Facebook Marketplace: Do You Have a Business & Don’t know About It? with Andrea Harrington
What is La Incubadora Podcast?
La Incubadora Podcast is part of the Economic Growth Business Incubator, a local non-profit with the mission of providing training, coaching, and support to aspiring and existing business owners who face barriers to growing a successful business. La Incubadora Podcast is born out of the need to put in video and audio a lot of the success stories we see here at the business incubator. We also want to answer frequently asked questions and connect with small business owners with the resources to succeed in business on your own time and wherever you are while you have access to a mobile device.
For today’s episode we’ll cover a little bit more information about Facebook Marketplace. We will unravel the intriguing concept of unwittingly owning a Business and its tax implications, particularly in the realm of online selling through platforms like Facebook Marketplace. We will explore scenarios where individuals may unknowingly find themselves in business roles and repercussions that it means for their taxes from understanding IRS criteria to proactive compliance.
Meet our speakers:
Our host, David Fuentes, will be diving deep into today’s topic with our guest speaker, Andrea Harrington. Andrea Harrington is a lawyer and team manager at Texas Rio Grande Legal Aid small business and nonprofits team based in TRLA Austin Offices. Andrea works throughout Texas to serve the areas representing micro entrepreneurs facilitating Pro Bono small business legal clinics and providing Community Legal education on legal issues relevant to micro entrepreneurs. Andrea represents domestic violence survivors in family law cases and in protective order cases. Andrea obtained her Bachelor of Arts at Harvard University in 1998 and completed her Log Degree at the University Texas school of law in 2003. Andrea offers invaluable guidance to navigate this terrain with essential knowledge and be prepared to manage your tax responsibilities effectively in the digital marketplace.
What work does the Texas Rio Grande Legal Aid do?
Andrea Harrington says,
“Texas Rio grande Legal Aid is a non profit law firm and we provide assistance through a wide variety of areas of law from family law to public benefits, housing issues, landlord/tenant issues. We do have eligibility guidelines that we have to meet for our clients.
You can go to www.trla.org/gethelp and there are prompts that can let you know what our legal intake hotline is that can get you started, if you need assistance. To go to through our eligibility screening and get some legal assistance and ,of course, we also offer legal advice to small businesses!
It is a service to the community ,all of our services are free to the community for eligible clients and we have offices here in Austin, all the way west to El Paso and all the way south to Brownsville!”
How does selling on Facebook Marketplace classify someone as a business owner? Does it affect me on my taxes?
Andrea Harrington says,
“The interesting thing about Facebook Marketplace is that people use it for various reasons. For example, if you have a new couch or you’re moving your baby from a crib to a toddler bed and you have to get rid of the old furniture and pull in the new furniture, that is NOT a business.
Other folks are using Facebook marketplace as a way to make some extra money, for example you may go to Goodwill on the buy by the pound day and you receive your items to resell them on Facebook Marketplace.
OR
You purchase furniture or toys, that may be a little bit beaten up, and refurbish them and sell them on Facebook Marketplace. You may be using that extra bit of income to top off your grocery budget, to be able to pay your car insurance
The MAIN thing to know is if you are regularly selling items via Facebook Marketplace, Craigslist, eBay, Etsy, or any online platform. The IRS may consider these activities of you being engaged in a business. With that comes tax implications because the IRS is very clear that all businesses income should be reported and is taxable.”
What are KEY FACTORS that the IRS or tax authorities consider when determining whether someone is running a business?
Andrea Harrington says,
“It is considered a business once the intent is to earn more money than I spend, then that is considered running a business.
One should also take into consideration the regularity of operations. For example if you are listing one/two new items a week or one new item a day, then that’s a regularity of engagement of a platform for a business activity/ economic activity and it will be taken into consideration by the IRS.
Additionally, the production of income and ongoing efforts the person may take to improve their profits of the business. For instance if I am selling on Facebook marketplace but I am also advertising items on Instagram, those are going to be other efforts to further the interest of my business. Which would make it look more like business activity than just a personal transaction.”
David Fuentes: “That makes perfect sense, so there’s profit and then the regularity of operations. Right?”
Andrea Harrington: “Yes and the production of income. If you are bringing in income regularly, then it will become a factor.”
“For a long time people could sell on Craigslist , Facebook Marketplace, and eBay and you would get paid via PayPal or Cashapp and that was the end of the transaction but that’s changing.”
Are there specific thresholds or criteria that individuals should be aware of when it comes to selling goods online and triggering business tax obligations?
Andrea Harrington says,
“The big change that is happening this year, that is really important for people to know, is that these transactions that you’re doing if getting paid by Venmo, Cashapp, PayPal, or through Zelle. These payment providers are going to be sending out 1099-s to you. There has been a big change in the law, starting in 2024 if you make more than $600 in income through one of these payment apps you will be getting a 1099 that is reporting your income. If you think about it, what you have been selling on Facebook Marketplace. if you make more than $600 in a year which is not a lot, this is 50 bucks a month!
This year in 2024, which is the first quarter is already done, the threshold for receiving the 1099 is $5,000.
What does this mean?
If you make $5,000 in just one payment platform you will get a 1099. Something to keep in mind is that 1099-s are given per payment platform, so for those of you that maybe selling higher priced items such as jewelry or furniture you may hit that threshold in several payment providers, you will be receiving 1099-s from each payment provider. It is not aggregate for your whole business since it’s per payment provider so it’s really important to be aware that this hasn’t been an issue for a lot of Facebook Marketplace sellers for a very long time because the threshold used to be $220,000 and in 2024 it is dropping down $5,000 and further down to $600 for this upcoming year 2025.”
