The IRS is charging me for eBay sales

[mydisneylife200]

I received a letter in the mail today from the IRS claiming I owe thousands in taxes for stuff I sold through eBay. 

Anyone else receive a letter like this?? 

If this is the case I think I am done with eBay… I own thousands in collectibles which I purchased from many retailers and paid taxes upon purchasing. I sold stuff on eBay that I no longer wanted to collect with the money gain I purchased other collectible for my current interests.  I think from now on I rather sale through garage sales or on platforms where people meet up and pay cash. 

[mobley120]

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@mydisneylife200 wrote:

The letter claims I owe taxes for sale from 2019, I honestly didn’t know about any of these taxes since I have sold on eBay for years and never encountered a situation like this. 3rd party, PayPal reported to the IRS that I sold over 40,000 in sales now I owe over 13,000 in taxes and its due within a month. I don’t know how I’m going to get 13,000 in a month. 

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I don't quite understand how anyone has the knowledge to buy and sell, and especially online, yet fails to understand taxable income...

It sounds like the 40k is simply 2019's revenue from your denied business.  You'll have to established your net profit; that will be your taxable income... It'll take a bit of work, but it's really not that bad, and if I understand you correctly, you're only addressing one year, 2019 at this juncture...

Shipping cost will be an easy one to gather up the needed receipts for proof of cost.

If you purchased your merchandise and shipping supplies by checks or  a CC, then gathering that proof of cost will not be difficult, either. 

Look, some estimates: your shipping cost will probably be at least 1/4 of the 40k, if not more... And, by a quick look at your goods, the overall projected profit margin on that type of merchandise, is probably around  35%,  so with that said, and with the overhead cost in mind, your taxable income will probably be around 9 to 11k, and that will be added to your regular income, and by looking at your business, you obviously have another income, meaning your owed taxes will probably be no more than a thousand or so... 

Talk to the IRS rep; ask for an extension to be able to file an amended 2019 return; they will grant you that extension. Then gather up all needed info and documents, then you can either file the amended return, yourself, or you can take all info to a tax consultant, of your choice, and have them file the 2019 amended return, or you can take the very high road: hire a tax lawyer, but I don't believe that's necessary, 40k in revenue, is really not a lot of money...

Good luck

[mkaczorsee]

Did you not file your eBay income on your taxes?

Hope you have a good accountant. 

[onc88]

Don't blame ebay-they are following the law by reporting your sales to the IRS.  You need to learn about taxes, profit and expenses.

Any sale that shows profit is taxable by the IRS, and your state.  There are no exceptions.  Not garage sales, not flea markets, not Craigslist.  If you do not report those types of sales, it is called tax evasion.  The way to avoid tax evasion is to claim your sales and legally reduce your profit by showing numerous expenses when you file your taxes.  Car expenses, cost of goods to sell, ebay fees, office equipment, internet fees, even, sometimes, the cost of your health insurance and retirement contributions-all could be deductible expenses reducing your profit and your income tax on your sales.

Google small business deductions for a general idea of what deductions are available, then get a good accountant/CPA.

[releasethekraken_1]

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@mydisneylife200 wrote:

The letter claims I owe taxes for sale from 2019, I honestly didn’t know about any of these taxes since I have sold on eBay for years and never encountered a situation like this.

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Oh, boy. If you've been selling here for years, and never reported the income, your troubles are just starting. The IRS will probably look at all of your eBay sales before 2019 and ding you for them too.

Wow.

[maxine*j]

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@mydisneylife200 wrote:

The letter claims I owe taxes for sale from 2019, I honestly didn’t know about any of these taxes since I have sold on eBay for years and never encountered a situation like this. 3rd party, PayPal reported to the IRS that I sold over 40,000 in sales now I owe over 13,000 in taxes and its due within a month. I don’t know how I’m going to get 13,000 in a month. 

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You are a literate adult.  You have access to the internet obviously and, I assume, to radio, television, newspapers, books, and other sources of information, including conversations with friends and family.  You have run a successful business on eBay for several years.  Yet you didn't know about income tax until you got a letter from the IRS?  I cannot believe that and, for your own sake, do not try to make an IRS agent believe it. 

