eBay

ace_corl · ‎07-30-2018

Sorry if this is going to rehash old information, but I'm only finding bits and pieces of the information I'm looking for...

I'm going to start selling again, after not selling for a number of years. In the past, it was before PayPal was required and I accepted Postal Money Orders. At the time, people didn't seem to mind and I received just about 100% positive feedback on hundreds of items sold.

Now, I'm going to be opening a PayPal account for selling and I've been investigating the issue of taxes. In the past, it wasn't really an issue - I sold DVDs, Laser Discs, various toys and collectibles. They were all my personal possessions that I no longer wanted. None were purchased specifically for resale and, with the exception of a handful of Inforcom computer games, every item I sold was a loss compared to what I originally bought them for. For example, a collection of collector plates that cost me $280 originally sold for $120.

I anticipate this being the case this time around as well. I have a large collection of Star Wars, Star Trek and other collectibles I'll be selling - Toys, action figures, plates, etc. And I'm fairly sure that none of them are going to sell for more than what I originally paid for them and they have been my personal possessions for years.

I will not be selling more than $20,000 a year - This is going to take a while and I can't do a lot at a time. I'm in California, so as far as I can tell, I won't be receiving a 1099k form, nor will I be selling anything for more than what I originally paid for it. It would take some work, but I do have a huge file folder of almost every reciept for everthing I'll be selling that I've been holding on to for many years now. I'm an individual liquidating a collection that I've had for years. Not a business.

In the past, it didn't seem to be an issue when I sold similar items, but now with a PayPal account, what should I be concerned about with taxes? Everything, I'm sure, is going to be at a loss and I won't sell enough to receive a 1099k, but do I still have to report it and sort thru all of the receipts and worry about claiming anything on my taxes?

mr_lincoln · ‎08-03-2018

@ace_corl One nice thing about PayPal (but that eBay has yet to confirm will be available with Adyen) is you can go to the History section and via date range settings create their CSV formatted database that can be opened in Windows Exel or other spreadsheet programs. You can sort by columns and obtain lists of all sold items, eBay invoices paid, PayPal Fees and more. This is very handy for tax reporting. I do this with two accounts, can download the entire year of activity for each one, maniputlate the spreadsheet, pull off the pertinenet info I need, combine the two sets of data and complete the Schedule C in 45 minutes.

Best regards,
Mr. Lincoln - Community Mentor

nobody*s_perfect · ‎08-03-2018

@ace_corl wrote:
As I understand it, the term ‘income’ would refer to any amount that I receive from a sale over the amount that I originally paid for the item..? If so, I honestly don’t think I’m going to have any income to report, as I don’t think anything I sell is going to sell for more than what I paid for it. I can certainly pull out the receipts and keep them with a copy of the auction just in case. At least for items that I purchased in a store. Items purchased at collectible and toy shows from vendors, I would not have receipts for and there’s nothing I can do about that.

As I read thru the posted information from various sites, it strikes me that the first step in determining a hobby from a business is having sales of over $20,000 and over 200 individual sales in a year. If I don’t meet that first criteria, which I absolutely will not, then I’m not considered a business. If I won’t receive a 1099k, because I won’t pass that threshold, and there’s no income to report, then I can’t see that I have anything to report. I mean, all I would have to report is a loss on my auctions. Is this correct?

You have to report profits whether you are a business or a hobby. And the 1099-K is NOT how that distinction is made anyway. Those thresholds only mean that PayPal must send you (and the IRS) a 1099-K. A seller who takes in $10K and has $8K in expenses is still supposed to file a Schedule C and report that net $2K.

In determining whether you have made a profit, you deduct not only the original purchase price of an item, but also all of your other sales-related expenses such as eBay and Paypal fees, postage, etc. If your purchase price exceeds the selling price, then the other expenses are moot, that's why they weren't mentioned.

The main difference between business and hobby is intent to make a profit. If you chronically have a net loss then that is a hobby and you CANNOT use your losses as a deduction against other income.

By reading assorted random internet pages (including, alas, eBay discussion boards) you are exposing yourself to a lot of confusion and misinformation. You should focus on reading the information from the IRS.

tsme35 · ‎08-03-2018

Don't forget to figure in shipping, paypal doesn't sort out taxes or shipping when they file a 1099, it reports total money coming in to IRS. Shipping can add up quickly, post office is making **bleep** near more then I do now

luckythewinner · ‎08-03-2018

As I understand it, the term ‘income’ would refer to any amount that I receive from a sale over the amount that I originally paid for the item

Absolutely not! What you are describing is profit, not income. Income is money that came in, period. From any source, and for any reason.

Consider a widget you sold on eBay for $500 with $50 shipping that costs you $40 to pack and ship and it originally cost you $100

Your income is $550

You have a postage expense of $40

You have a cost of goods sold of $100

You have an expense for eBay and PayPal fees of about $85

--------

You have a profit of about $325

The thing that trips most people up is that a 1099K includes all income, even money that you received that has absolutely had nothing to do with your business or hobby. A 1099K is just a raw report of the all money you received, and it is your job to explain it on your tax form.