What piece of advice would you give to Facebook Marketplace users?
Andrea Harrington says,
“One piece of advice I would give is to start keeping records as soon as possible.
It is really important that you guys who are selling on Facebook Marketplace that you take the steps to at least start keeping records so you can deduct your business expenses from the money you are making reselling these items. If you’re going to a store and you’re buying by the pound and then you’re reselling some of these items of Facebook Marketplace, you NEED to get receipts of your cost of goods sold.
Another thing that folks need to be really aware of is if you are selling online on Facebook Marketplace or any other platform you should have a sales tax permit from the state of Texas and be collecting sales tax because it is another mandatory rule of the law and it affects all sellers.
It is crucial for everyone to learn what items you are selling are taxable and collect the sales tax on that, collect them, and turn them over on your filing deadlines.”
David Fuentes says,
“It really does operate similarly as a business? It is really useful because I have some clients here, for example someone who owned a tire shop and so they would resell used tires on Facebook Marketplace and that counts as a separate business operation in itself so it’s kind of wrapping our heads around this and specifically for tax implications.”
Andrea Harrington says,
“Yes absolutely!”
How can individuals who sell items online proactively ensure compliance with tax regulations and avoid unintended tax liabilities?
Andrea Harrington says,
“The MAIN way to ensure compliance there’s two big things that folks need to do, one is keep records. You will hear this from your business count to lenders at the bank from anyone who works with small businesses will tell you how important it is to keep good records of the money you spend for your business and keep records of the money that you’re earning from your business. This is because any tax compliance is going to be reliant on the quality of your records.
The other MAIN way to ensure compliance is to report because there is no way around it. You have to report your income, you’re able to deduct your but you must be aware and accept that there will be taxes due on your profit that you’re making from your operations.
Additionally you must research what your state sales tax obligations are and make sure that you’re going to be compliant with those as well. It’s the cheapest way to go about doing this otherwise you might get audited at a state level and on the federal level, which is expensive, if you are going to be having someone representing or helping you and any back taxes that were found to be owed you are going to have to pay as well as interests and penalties. In hindsight, the cheapest way to do this is to do it right from the beginning.”
What are some common misconceptions or pitfalls that people may encounter when it comes to understanding their tax obligations related to online selling?
Andrea Harrington says,
“So a big one is that people think that because they’re selling online, that they don’t have a real business so they don’t have any tax obligations. Additionally some haven’t formed a corporation or an LLC (Limited Liability Corporation) or filed a DBA (Doing Business As) so they haven’t formed a business, that is not a threshold that the state or federal government uses to determine whether or not you’re going to owe taxes on business income. What they’re looking at is the reality of the situation, are you engaged in economic activity that’s making you a profit? They are NOT looking at the formalities of whether you filed this paper or that paper. Like we said before, they are looking at the reality of what’s going on. The thing is that when you’re doing stuff online that is a record of itself, that’s evidence that’s out there. You can’t claim that you weren’t doing those activities when posts are up there, so it is essential to have that reality check of yourself and set a budget for these taxes. “
David Fuentes says,
“It’s really important to know before you start doing these things right otherwise you can find yourself in a hard place even without knowing this.”
As a lawyer specializing in this area, what advice do you have for individuals who may be uncertain about their tax status as online sellers?
Andrea Harrington says,
“In my experience people generally have a pretty good idea of what their status is whether or not they have a business, it just may be not the answer you wish it was. So my advice would be to be really honest with yourself about your selling activities online, whether its baby clothes, toys, clothes, etc, then you have a business. Like we said beforehand, if you are selling online to make a profit and you have come to terms with the reality of your situation, if you are uncertain do your record keeping because then you may not know if you are making a profit every month. With that you will find out whether or not you have a business. If you really aren’t sure, I can give you information you need. It may not be a huge profit, you might make $100 or $80 a month so I need to take care of this so you don’t get yourself into hot water. “
Where can I find more information?
Andrea Harrington says,
“One of my favorite places to send customers, of course is to EGBI (Economic Growth Business Incubator)!
Additionally if you want more information specifically about taxes, the IRS has an excellent website, a YouTube channel, and a whole web page dedicated to small businesses tax issues!
The Texas Comptroller offers a lot of information on sales tax issues, so if you have any questions you can contact them if you are not sure whether you should be collecting sales taxes you can do that reading online.
Austin has a lot of resources for small businesses and for entrepreneurs! The City of Austin has a department dedicated to small businesses and there are lots of profits here in town that are also dedicated to assisting small businesses.”
David Fuentes says,
Perfect! We have several resources here in the city of Austin such as the IRS, and they also have a Small business and Self-Employed Tax Center which is a great resource and is the first website that popped up.
Appreciation
Huge thanks to Andrea Harrington for being our guest speaker, especially with all of these new changes and folks will have to adapt. None of us desire to deal with tax issues or the IRS, so it’s better to keep records before getting into trouble. It’s been a pleasure once again chatting with you and we hope that you find this episode entertaining and informative!
This episode was produced by Raycast media to be able to launch our podcast. Huge thanks to Raycast Media for this amazing partnership!
If you know someone else that could benefit from this episode share this article with them or share the Incubadora YouTube podcast! Remember that the Incubadora Podcast is part of the Economic Growth Business Incubator, a business incubator in Central Texas that offers training, coaching, and support to small business owners with barriers to achieving success.
If you would like to learn more about the economic growth business incubator and our services visit our website: https://egbi.org/ Thanks for listening!
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