tax+%22business+activity%22+%22doing+business%22+definition+OR+defined
Google search on: eBay IRS report OR reporting
://www.google.com/search?q=eBay+IRS+report+OR+reporting
Looking Forward, denco-ga - Google Answers Researcher |
Clarification of Answer by
denco-ga
on
14 Sep 2005 09:37 PDT
Howdy psuchunliu-ga,
The Wired News article that I reference has the following.
http://www.wired.com/news/ebiz/0,1272,67035,00.html
"If someone is selling the junk that's collecting dust in a garage or
basement, then that person probably is getting less than he paid for
it -- no profit here. But if someone is buying goods in bulk from a
wholesaler and hoping to make a couple extra bucks reselling each one,
then that person could have just started a profitable business ...
On the other hand, some categories are not so clear. If a great-aunt's
collection of antique china fetched top dollar from collectors, that
might mean capital gains taxes are owed. And if someone scours
neighborhood garage sales for great deals on comic books to resell on
eBay, that might amount to running a business."
To your example, even though the person that is selling things on eBay
does not have the intent to make money, and indeed doesn't make any
money off the sales, that person might be considered to be acting as
an agent for the actual seller.
So, if the actual seller is breaking the law in some way, such as being
here on a student visa, or not reporting the income for tax purposes,
etc. then the friend could have a certain amount of culpability, as an
accessory to the crime.
Even if no laws are being broken, and the friend, as an agent, at least
at face value, has the appearance of running a business, I would think
that the IRS might consider the friend as running a business, and could
possibly investigate the friend under those assumptions.
At that point, the friend would have to explain the situation to the IRS
and present evidence, such as the amount received from the eBay sales,
documentation of that money all being transferred to the real seller,
etc. to show they weren't running a business.
Keep in mind that the real seller could be breaking any number of laws,
such as fraud, not paying taxes, not having the proper licensing, and
by virtue of possibly being an agent for the real seller, the friend
could be considered guilty of the same charges.
The above happens all of the time, when someone asks a friend to hold
on to a box of "stuff" for them. The box, if found to contain things
that are illegal, or used in the commission of a crime, puts the friend
in between a rock and a hard place.
For instance, if the real seller sells something on eBay, but then
doesn't ship it, who do you think the authorities are going to pursue?
"Oh, yeah, it wasn't me that didn't ship it, it was 'my friend, the real
seller' that didn't ship it." The courts, and jails, are full of people
with that story.
Would I be the "go-between" in a deal like this? I doubt it very much.
Looking Forward, denco-ga - Google Answers Researcher
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