2022 IRS Changes - selling old items with no receipt

[backhomeoutdoorz]

I sell mostly used clothes on ebay.  These are clothes that my family has worn and I sell at a loss.  The majority of these clothes I do not have receipts for.  How will this work moving forward when sales are reported?  Will the IRS accept my report that I made no money on these without proof?  I don't understand how this will work for the non-business people on here without getting screwed.  

[lacemaker3]

@backhomeoutdoorz 

If you don't have receipts or documentation of the original purchase cost, then you can use the alternate method to determine the cost basis for those items. You can use the fair market value at the time they were acquired. This can be your best guess of the actual cost, or you can search online and try to find what the selling price would have been. I would try to estimate a reasonable discount, because most people buy things when they're on sale. If you are audited, you will only have to show that you used a reasonable fair market value as the cost basis, so keep records of the research you do to determine the fair market value.

For items that were inherited, the fair market value is always used as the cost basis, because the current owner did not purchase the items.

This is covered in IRS Publication 551: Basis of Assets

https://www.irs.gov/forms-pubs/about-publication-551

https://www.irs.gov/pub/irs-pdf/p551.pdf

If you are not operating as a business, then you can report the income and expenses as Capital Sales. If your expenses (including the cost basis, eBay fees, shipping and handling costs) are more than the income, then there won't be any tax liability for these items. Depending on the type of items and how long you owned them, you might be able to use up to $3,000 of Capital Losses to offset other income.

Topic No. 409 Capital Gains and Losses:  https://www.irs.gov/taxtopics/tc409 

If you are buying anything for resale, then you need to be operating as a business and filing Schedule C. Doing this will get you the best possible tax treatment for your income and expenses, so it may be worth your while to do this even if you are not buying anything for resale.

You really don't want to file as a hobby seller, because the tax treatment in this case is brutal. You have to report all the income, but you can't deduct any expenses.

[lacemaker3]

@policequilts ,

If you receive a 1099-K, then you will have to report the income on your tax return.

In that case, you really don't want to be treated as a hobby seller, because the tax treatment for hobby sellers is brutal. The last administration (2018) made a change to the tax rules that disallowed hobby sellers from deducting ANY expenses related to their hobby.

https://www.irs.gov/newsroom/tips-for-taxpayers-who-make-money-from-a-hobby

"If a taxpayer receives income for an activity that they don’t carry out to make a profit, the expenses they pay for the activity are miscellaneous itemized deductions and can no longer be deducted. The taxpayer must still report the income they receive on Schedule 1, Form 1040, line 21."

Also, as a default position, eBay considers that "online sellers" are Gig Workers, and are required to report all the payments they received as income, even in-kind or barter payments. So unless you can show evidence why you are neither a business nor a hobby seller, the IRS considers that you are one or the other. Business sellers can deduct their business expenses on a schedule C,  Hobby sellers have to report their income but are not allowed to deduct expenses, as mentioned above. 

https://www.irs.gov/businesses/gig-economy-tax-center

[my_boston_baked_beans]

Just a side note!

First, I have to sell items to worry about paying taxes as sales have been HORRIBLE for many sellers for sometime now.

Taxation is the least of my problems currently.

[mam98031]

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@policequilts wrote:

I think part of the disputing here is that we are lumping all the sellers as businesses.

There are those that are selling as additional income/ or main income and those of us that are cleaning out the house or selling our collectibles for our "retirement" (the hobby sellers).

I put myself as a hobby seller and I have tons of clothing, from hand-me-downs, working and such. A huge horse collection, and a huge cat collection that I will be start selling because of retiring and no funds to retire on since a car accident 20 years ago.
I have been selling parts of my relative collections for their retirement and I won't declare that money.

Personally, I sort of look at it like the gift tax that, right now, you're allowed to give 15K without reporting it and that I am selling my own items to get me through retirement.

(I know, I not explaining my thoughts right.  Sorry about that. )

I have over 45 years of receipts since high school. 
I even have my stocking cap from 2nd grade and high school shorts & top (when the schools let the girls stop wearing those 1 pc rompers  Uggghhhh).

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You are correct.  And that happens because every single transaction on Ebay is a Business transaction.  There are NO personal transactions on Ebay.  Doing business on Ebay does not mean you are a formally set up company or anything even close to that.  Some think that business = a formally set up company or entity of some sort.  And that is not true.

As has been said a few times on this thread and lots of times on other threads.  There are some sellers that will have to report all sales as taxable income and others that while they may have to report the income will NOT be taxed on it.  And that is the sellers you are talking about that are simply selling stuff they have owned and want to get rid of, nothing more. 

But the moment that seller sells something for a friend or buys something [used or new] to sell on Ebay, that changes.  The money earned from these transactions are taxable.

While you state "I have been selling parts of my relative collections for their retirement and I won't declare that money." that doesn't make it true or appropriate.  You did not own this stuff and therefore this is taxable income, no matter what your opinion of the transactions are.  It is IRS that sets these rules, not us.

Make sure you do your research.  Next year the 1099K threshold significantly changes and it will definitely impact sellers such as yourself.

[1grandmashope_1]

@backhomeoutdoorz 

Time for all that have not been reporting their income to fess up and get with their accountants.  

As my Mama always said, 

"Two things are for sure,  death and taxes. "

It is not too difficult to find your way through setting up your business.  If I could figure it out, believe me, most can.

The very best to you today and throughout your journey, 

Grandma 

[chapeau-noir]

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@policequilts wrote:

I think part of the disputing here is that we are lumping all the sellers as businesses.

