First, the bottom line: Your eBay business may provide not only extra cash, but additional tax deductions as well. You can substantially lower your taxes by deducting eBay expenses from your income. For example, you can deduct the cost of the eBay goods you have sold, the use of your home and car for eBay business, money you pay employees, business insurance costs, rent, interest, and many other expenses. After you factor in federal income taxes, state income taxes, and self-employment taxes, every dollar you spend on deductible business expenses could save you more than 40 cents on your tax bill.
Many eBay entrepreneurs miss out on valuable business deductions simply because they don’t know which expenses they can deduct. You may already itemize deductions on your personal tax return, but once you start an eBay business, a whole new range of deductions becomes available — and it sure pays to spend some time learning what they are.
This section explains some of the deductions most commonly utilized by eBay entrepreneurs. Once you start racking up deductible expenses, however, you will likely need more detailed information about these and other deductions. Consider Deduct It! and Home Business Tax Deductions, both by Stephen Fishman (Nolo). Additionally, the IRS website provides a lot of tax guidance, including helpful advice about business expenses. The IRS also offers some great online classrooms that offer lessons on setting up a business and preparing taxes.