For example, you might get a 1099K that says you received $25,500 in 200 transactions during the year. It might consist of:

$10,000 in rent:

this is business income for your rental property business

$5,000 in eBay sales:

this might be business income if you are a business, or hobby income if you are a hobby, or a capital gain if you are not a business but you sold an appreciated asset

$5,000 from your child to pay back college loans:

this is income, but not business income

$500 from a friend to reimburse you for Springsteen tickets you bought for him:

this is income, but it is not business income

$5,0000 insurance settlement:

this is income, but not business income

As I read thru the posted information from various sites, it strikes me that the first step in determining a hobby from a business is having sales of over $20,000 and over 200 individual sales in a year

Absolutely not! That threshold is the limit that congress set for requiring PayPal to send a 1099K. A 1099K itself does not determine whether you are a business or a hobby - that is determined by have you behave, not how much you sell and the IRS sets those rules. There is no threshold that determines whether you are a business or a hobby - that is determined entirely by how you operate your eBay sales.

I think I gave you a link in my previous post from the IRS itself that explains how the IRS distinguishes a hobby from a business from a capital gain. Ignore it at your peril.

If I won’t receive a 1099k, because I won’t pass that threshold, and there’s no income to report, then I can’t see that I have anything to report. I mean, all I would have to report is a loss on my auctions. Is this correct?

Absolutely not!

You are correct that you may not have any business income to report, but the logic you presented is faulty.

Again, the thresholds you mentioned have nothing to do with determining whether you are a hobby or a business. Whether you are a hobby or a business is determined by how you behave, not how much you sell.

If you are a business, you would still have to report your income and expenses even you did not meet the 1099K threshold - even if you made no profit.

the*dog*ate*my*tablecloth · ‎08-03-2018

@ace_corl

IIRC the number sometimes quoted for a guideline between hobby and business is $600. That coincides with the new 1099 requirement from some states to require a 1099 over $600 in income. Income is your incoming money before any deductions.

So I live in MA and got a 1099 for less than $20k in sales. Do you think that now means I have to pay tax but didn’t before. No. You cannot use the presence or Absense of a 1099 for any guidance for whether you have to file.

Now that most payments are made online it’s only a matter of time before all these tax cheats are caught. The irs can go back years with interest and fines. File your taxes.

nobody*s_perfect · ‎08-03-2018

@the*dog*ate*my*tablecloth wrote:
@ace_corl

IIRC the number sometimes quoted for a guideline between hobby and business is $600. ...

There is no such threshold. That's not what the definition is based on. In post #12, luckythewinner posted some very useful links to IRS web pages, including one with an extensive discussion of "Hobby or business?"

the*dog*ate*my*tablecloth · ‎08-03-2018

It used to be a guideline. I didn’t say threshold. I believe it used to be on the irs site. It just means that the dividing line between hobby and business is much much lower than the poster thinks.

nobody*s_perfect · ‎08-03-2018

I'm pretty sure there is no "dividing line".

the*dog*ate*my*tablecloth · ‎08-03-2018

You are arguing semantics.

The important ant thing is that the poster should file taxes whether they get a 1099 or not and that the 200 sales and $20k is not meaningful as far as whether you file taxes or not.

nobody*s_perfect · ‎08-03-2018

@the*dog*ate*my*tablecloth wrote:
... The important ant thing is that the poster should file taxes whether they get a 1099 or not and that the 200 sales and $20k is not meaningful as far as whether you file taxes or not.

Yes, those are the important points.

But the other thing isn't about semantics, because the point is that ANY profit is reportable and the idea of a dollar amount being relevant to distinguishing between hobby vs business is irrelevant regardless of the exact wording.

luckythewinner · ‎08-03-2018

IIRC the number sometimes quoted for a guideline between hobby and business is $600.

Directly from the IRS:

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

Question

How do you distinguish between a business and a hobby?

Answer

In making the distinction between a hobby or business activity, take into account all facts and circumstances with respect to the activity. No one factor alone is decisive. You must generally consider these factors in determining whether an activity is a business engaged in making a profit:

Whether you carry on the activity in a businesslike manner and maintain complete and accurate books and records.
Whether the time and effort you put into the activity indicate you intend to make it profitable.
Whether you depend on income from the activity for your livelihood.
Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
Whether you change your methods of operation in an attempt to improve profitability.
Whether you or your advisors have the knowledge needed to carry on the activity as a successful business.
Whether you were successful in making a profit in similar activities in the past.
Whether the activity makes a profit in some years and how much profit it makes.
Whether you can expect to make a future profit from the appreciation of the assets used in the activity.

