How To Start an eBay Business
Are you looking for a vintage vinyl album? Hard to find beanie babies? Perhaps a used cell phone for your kid? You'll find it on eBay.
But what if you want to sell some items of your own? Your best bet is still eBay. The popular e-commerce platform is a vast marketplace matching buyers to sellers. Remarkably, the eBay shopping app reaches over 33% of buyers in the US.
Using the eBay store, you can sell or auction items you already own, become a reseller of products, or sell handmade items. But how do you start a successful eBay business? That depends if you want to sell items as a hobby or as a business venture.
Are You a Business?
There is a vast difference between a hobby and a business in terms of structure, rules, and tax treatment. The Internal Revenue Service (IRS) looks at nine factors to determine if your online selling activity is a hobby or a business.
A casual seller is someone who sells as a pastime, not someone necessarily looking to make profits. So if you were selling old record albums collecting dust in your attic, the IRS considers this a hobby. A business seller looks to make a profit, runs their seller account like a business, and relies on the income for their livelihood.
However, no matter if you are a casual or business seller, any profits made from sales are taxable. So if you want to run your eBay store as a profitable business and not as a hobby, follow this step-by-step guide to starting your eBay store.
Start With a Business Plan
Successful business owners start with a detailed business plan. A business plan identifies your business's strengths and weaknesses and looks at your competition. Especially with an online business, you want to see how your items for sale compete with similar products in the marketplace.
When crafting your business plan for an eBay business, you should determine:
- What items are you selling?
- Who is your customer?
- How much will it cost you to produce (or acquire, if a reseller)?
- How much will you sell it for to make a profit?
- How will you ship it?
Be sure to factor in seller's fees and shipping costs when pricing your items so you can be profitable.
Set Up Your Business
There are several steps to starting your own business. First, you choose a name for your business and a legal business structure. Then you apply for a taxpayer identification number and business licenses and permits. Finally, you open business bank accounts and secure funding.
Choose the Legal Name for Your Business
A business name is a significant part of your store brand. You want people to notice and remember your company. You can only have loyal customers if they remember you.
There are many factors when choosing a business name. In addition to enhancing your brand, there are legal implications in a business name. For example, you can't use a name affiliated with a branch of government. You also can't use a name if it is in use or trademarked by another company.
Conduct Business Name Search
After selecting a business name, check that no one else has claims to it. You can search for prior name use by checking with your Secretary of State's office, the USPTO trademark database, and the web. If you see the name already in use, do not opt for that name.
Register Business Name
If the business name is available, you'll want to claim it for your use. To reserve your business name, you register it with your local city, county, or state office. If you are a sole proprietor, you register by filing a fictitious name or "doing business as" (DBA) with your local government. A corporate entity, such as a corporation or limited liability company (LLC), registers the name when filing the corporate charter with the Secretary of State's Office.
You do not need a separate business website as an eBay seller. However, if you want to have a website for your business, you register the domain name.
Select Your Legal Business Structure
The second step to setting up your eBay business is to choose a corporate structure. When deciding how you want to run your business, think about personal liability protection and how you want to file taxes.
A sole proprietorship is a one-person business. If you are selling on eBay, you are automatically a sole proprietor. All profits or losses appear on your personal income tax returns. A sole proprietorship is easy to run. There is very little paperwork and no corporate filing requirements.
Many eBay sellers begin as sole proprietors. However, as their business expands, they form a corporation or limited liability company (LLC) to protect their personal assets.
Suppose someone sued you for a defective product or injury from a product. If you are a sole proprietor, you are personally liable, and all your assets are at risk. However, suppose you form a corporation or LLC. In that case, the lawsuit only goes after the assets in that business entity. Any judgments do not attach to personal assets such as your home.
A corporation is a legal structure separating your business profits and losses from your personal finances. Once your incorporate, you set up a business bank account to receive payments and pay expenses from your business.
Limited Liability Company (LLC)
A limited liability company (LLC) provides the same liability protection as a corporation. However, it allows pass-through taxation similar to a sole proprietorship.
Apply For Taxpayer Identification Number
An Employment Identification Number (EIN) is a nine-digit identification number for your business. For example, when you open a business bank account, apply for business licenses, or file business taxes, you use your EIN.
To get an EIN, complete the SS-4 application and submit it to the IRS. The EIN is also known as a "taxpayer identification number."
Apply For Business License And Permits
To operate any business, you need a business license. Additionally, there are other licenses and permits you may need for your eBay business.
A seller's license authorizes you to sell goods to customers in that state. A seller's license is also known as a sales tax ID or a sales and use license.
According to the Supreme Court in South Dakota v. Wayfair, all sellers must collect and remit sales tax in states requiring it. So that means that if you are in California and sell to someone in Georgia, you must collect sales tax.
Most states only require a seller's license if your online sales reach a specific dollar amount or number of transactions annually. For example, if you sell over $200,000 or have over 200 transactions. The good news is that eBay will collect and remit the sales tax for you.
Home Occupancy Permits and HOA Approval
Most eBay sellers operate from home. Your city or state may have specific permits for running a home-based business. Check the licensing requirements in your area.
Additionally, homeowner's associations often have rules for operating out of your home. So review your HOA regulations for home-based businesses.
Open Business Bank Accounts and Secure Funding
To operate as a business, you want all your transactions to run through a business bank account. Don't mix your personal finances with your business operations, or you'll jeopardize your personal liability protection from your corporation.
Open a bank account using your EIN. Then, you can link your business account to eBay to receive all income. Be sure to pay all business expenses from your business account.
Depending on your business, you may need a bank loan or financing. However, a bank or investors will want to review your business plan first.
Set Up an eBay Store
Create eBay Seller Account
Now that you have completed all the financial, legal, and tax steps to launch your business, it's time to open your eBay store.
To open an eBay seller account, you will need a bank account or credit card, business tax information, and government-issued ID. If you are a business seller, you'll enter your taxpayer identification number or EIN.
As a sole proprietor, you'll enter your social security number. You don't need an EIN for a sole proprietorship. However, there are reasons why a sole proprietor may want an EIN for their business.
Create eBay Product Listing
It is easy to set up an eBay product listing. Follow the prompts to get your item listed. You need the following information for each product listing:
- Item or product category.
- Title description.
- Product information with specific features.
- Condition of item.
- Photos of item.
- Auction or fixed price.
- Duration of listing.
- Payment methods accepted (credit cards, debit cards, Paypal).
- Shipping costs.
- Return policy.
Check out eBay's tips for enhancing your listings for the best match.
To be a profitable eBay business seller, you must first organize your business's legal, financial, and tax structure. You may have questions as you decide upon your business name and legal entity. Seek guidance from a local business attorney to help you set up your venture for success.
You Don’t Have To Solve This on Your Own – Get a Lawyer’s Help
Meeting with a lawyer can help you understand your options and how to best protect your rights. Visit our attorney directory to find a lawyer near you who can help.