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.  

[thestickperson]

I think you have me confused with someone else.  I'm new to the conversation and I'm just trying to square away the different sources I've seen.

There seems to be two competing recommendations that would have very different tax implications:

1) ebay sales of personally owned items are capital sales:

In this case I would file an 8949 (with box f checked?) and fill in the initial cost of an item as the cost basis and the amount received from ebay as the proceeds. I'm assuming that losses can then offset gains within a single tax year, but cannot contribute to carryover? In that case could all ebay sales be bundled with the total cost basis rather than trying to file for each individual item?

2) ebay sales are "hobby" sales:

I have seen advice (specifically from Turbotax) saying that 1099k income from ebay sales would have to be reported on Schedule C, which would make it self-employement rather than investment income and remove the ability to directly report the cost basis.  However, the instructions for Schedule C specifically say not to use it for hobby sale income, and says to refer to Schedule 1 line 8i.  Annoyingly S1 8i just says to read publication 535, which doesn't actually give any instructions for additional filing, but presumably you would just enter the total proceeds on 8i and pay employed income tax rates on the whole amount.  Unless I'm missing something, there's no way to report initial costs here.

[keynesguy]

Your number 2 scenario is not a hobby sale if the sales are of your used personal goods e.g your old sport coat below what you paid. (Note: Personal use/consumption items such as used clothing are not treated as capital goods, but as ordinary goods.) The reason they send you to Pub 545 is to read the section on cost of goods. Those are always subtracted from gross sales proceed. You enter a negative number elsewhere on schedule 1 (can’t remember the line) to account for the up to the amount of the 1099k proceeds.  No loss may be taken against other income. 

Your Scenario 1 applies only to sales of goods you bought for the purpose of reselling. If the intent is to make a profit, it’s unlikely to be characterized as a hobby in typical eBay scenarios. It is reported on schedule C as self employed business income. Losses should be  deductible against other income under the business presumption tests for most eBay scenarios. 

[mam98031]

@thestickperson 

I simply responded to your post to me.  I do not believe I have you confused with anyone, I simply responded to what you said.

There are NOT "competing recommendations".  There are two types of ways the IRS looks at there are those that sell their personal preowned items and those that purchase things for resale on the marketplace.

https://www.irs.gov/faqs/small-business-self-employed-other-business/income-expenses/income-expenses

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

https://pages.ebay.com/seller-center/service-and-payments/2022-changes-to-ebay-and-your-1099-k.html

Your questions:  1. No, 2. Yes for some sellers and no for others.

[dbfolks166mt]

Zoombie thread. The OP is 5 months old with 300+ replies that have spun off in so many directions it's impossible to follow.

[keynesguy]

“2. Yes for some sellers and no for others. “

And the “others” are who?

[mam98031]

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@keynesguy wrote:

“2. Yes for some sellers and no for others. “

And the “others” are who?

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@keynesguy 

"I have seen advice (specifically from Turbotax) saying that 1099k income from ebay sales would have to be reported on Schedule C,"  That is true for some sellers and not for others.  

[poppykiote]

It' s lousy that we can't get a little money back on our old items or items that were too expensive to return because it is seen as income.  Little people just can't catch a break in this world.  I was using what little I made to go towards supporting some dogs we rescued that were dumped on some property my friend was hunting on and the owner said the dogs had been dumped there.  One of them needs dental work; but, I guess that won't be happening any time soon.  I can't believe how much Ebay says a person makes when they know full well that Paypal & Ebay are taking a substantial amount of money out on fees and shipping.  I guess I will donate my old property and hope things get better... But, I somehow doubt it.

[mam98031]

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@poppykiote wrote:

It' s lousy that we can't get a little money back on our old items or items that were too expensive to return because it is seen as income.  Little people just can't catch a break in this world.  I was using what little I made to go towards supporting some dogs we rescued that were dumped on some property my friend was hunting on and the owner said the dogs had been dumped there.  One of them needs dental work; but, I guess that won't be happening any time soon.  I can't believe how much Ebay says a person makes when they know full well that Paypal & Ebay are taking a substantial amount of money out on fees and shipping.  I guess I will donate my old property and hope things get better... But, I somehow doubt it.

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@poppykiote 

This is a very long thread and it has been explained many times that your opening statement is NOT true.  You are assuming something that is not accurate.

If you are only selling stuff from around your home that was already yours, it is unlikely that you will owe any additional income taxes.

Ebay takes 12.9% which is not a "substantial" amount.  They give you a site to post your listings on with all the visibility it offers and they process your money.  They deserve to be paid for services rendered.  For sellers, we can't use Paypal anymore, buyers can but sellers can't.  Ebay now does our money processing.  As for shipping, those rates are set by the carrier you choose to use and is NOT something Ebay keeps, it is given to the carrier.

Ebay NEVER states how much ANYONE has "earned".  Ebay is required by LAW to create a 1099K that reports to the IRS your Gross Receipts.  That is NOT the same as income.  Gross Receipts is BEFORE you subtract for refunds, product costs, fees, shipping and all other costs to arrive at your net income.

I encourage you to research this and learn what this actually means to you if you are only selling your own stuff.  You have lots of time and you will likely find out that it will not impact your income taxes owed.

[keynesguy]

@poppykiote If you are selling for less than you paid, which seems to be the case with you, you won't owe any tax. While you must report the 1099K on your return, your net 1099K proceeds are reduced to $0 by the cost of goods.

[jdfws]

So I get that if you’re selling your old stuff and not making a profit from what you originally paid you will not need to pay income tax, but tell me how many people keep receipts of all their old stuff and/or remember exactly what they paid? Will the IRS really just take our word without a receipt? 

[mam98031]

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@jdfws wrote:

So I get that if you’re selling your old stuff and not making a profit from what you originally paid you will not need to pay income tax, but tell me how many people keep receipts of all their old stuff and/or remember exactly what they paid? Will the IRS really just take our word without a receipt? 

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@jdfws 

Most people don't.  The IRS has instructions on this if you don't have receipts.  The IRS is NOT trying to get people to pay income taxes on these types of sales, but you do need to do your homework and learn how this works so you can best protect yourself.  Because if you get a 1099K for 2023 you will need to put these sales on your Federal income tax reports, you may not owe any additional taxes, but you do have to report it.

So you have a few months to take your time and learn how to handle this.  The place to start may be at the beginning of this very long thread as these questions have been answered MANY times on this thread.  There are some very good links too that you can learn from.

[keynesguy]

Where specifically in the IRS code, Rev Rulings, or Publications  are the "instructions" you refer to?

[dbfolks166mt]

Zombie thread. OP is 7 months old and has over 341 replies. Difficult to follow. 

[mam98031]

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@keynesguy wrote:

Where specifically in the IRS code, Rev Rulings, or Publications  are the "instructions" you refer to?

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@keynesguy 

As I told the other poster they have been posted MANY times on this thread already, you just need to review the thread.  I've personally provided information on this thread.  

Here is some.

https://www.1040.com/blog/2019/7/12/selling-stuff-online-taxes-for-etsy-ebay-letgo-and-more/

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

https://www.ebay.com/sellercenter/payments-and-fees/2022-changes-to-ebay-and-your-1099-k

https://news.bloombergtax.com/tax-insights-and-commentary/new-form-1099-reporting-coming-in-2022

https://www.irs.gov/pub/irs-pdf/i1099k.pdf

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

[keynesguy]

Thanks you for putting together that list. However, @jdfws  (and many others) asked "Will the IRS really just take our word without a receipt? " The materials you listed  do not specifically address the question of "receipts" as far as I can tell.