eBay

jaycapz · ‎12-13-2022

Hey all,

I know this has been asked in different ways within the forum, but I'm not clear on the answers I've seen regarding the revised tax rules.

1) I sell a mix of used items such as personal used clothes and other household items. These are items I purchased for myself, used and sold. I also buy and sell items for resale, but I only sell a couple of these items a month (smaller it's like bags and such and sales are usually under $100-200 total). I'm still not sure if this qualifies me as a hobby or business, but I do also report these items differently? Meaning, would I report the used household items separately from the new items for resale? Meaning, a mix of hubby and business? Ive seen class C form thrown around, but I'm not clear if it all gets lumped together.

2) Also, to calculate any income/gains from the personal used items sold. I do not have receipts, do I use fair market value based on what I paid new at time of purchase or what it's currently worth new (if I could find that)?

I appreciate your input. Ultimately, I'll probably reach out to an accountant since I normally file my own taxes using TurboTax. Just looking to get prepared for the mess I'm in for.

Jason

monica-sells · ‎12-13-2022

at least you are thinking about it logically....

it is not a mess if you approach it with an open mind......

for most of us, there is no need to "separate' the cost of goods..

there are however, instances where you can use the tax laws to your benefits (such as my tax guy did 2 years ago)

I sold about 60 or 70 items as a side hustle....had stuff I bought strictly to resell as well as some stuff that had been laying around the house. I kept all my receipts for stuff i bought to resell, and determined FMV for some other items. Some went on Sch C and some went somewhere else on my 1040 that no longer exists.

The big thing that saved money was isolating 1 sale of a 12,000 item (my Les Paul guitar) and filing it under capital gains (Long-Term) schedule. (favorable tax rate)

So, to answer your question, yes, my online sales were reported in 3 different places on my tax form, and it is a great idea to use a tax pro to get an idea of how to file and prepare for next year. I do not believe the 'hobby' classification will fly anymore...but why not use the advantages of Sch C?

luckythewinner · ‎12-13-2022

I'm still not sure if this qualifies me as a hobby or business

If you buy items for resale, you are a business.

would I report the used household items separately from the new items for resale?

New or used alone does not determine how an item is reported.

to calculate any income/gains from the personal used items sold. I do not have receipts, do I use fair market value based on what I paid new at time of purchase or what it's currently worth new

Capital gains taxes are probably higher (28 percent) than business taxes, so I report them all as part of my business. For capital gains you subtract your cost basis from the sale price. If you do not know your cost, estimating it could be dangerous.

jaycapz · ‎12-13-2022

Thanks for the feedback, this makes sense. Sounds like I can lump all together, the used clothing for example as a business would be more tax advantageous since it would be sold at a loss. For used items, do you use an estimate for the cost basis? I'm trying to figure out if this is what I assume I paid at time of purchase, or am I using estimate based on what that item might be worth now?

jaycapz · ‎12-13-2022

I'm still not sure if this qualifies me as a hobby or business

If you buy items for resale, you are a business.

I read there is more to the rules than just buying and reselling items, such as taking a profit for 3+ years, potentially how much time you spend buying/selling, etc.

would I report the used household items separately from the new items for resale?

New or used alone does not determine how an item is reported.

I read you report them in different places on your return.

brabutfa-0 · ‎12-13-2022

Income is income, it reports as such.

luckythewinner · ‎12-13-2022

I read there is more to the rules than just buying and reselling items, such as taking a profit for 3+ years, potentially how much time you spend buying/selling, et

You asked for input and I gave you input. What you do with that input is up to you.

I read you report them in different places on your return.

You asked for input and I gave you input. What you do with that input is up to you.

onefootflipper2 · ‎12-13-2022

I lump all mine into schedule C. You always want to be a business, you never want to be a hobby seller.

The IRS never sees your own internal bookkeeping unless you get audited. They see cost of goods sold, and various expense and deduction categories with absolutely no details at all.

For part time pickers doing a few thousand a year and lumping in personal items at a loss it can actually be super easy to get schedule C down to a loss every year. You don't want to do this. If you report a consistent loss year after year the IRS will want to reclassify you as a hobby seller. Most people won't have the sort of tax situation where they could even benefit from that loss so it is better to just report a teeny tiny profit than a loss. Just don't claim every expense that you could if it was going to result in a loss.

There are multiple good youtube videos on taxes for resellers. I keep my own records and just use the Turbotax self employed edition.

jaycapz · ‎12-13-2022

Thanks for this, if it were a preference I would say business but I was more concerned if I were audited and how IRS would view it. Considering more than half of what I do sell are items i've purchased to resell for a profit, but we know its not a matter of what we think. Uncle sam wants his cut. So it sounds like its safe to go with the majority on how you sell, so in my case its for profit so lump it together.

This was all very useful, thanks for taking the time to reply. I think the last little bit of confusion where I'm lost is on the cost basis of my items. If I lump in my used clothing, I need to figure out what is being used for cost basis if I don't have the original receipts. Some say to guess, I did find a fair market calculator but its going based on present value. Not sure if thats accurate, or if I should use what the assumed value was at time of purchase.

onefootflipper2 · ‎12-13-2022

@jaycapz wrote:
Thanks for this, if it were a preference I would say business but I was more concerned if I were audited and how IRS would view it. Considering more than half of what I do sell are items i've purchased to resell for a profit, but we know its not a matter of what we think. Uncle sam wants his cut. So it sounds like its safe to go with the majority on how you sell, so in my case its for profit so lump it together.

This was all very useful, thanks for taking the time to reply. I think the last little bit of confusion where I'm lost is on the cost basis of my items. If I lump in my used clothing, I need to figure out what is being used for cost basis if I don't have the original receipts. Some say to guess, I did find a fair market calculator but its going based on present value. Not sure if thats accurate, or if I should use what the assumed value was at time of purchase.

If you are attempting to make money then you are a business.

Your audit chance is extremely small and doesn't result in automatically owing tax as if all your items were free.

Since 99 percent of any personal items you sell are going to be used / depreciated and sold at a loss I tend to just use what they sold for in the first place as fair market value for cost basis. People will argue over things like this endlessly and in the end it doesn't matter much at all. The IRS is absolutely not interested into delving deep into your couple thousand a year in sales. There is no money in it for them.

Full time reseller records are absolutely full of cash buys on their records for loosely defined items with no receipts, that is absolutely normal for this sort of business. My records have entries like $123 "Hockey stuff", $846.12 Magic Cards. What the IRS auditors are really looking for are numbers that are out of the ordinary for the sort of business. Such as someone who does $100,000+ in sales and reports $56 in profit and then does the same thing the next year and the next year.

So, keep records, be consistent and in the rare case of an audit you won't have all that much to worry about.

onefootflipper2 · ‎12-13-2022

A lot of resellers also just add old personal items to their records with no distinction that they were personal items in the first place. Once you actually get going then you will end up with almost no personal items sold anymore anyway. I had a ton my first year and it is close to zero now.