(MONEY Magazine) – If you've ever sold anything at an online auction, you were probably amazed at how easy it was to unload your stuff. But you probably didn't give much thought to the tax consequences of your sale. Ditto online stock trading. It makes buying and selling stocks fast and easy, but the speed and ease eclipse the fact that you're racking up taxes with a click of the mouse. In short, the way we sell things and invest money has changed dramatically. But the tax law endures. So before you get carried away on eBay or E*Trade or the like, you need to know the tax rules. To help you out, here's a map of the Internet's tax terrain.

Online auctions

When you sell your possessions online, are you

a) having a high-tech garage sale, b) indulging a hobby, or c) running an online business, however fledgling, from which you (hope to) turn a profit?

Your tax liability--if any--depends on your answer.

Let's start with online selling as an ersatz garage sale, which can be a one-time blowout, such as a moving sale, or simply a periodic clearing out of your unwanted clutter. You owe no income tax on the money you rake in as long as you sell your items for less than their original cost--which is virtually always the case with used personal property. And since the items you're selling are personal assets, you can't claim a loss on your tax return, no matter how vast the gulf between what you paid for an item and what you sold it for online.

The tax rules are different, however, if you sell collectibles that have appreciated in value, such as baseball cards or vintage record albums. Such items are considered capital assets; thus you must report the sale on Schedule D, "Capital Gains and Losses," of your tax return, and pay capital-gains tax on your profit. If you owned the collectibles for more than a year before selling, your gain will be taxed at 28% (or 15% if you're in the 15% bracket). If you owned the items for a year or less before selling, your profit is taxed at your top income tax rate, as high as 39.6%. A consolation: You can use capital losses you've incurred, say, by selling loser stocks or bonds, to offset the gain on your collectibles. What if you sell your collectibles for less than you paid for them? Unfortunately, the tax code shows little mercy. You cannot claim a capital loss unless you can prove that you purchased the collectibles as an investment, rather than for personal enjoyment. Good luck. If you keep your collectibles in your home, where you can use them and show them to friends and family, the IRS is likely to rule that the items are not investments, no matter how sure you were when you bought them that they would appreciate in value.

Yet another set of tax laws kick in if you earn money from the online sale of something you made, such as furniture or hand-knit sweaters. Unless you can make a strong case that you're trying to earn a living by auctioning off your handcrafted wares, the IRS considers your activity a hobby. In that case, you must report all of the income from your sales on line 21, "Other income," of your Form 1040. In turn, you can deduct your hobby-related expenses as a miscellaneous itemized deduction. But unfortunately, only miscellaneous expenses that exceed 2% of your adjusted gross income are deductible. On the off chance you clear that hurdle, your write-off for hobby expenses is further limited to the amount of income you make from your hobby. If your expenses exceed your income, you can't claim a loss on your tax return.

To qualify to deduct all of your expenses, regardless of how much money you make, your online sales must constitute a business, not a hobby. The IRS considers a number of factors to separate the businessperson from the hobbyist. You bolster your standing as a business, for instance, if you have turned a profit in three of the past five years. But, obviously, not all businesses are profitable. So the IRS also addresses the way you carry out your activities. Do you have a professional business plan, keep accurate accounting records and maintain separate bank accounts for your business? Do you have expertise in your field of sale? Do you spend a significant amount of time selling your items? Do you try to maximize profit by adapting your strategy to changing market conditions? Do you have prior success in a related field of business? If your online selling rises to the level of a business, you can report your profit or loss on Schedule C, "Profit or Loss from Business."

Online trading

When you trade stocks online, are you

a) a "typical" individual investor, b) an upstart day-trader, or c) a professional trader with an extensive track record?

If you answered a) or b), you are subject to the same tax laws that apply to investors who use traditional brokers. You may, however, qualify for more write-offs than your offline peers. The rules, in brief: When you sell stock that you've owned for more than a year, your capital-gains tax rate is 20% (10% if you're in the 15% income tax bracket). Short-term gains are taxed as ordinary income at rates as high as 39.6% (which will kneecap a day-trader's profit). Capital losses can absorb capital gains dollar for dollar; if your losses exceed your gains, you can write them off against up to $3,000 of ordinary income; unused losses can be carried forward for use in future years.

But unlike traditional investors, onliners can include some of their computer and software expenses as a miscellaneous itemized deduction. Say, for example, that you use your computer 25% of the time for investing. You can depreciate a portion of the price of the computer over five years and, in effect, include about 5% of the depreciation amount as a miscellaneous write-off in each of the five years. (Disclosure: The calculation isn't as straightforward as that, so you will probably need a tax pro's help.) Similarly, you can depreciate your investing software, generally over three years, and include that depreciation amount in your pot of miscellaneous write-offs.

The only way to write off your losses and expenses in full, each year, is to qualify as a professional trader. If you're a day-trader, you may feel that the scale and frequency of your trading--not to mention that you may have quit your "real" job--qualifies you as an pro. Fat chance, says Kathy Burlison, a tax expert at H&R Block's headquarters in Kansas City, Mo. To qualify as a professional trader, you need to pass the IRS tests mentioned above that distinguish the businessman from the hobbyist. In addition, the IRS likes to see a multiyear trading history. Most day-traders haven't been at it long enough to meet that criterion. The IRS also expects professional traders to move upwards of tens of thousands of dollars a day. So if you're going to day-trade, don't count on any special subsidies from the tax man.