[josephguo]

Hello everyone, I'm a newbie to this site; hopefully people will help me out on this one. :)

All right, firstly I'm a citizen of China PRC and I am on an F-1 visa studying undergraduate courses here in the US. I'm also a permanent resident of Canada.

In my spare time, I sometimes use eBay to buy and sell stuff like everybody else does. However, this holiday season, I made some quite “successful” deals thanks to the popularity of Nintendo Wii and iPhone. Basically I bought them from local stores and sold them using auction listings on eBay, generally making 100+ per item. The gross income on my account is now more than 5000 dollars.

One day I was surfing online and saw a post regarding taxes on eBay sales. Apparently the IRS does tax people on their eBay earnings. One needs to file a Schedule C as a business if the gross income is greater than a certain amount. The taxable amount for income tax is the gross income less the cost of the goods and other related costs (shipping, eBay & PayPal fees, transportation costs etc.) There's also self-employment tax on the gross income regardless of one makes a profit or a loss. :eek:

This really concerns me since my visa status doesn't allow me to be employed by anyone except the university (not even myself I guess). So if I filed a tax return to the IRS, they would probably notice I have this illegal income and inform the Department of Justice to void my visa. If I didn't file one, I'd probably end up caught by the IRS since PayPal actually collects and pays over funds for me so they may be required to report all payments made to the IRS. I'm in this dilemma right now. It looks like either way I'll break the law.

I also have this possible solution I came up with by myself: I can switch my PayPal address to my address in Canada and process every sale through eBay.ca, which is pretty much the same site to eBay.com. Since eBay is an online entity, it may only report to the country it's based in. I suppose eBay.ca is based in Canada (and I'm allowed to work there) and if I do pay taxes, I'll pay them to the Canadian government. That way, I can keep on selling on eBay without breaking any laws. Just an idea, please correct me if I got it wrong.

I'd really appreciate your help; anything that can solve my puzzle is welcome. I'd love to pay taxes and be able to do everything by the book. Thanks in advance.

[AtlantaTaxExpert]

Joseph:

This is a recurring theme on this site.

In my opinion, you are technically in violation of your visa, but I do not believe that it is a serious violation. You may want to post this in the Immigration Law section of the Law forum to get true legal opinions.

Further, I could make the argument that what you are doing is NOT REALLY a business because you did it only during the holidays. If you keep it up, it is definitely a business, but if you stop, you could treat the sales as sales of capital assets and report it on Schedule D.

Your other alternative solution (routing it through Canada) really is not a solution, because you are doing it HERE in the U.S. not in Canada.

The bottom line is that you really do need to report it on Form 1040NR with a Schedule C. I agree with you that PayPal will send a Form 1099 to the IRS, so they expect to see that Schedule C or the sales reported on Schedule D (The Schedule D IS a bit of a stretch, but the argument could be made).

[josephguo]

Thanks. I guess I should get ready to file a Schedule D then.

When is it due anyway? I never used the US tax system before, is there a certain date we need to file by?

[MukatA]

AtlantaTaxExpert has given a great advice. Now the question is
How josephguo will account for the transportation cost, PAYPal charges.. Should josephguo deduct this from the sale price or add this to the purchase price?

[AtlantaTaxExpert]

MukatA:

He should add the expenses associated with the purchase and sale of the assets sold to the basis to determine his true level of profit.

Joseph:

The tax return must be mailed by 15 April 2008 unless to file for an extension.

With an extension, it is due on 15 October 2008.