Not a word about any dollar amount as a threshold.

the*dog*ate*my*tablecloth · ‎08-03-2018

They don’t use it now. I was not clear that they used to use it. Now they use the nine guidelines.

ace_corl · ‎08-03-2018

@nobody*s_perfect wrote

You have to report profits whether you are a business or a hobby. And the 1099-K is NOT how that distinction is made anyway. Those thresholds only mean that PayPal must send you (and the IRS) a 1099-K. A seller who takes in $10K and has $8K in expenses is still supposed to file a Schedule C and report that net $2K.

I’m not a business by any definition on the IRS site, so I can’t claim losses. That is all I am going to have. I am converting personal items that I’ve owned for, in some cases, over 20 years into whatever amount of money that I can get for them. Based on my research, I’m 100% sure that nothing is going to sell for more than what I originally bought it for. It will all be at a loss.

So, if I have $4,500 in sales for the year for items that I originally bought for $7,000, what do I report? I won’t have enough sales for either the IRS or me to receive a 1099k form and I’m not a business so I can’t report or take any advantage from reporting losses.

From the IRS Site....

”Online Garage Sales

If your online auction sales are the Internet equivalent of an occasional garage or yard sale, you generally do not have to report the sales. 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. Losses on personal use property are not deductible, either. However, see Sales of Appreciated Assets at an Online Auction below for gain reporting.”

As I’m reading this, this appears to be my exact situation. I’m picturing a situation where I print out all of my paperwork, proving all of my sales were losses, and my tax preparer giving me a blank stare.

ace_corl · ‎08-03-2018

@luckythewinner wrote:
As I understand it, the term ‘income’ would refer to any amount that I receive from a sale over the amount that I originally paid for the item

Absolutely not! What you are describing is profit, not income. Income is money that came in, period. From any source, and for any reason.

Consider a widget you sold on eBay for $500 with $50 shipping that costs you $40 to pack and ship and it originally cost you $100

Your income is $550
You have a postage expense of $40
You have a cost of goods sold of $100
You have an expense for eBay and PayPal fees of about $85
--------
You have a profit of about $325

The thing that trips most people up is that a 1099K includes all income, even money that you received that has absolutely had nothing to do with your business or hobby. A 1099K is just a raw report of the all money you received, and it is your job to explain it on your tax form.

For example, you might get a 1099K that says you received $25,500 in 200 transactions during the year. It might consist of:

$10,000 in rent:
this is business income for your rental property business
$5,000 in eBay sales:
    this might be business income if you are a business, or hobby income if you are a hobby, or a capital gain if you are not a business but you sold an appreciated asset
$5,000 from your child to pay back college loans:
   this is income, but not business income
$500 from a friend to reimburse you for Springsteen tickets you bought for him:
   this is income, but it is not business income
$5,0000 insurance settlement:
   this is income, but not business income

As I read thru the posted information from various sites, it strikes me that the first step in determining a hobby from a business is having sales of over $20,000 and over 200 individual sales in a year

Absolutely not! That threshold is the limit that congress set for requiring PayPal to send a 1099K. A 1099K itself does not determine whether you are a business or a hobby - that is determined by have you behave, not how much you sell and the IRS sets those rules. There is no threshold that determines whether you are a business or a hobby - that is determined entirely by how you operate your eBay sales.

I think I gave you a link in my previous post from the IRS itself that explains how the IRS distinguishes a hobby from a business from a capital gain. Ignore it at your peril.

If I won’t receive a 1099k, because I won’t pass that threshold, and there’s no income to report, then I can’t see that I have anything to report. I mean, all I would have to report is a loss on my auctions. Is this correct?

Absolutely not!

You are correct that you may not have any business income to report, but the logic you presented is faulty.

Again, the thresholds you mentioned have nothing to do with determining whether you are a hobby or a business. Whether you are a hobby or a business is determined by how you behave, not how much you sell.

If you are a business, you would still have to report your income and expenses even you did not meet the 1099K threshold - even if you made no profit.

Ok, but I’m not a business. I don’t have business expenses. I have a collection of Toys and other personal items that I’m selling at a loss, maybe a big loss depending on the items. I don’t fit the IRS’s definition of a business in any way.

ace_corl · ‎08-03-2018

@the*dog*ate*my*tablecloth wrote:
@ace_corl

IIRC the number sometimes quoted for a guideline between hobby and business is $600. That coincides with the new 1099 requirement from some states to require a 1099 over $600 in income. Income is your incoming money before any deductions.

So I live in MA and got a 1099 for less than $20k in sales. Do you think that now means I have to pay tax but didn’t before. No. You cannot use the presence or Absense of a 1099 for any guidance for whether you have to file.

Now that most payments are made online it’s only a matter of time before all these tax cheats are caught. The irs can go back years with interest and fines. File your taxes.

I always filed my taxes. I just can’t see anywhere on the IRS site where I’m supposed to report my small, all loss sales.