There are those that are selling as additional income/ or main income and those of us that are cleaning out the house or selling our collectibles for our "retirement" (the hobby sellers).

I put myself as a hobby seller and I have tons of clothing, from hand-me-downs, working and such. A huge horse collection, and a huge cat collection that I will be start selling because of retiring and no funds to retire on since a car accident 20 years ago.
I have been selling parts of my relative collections for their retirement and I won't declare that money.

Personally, I sort of look at it like the gift tax that, right now, you're allowed to give 15K without reporting it and that I am selling my own items to get me through retirement.

(I know, I not explaining my thoughts right.  Sorry about that. )

I have over 45 years of receipts since high school. 
I even have my stocking cap from 2nd grade and high school shorts & top (when the schools let the girls stop wearing those 1 pc rompers  Uggghhhh).

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It makes no difference - you're still cashing out assets (those items) and one pays taxes on it.  During lockdown I couldn't get inventory so I was selling the clothing out of my closet to keep going - I still paid taxes on those proceeds, you bet - I was also able to lawfully deduct expenses so my tax bill was a lot smaller. 

ETA:  And yes, those gym rompers were ugleeee.  I wore one, too.

[seperk]

" The last administration (2018) made a change to the tax rules that disallowed hobby sellers from deducting ANY expenses related to their hobby."
But NOTHING was taxed until you reached $20,000. All us small sellers are getting screwed! Most won't even be aware until they get that 1099-K next year. Lots of low income/middle income people are going to get a big surprise!

[seperk]

"but that DOES NOT mean you will have to pay income taxes on that money.  You will however have to take the time to learn the rules guiding this"
That is exactly his point! The "rules" are you have to prove to the IRS you didn't make a single penny on the item sold (once you reach $601). How is one prove this without a receipt or other proof?? From something you may have purchased several years ago. Yes, you can write-off the money but you need proof you took a loss!!

[victoriasecreteposhseller]

Hi! 

So I was a tax assessor for my state so I think I can help. If you don't know, basically, I was in am office in my state Capitol and I assessed property values, processed tax returns on that property and sent the tax bills to the sheriffs. I also have done my own business taxes for years. 

So, you only need to report earnings you  made that total 600 or more. They were going to make it harder but they decided IF the money that goes into your bank account already had federal and state taxes taken out then they do not care. 

Basically we have been supposed to report earnings anyway but here is the caveat: if you take a loss. Simple...as...that. 

Report that 800 you made or what Ever selling old things around the house. As long as you sold them for less than you bought them, thr it's will be like, ok. 

How does the IRS know? Well you are supposed to be honest when you file taxes and the IRS treats you that way. But...having to report ANY income that is not from an employer will flag you for an audit, possibly. So, if audited, show your ebay sales. You obviously are not selling your toaster as new. Or a pair of LV shoes as new.

Now, IF you are a flipper, don't lie. Say what you paid even if you did not keep that GW receipt. They are not that **bleep**. Guessing a little is fine. 

Also, I HAVE been audited. Every person I know who makes their own money has, at one point, been audited. Just don't lie. That's all tax assessors care about. File the forms. Do your best. If you don't know, try. Also the IRS can be called any day and they answer all your questions and show you where or what forms to fill out. And 100% of my interaction has been positive. They are not mean people who you should be afraid of as long as YOU do your best to be legal. I had to speak with people both making mistakes on purpose and accidentally. I never once escalated a thing. I found out that, even when they tried to lie, and got caught, they quickly pretended it was a mistake and "fixed" it. 

[victoriasecreteposhseller]

Don't get caught up in jargon. Taxes scared people to death. 

Breathe...and just file the proper forms and be honest. If you sold a bow from 2005 and you took a loss, just make sure what is going into your bank account from sales reflects your report. 

In essence, just do not lie. And don't get into depreciation or anything. If you bought it for 500 and sold it for 200 you took a 300 loss. Say so and all is well. If you don't know what you paid..guess. I am an avid high end shoe buyer. I can guess about whay I paid for a shoe or bag 20 years ago. I won't be right on the dot but thr IRS knows that. They are just asking us to try our best to be honest. That is all this is about.

[victoriasecreteposhseller]

The IRS had a limit in past years. It was that you could sell up to 20 grand and or so many transactions. I mean, if someone did that, they were paying taxes on it, it was likely a business. If not, that's not really going to be an issue with the new law. At any point those people could and would be audited. Home business income puts a target on you. 

[fern*wood]

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@seperk wrote:

But NOTHING was taxed until you reached $20,000. 

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Sure, if you didn't report your earnings under 20k, but you were supposed to. 

[keynesguy]

This is incorrect. Since the sales were at a loss, there is no net income, and thus no tax. If you get a 1099K, just note that sales were at a loss. Maintain records on the original cost, even if the records of the original cost are your best recollection.

[keynesguy]

Yes, IRS will accept your report that sales were at a loss. However, you should keep a record of your actual cost, even if the the records are based on your best recollection.  IRS is aware that most sales of old clothing etc and used household items are at a loss. There was informal IRS guidance some years ago on garage sales to that effect, but  I can't locate it at the moment.

[keynesguy]

Here it is:

"In a garage sale, you generally sell household items you purchased over the years and used personally. If you paid more for the items than you sell them for, the sales are not reportable" the IRS says.

https://www.cleveland.com/business/2016/06/when_you_have_a_garage_sale_do.html