I have received this question from several sellers this week, so here is an article to help you better understand the issue of reporting income from eBay sales. Disclaimer: I am not an accountant or tax expert. This is just some general information to help you understand how the IRS sees proceeds from online auctions.
The rule of thumb: If you are selling your own personal items, that have been in your possession for a period of time and were originally purchased for your own use, the answer is no. This would be the same situation as if you had a garage sale to sell your own personal items.
If you have purchased items specifically to resell them on eBay, then yes, you do have to report the income from those sales. Many sellers think that selling on eBay is just a fun hobby, and the money generated is not reportable as income. The IRS disagrees.
It is better to be safe than sorry in this situation (especially when dealing with the IRS). In other words, if you are calling yourself an eBay seller, and regularly sell items on eBay for profit, you are responsible for reporting that income.
This page on IRS.gov outlines the online auction situation. Please consult with your accountant for more information regarding your specific situation.
Reporting the income from your eBay sales isn't all bad. You are also entitled to report your expenses as a small business owner and deduct your expenses from internet fees to shipping materials.
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