Selling small volume of goods - question on Cost of Goods and what I need to keep track of for taxes

[beewallygee]

I am a retired individual and am slowly selling items I have around the house to cut down on a lifetime of stuff. I am not sure what I need to keep track of to help offset any earned income. I get that if I were to pick up an item to resell, I should keep the receipt and use that to establish cost of goods for that item. I also understand that since I would be considered a hobbiest (low number of listings, maybe a sale or two or three a week, low amount of dollars) - I would not be able to deduct mileage and space in my home. 

Can I use the cost of boxes, bubble wrap, bubble mailers, tape, labels under cost of goods? If I buy a book on how to sell on ebay, or a book on sourcing, or a book on small business accounting - can I deduct that cost? Or only if I were to then resell the book?

I'm working on setting up an open source accounting system for my personal use, and wanted to get an idea of how I should categorize different expenses so I know if I can deduct them from my income at the end of the year, or just count them as hobby expenses.

As a side note: is there a general activity level or dollar amount where this moves from a hobby to a side gig, and would then be a business (even if it's just a very small one)?

[caldreamer]

You have to file income taxes as a "business" if you want to deduct business expenses (cost of goods, EBAY fees, refunded merchandise, postage for mailing labels, mileage, packing materials, office supplies).   Any expenses related to your business including "how to sell on EBAY" are tax deductible.

IRS requires that you report "gross sales" and then you deduct "business expenses" (you only pay income taxes on "net amount" after all deductions).

EBAY has "easy to read" 1-page report that shows YTD totals for (orders/gross sales, refunds, EBAY fees, shipping expense).   Go to PAYMENTS, REPORTS, REPORTS (NEW) and click on LAST YEAR.

[nobody*s_perfect]

If you purchase items intending to sell them, then you are not a hobby under the IRS definition and you can deduct all of your relevant expenses unless you have a net loss 3 years out of 5 (or maybe it's 3 years in a row?).  The underlying concept in the IRS notion of hobby vs business is whether you are trying to make a profit, i.e., acting like a business, regardless of total sales volume.  Here are some IRS insights:

https://www.irs.gov/newsroom/hobby-or-business-heres-what-to-know-about-that-side-hustle

https://www.irs.gov/newsroom/know-the-difference-between-a-hobby-and-a-business

No, your overhead like packaging materials does not count as "cost of goods."

[orangehound]

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@beewallygee wrote:

I am a retired individual and am slowly selling items I have around the house to cut down on a lifetime of stuff. I am not sure what I need to keep track of to help offset any earned income.

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You are describing the equivalent of a yard sale, but on-line.  There is nothing to report so long as you are selling the items for less than you paid for them.  If you sell an item for MORE than you paid for it, such as a painting or piece of antique furniture that appreciated, then this profit is reportable as income.

eBay will issue you a 1099-K if your sales exceed a certain threshold (which I believe may be as low as $600 in sales).   In this case, you will indicate on your taxes that the 1099-K cost of personal property equals the amount reported on the form, effectively giving you $0 of income ... assuming, again, that you are selling all this stuff at a loss

Here's a reference for you:

https://www.lsnjlaw.org/legal-topics/taxes/other-federal-tax/pages/garage-sales-taxes-aspx

[nobody*s_perfect]

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@orangehound wrote: ... Here's a reference for you:

https://www.lsnjlaw.org/legal-topics/taxes/other-federal-tax/pages/garage-sales-taxes-aspx

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Note that document is from 2018 and the relevant laws and policies might have changed since then.

[orangehound]

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@nobody*s_perfect wrote:

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@orangehound wrote: ... Here's a reference for you:

https://www.lsnjlaw.org/legal-topics/taxes/other-federal-tax/pages/garage-sales-taxes-aspx

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Note that document is from 2018 and the relevant laws and policies might have changed since then.

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It hasn't changed.   I selected that page because it was written clearly.  This is a snippet from the instructions from IRS Form 8949 (page 3 ... more details are in that form's instructions):

If you received a Form 1099-K reporting proceeds from the
sale of personal property that resulted in gain, that transaction is
taxable and must be entered on Form 8949. Loss on the sale of
personal property is not deductible, and generally should not be
reported on Form 8949. However, if you receive a Form 1099-K
reporting proceeds from the sale of personal property that
resulted in a loss, you should report the loss with an offsetting
entry.

[beewallygee]

I appreciate the time you all took in responding. It helps, as I am selling as a hobby for now. If I can successfully grow to maybe 250 items for sale at a time, and list at least one item a day while helping a disabled family member (that is very independent) then I will push to grow it into a part-time kind of thing. I wanted to know where that line stands and make sure my approach and record keeping as a hobbiest is good before I try to grow beyond casual selling of items on hand.

[ryanrobyn]

No, your overhead like packaging materials does not count as "cost of goods."

But they do count as a business expense and can be deducted

[southern*sweet*tea]

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@ryanrobyn wrote:

No, your overhead like packaging materials does not count as "cost of goods."

But they do count as a business expense and can be deducted

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Only if you file as a business and not a hobby.