=

[frock_my_world]

It is too bad that folks like yourself are subject to reporting funds that go through payment processors as income as you more like a collectible trader.  Problem is, you must either collect some rather expensive items and/or do a lot of collecting/selling to meet that threshold, hence, you get lumped in as a legitimate re-seller doing business online. 

When operating as a legitimate business, there are so many things the IRS allows us to legitimately write-off as business expenses.  Hence,  the amount that finally get entered as "profit" and tax expected to be paid on, is no where near the amount reported on the 1099.  I mean, just the taxes ebay collects shipping are a HUGE chunk.....

[kensgiftshop]

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@mydisneylife200 wrote:

The letter claims I owe taxes for sale from 2019, I honestly didn’t know about any of these taxes since I have sold on eBay for years and never encountered a situation like this. 3rd party, PayPal reported to the IRS that I sold over 40,000 in sales now I owe over 13,000 in taxes and its due within a month. I don’t know how I’m going to get 13,000 in a month. 

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The daily interest they charge adds up quick also.

[coastaltechsolution]

Yup square the IRS away before the interest kills you 

[slippinjimmy]

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@mydisneylife200 wrote:

The letter claims I owe taxes for sale from 2019, I honestly didn’t know about any of these taxes since I have sold on eBay for years and never encountered a situation like this. 3rd party, PayPal reported to the IRS that I sold over 40,000 in sales now I owe over 13,000 in taxes and its due within a month. I don’t know how I’m going to get 13,000 in a month. 

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First thing, you need a CPA/Tax Lawyer, not just a regular bookkeeper/accountant but someone who specializes in delinquent accounts.

If $40,000 was your gross revenue in 2019, your final taxable income should be MUCH lower and depending on your other income that $13,000 might end up being just a couple of thousand.

Many years ago (when I was truly foolish) I received a similar letter, the amount demanded was over half a million Dollars, after putting together all the paperwork and having an auditor hanging around my office for two weeks it all ended with a settlement of less than $5000.

$40,000, less fees, less shipping cost, less other expenses, less cost of goods, you might be able to get that taxable amount down to $10,000 or less, depending on your other income the actual taxes owned might be a couple of thousand instead of $13,000 and if you have little additional income it's possible to get it down to almost zero.

Your NEED a pro to help you with this, otherwise you will be paying a lot more than you need to.

[chapeau-noir]

Hope the OP comes back or at least reads this - the situation is fixable now but time is of the essence.  Hopefully they're gathering receipts and making some enquiries.  It doesn't matter what they *didn't* do earlier - that's past and done, it *does* matter what they do now and going forward.

[7606dennis]

My advice is to seek competent legal advice.

[theteamsetguy]

First of all you will have to determine whether you want to file as a hobby or business. Below is a link from the IRS website with tips on this subject.

 https://www.irs.gov/newsroom/hobby-or-business-irs-offers-tips-to-decide

Next, you will need to find a competent tax expert to help you file amended tax returns for 2019, 2020, and any other years you didn't claim your hobby/business income. If you sold in 2020 a similar amount I'm sure  Ebay/Paypal reported your income to the IRS also. I'm sure you will be hearing from them once they get to it. At this point even if you didn't get a 1099 for sales prior to 2019 I would strongly suggest you file amended returns for the years you had hobby/business sale. If I were the IRS would be wanting to audit your prior returns as you now are on the radar.

There are advantages to filing as a hobby versus a business. If filing as a hobby you will not have FICA tax which is 15.30% (7.65 times 2) in addition to your federal and state income tax. As a hobby you will have fewer deductions you can take. If you file as a business you can deduct any losses against your ordinary income. You will be able to deduct contributions to a SEP IRA, take home office deduction, and etc.  

[varebelrose]

You can run reports for an entire year through Paypal, paste the info into a spreadsheet, and then easily sort out deductible things such as Paypal and eBay fees, shipping, etc.

[bearswatching]

When we were in the workforce, for years we used an enrolled agent.  Honest as they come but made sue we didn’t pay one more penny than exactly what we owed. Waaay cheaper than a CPA. He knew tax law backwards and forwards.

[evry1nositswindy]

Read the instructions for Schedule C.  It will give you information on all the deductions you can take for your business:  mileage, postage, eBay fees, PayPal fees, cost of goods, ink, paper, tape...