Whats the Difference Between a Hobby and a Business?
If your eBay work qualifies as a business, you can deduct your eBay losses from other income earned in the same year, including salary, your spouse’s income, or interest and investment income. You can also carry over losses from your eBay business from year to year even if you don't expect big profits for some time.
If your eBay activity is considered a hobby, you can deduct your expenses from your eBay income only. For instance, if you lose $2,000 in your first year online, you can’t deduct it from other income. Accountants refer to this restriction as the “hobby loss rule.” Additionally, a hobbyist can’t carry over losses to apply against future years’ income; they are lost forever. Finally, hobby expenses are only deductible if you itemize deductions on your tax return, and if they, along with any other miscellaneous itemized deductions, exceed 2% of Adjusted Gross Income.