The dreaded tax question...

[ace_corl]

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?

[ace_corl]

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@the*dog*ate*my*tablecloth wrote:

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.

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I was never talking about not filing taxes. I file taxes every year. My job is my source of income, not online sales where I’m selling personal items at a loss because I don’t want them anymore. 

[divwido]

Not for California. And this seller is in California.

[ace_corl]

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@luckythewinner wrote:

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.

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Ok...

Point #1 - No. I don’t own a business. 

#2 - No. I have no intention, nor do I have any delusion that anything I sell is going to sell for more than what I originally paid for it. 

#3 - No. I have a good career and I’m only liquidating personal items that I no longer want. 

#4 - No. Irrelivent. There is no business that I’m starting up. 

#5 - No. I’m not seeking profitability in the first place as this is not the source of income that I depend on. 

#6 - No. Irrelevant. There is no business. 

#7 - No. I haven’t sold anything in probably eight years. And then, as it will be now, I made no profit on 99% of what I sold. 

#8 - No. again, liquidating items at a loss. No profit. 

#9 - No. No profit is expected from the sales of the personal items that I have. They were not originally purchased to be ‘inventory’.  I was a collector at the time and it was my personal collection, acquired with no thought at the time about making money from the items in the future. Nor will I be looking to acquire new ‘inventory’ in the future for selling at a profit, for a business that I don’t have. 

I hope im understanding this, but it does seem fairly clear. 

[luckythewinner]

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@ace_corl wrote:

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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. 

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That may well be correct. 

But in your very first post, you said some items did sell for more than you paid for them, which is different than what you are saying now. 

If you are not a business, items that sell for more than you paid are capital gains rather than business income.

But unlike business income, capital gains cannot be offset by capital losses (except for investment property). So if you sell one item at $500 profit and ten other items at $5,000 loss, you still have $500 in capital gains. 

https://www.irs.gov/newsroom/ten-important-facts-about-capital-gains-and-losses

• Almost everything you own and use for personal purposes, pleasure or investment is a capital asset.
• When you sell a capital asset, the difference between the amount you sell it for and your basis – which is usually what you paid for it – is a capital gain or a capital loss.
• You must report all capital gains.
• You may deduct capital losses only on investment property, not on property held for personal use.

[csbbct]

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@luckythewinner wrote:

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@ace_corl wrote:

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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. 

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That may well be correct. 

But in your very first post, you said some items did sell for more than you paid for them, which is different than what you are saying now. 

If you are not a business, items that sell for more than you paid are capital gains rather than business income.

But unlike business income, capital gains cannot be offset by capital losses (except for investment property). So if you sell one item at $500 profit and ten other items at $5,000 loss, you still have $500 in capital gains. 

https://www.irs.gov/newsroom/ten-important-facts-about-capital-gains-and-losses

• Almost everything you own and use for personal purposes, pleasure or investment is a capital asset.
• When you sell a capital asset, the difference between the amount you sell it for and your basis – which is usually what you paid for it – is a capital gain or a capital loss.
• You must report all capital gains.
• You may deduct capital losses only on investment property, not on property held for personal use.

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You must have some kind of tax accounting background because all of your posts on this thread are right-on.  I used to work for a tax preparation company so I consider myself fairly knowledgeable in this area and cringe when I read some of the horrible tax advice on these community boards, but your advice is the most accurate I've seen.  Thanks for posting!

[sam9876]

"So, if I have $4,500 in sales for the year for items that I originally bought for $7,000, what do I report? "

Nothing.

[buyselljack2016]

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@mr_lincoln wrote:

@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.

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Many nice reports available from PayPal, but the best/easiest/most useful ones are only available if you have a PayPal "business" account.

[ace_corl]

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@luckythewinner wrote:

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@ace_corl wrote:

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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. 

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That may well be correct. 

But in your very first post, you said some items did sell for more than you paid for them, which is different than what you are saying now. 

If you are not a business, items that sell for more than you paid are capital gains rather than business income.

But unlike business income, capital gains cannot be offset by capital losses (except for investment property). So if you sell one item at $500 profit and ten other items at $5,000 loss, you still have $500 in capital gains. 

https://www.irs.gov/newsroom/ten-important-facts-about-capital-gains-and-losses

• Almost everything you own and use for personal purposes, pleasure or investment is a capital asset.
• When you sell a capital asset, the difference between the amount you sell it for and your basis – which is usually what you paid for it – is a capital gain or a capital loss.
• You must report all capital gains.
• You may deduct capital losses only on investment property, not on property held for personal use.

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So then there’s nothing to report on 99% of my sales that sell for less than I paid for them and then I need to provide paperwork to my tax preparer for the one out of 100 that actually sells for more than what I paid..?

I'm curious... Items I bought from stores, I have receipts. Items bought from private parties-secondary market at collectible shows, or mail order items like collector plates, I have no receipt. No way to prove what was paid for them. Then what? Even an item that went up in value and I paid double the price for would be an issue... For example, I buy a collector plate that has doubled in value to $70. I paid $70. I sell it now for $60. That’s $10 less than what I paid for it, but $25 more than it’s original issue price. How does that work?

[nobody*s_perfect]

The original issue price is irrelevant.

[7606dennis]

Actually, all income derived from selling on eBay should be reported as income on your Federal and State Income Tax returns.  Of course, accurate bookkeeping will allow you to deduct much of the cost involved in earning that income.

[7606dennis]

You might be better off consulting a tax professional than relying on the posters on these boards since everyone's tax situation is somewhat unique.

[westvillagecomics]

I think he's trying to find out if you can still file your shipping and fees expenses if you're under the $20,000 limit?

[kh-ornesh]

Hi everyone,

Due to the length of time that has passed since this thread began, we have locked it from future replies. If this is still an issue that warrants discussion, don't hesitate to begin a new thread HERE.

Thanks.