What if your a seller who lost money selling on eBay, how do you report that when filing taxes?

[bigdicebuddha]

Let's say I had payouts totaling $20k, but the cost I spent on said inventory was $21k, how do I report this? Thank you in advance for any help or guidance.

[stainlessenginecovers]

See IRS Publication Schedule C or have a tax person do that schedule for you. 

Note that you should have receipts for the original cost for all items sold so when you are audited, you have something to show the IRS agent. 

[ittybitnot]

@bigdicebuddha 

I think cost of goods expenses go on Schedule C along with sales expenses.   Best to consult a tax professional. 

[iart]

Contact an accountant.

But be very careful about showing a loss that cuts into other income (like a paycheck). That's asking for an audit.

[powell-memorabilia]

It is not a given that you’ll be able to deduct that loss from your expenses.  You’d have to be operating as a business to do so.  I’d expect that showing a loss Woolf look hinky to the IRS.  Business start up losses are common, but losing money on eBay - if at that scale - isn’t.  

[ittybitnot]

Just a comment in general.  

If they want monies over $600 reported as income, the expenses for earning that should be allowed as well, no?   Or  is one expected just to pay taxes on the whole amount in the 1099K which includes shipping amounts as well to avoid looking fishy?    Seems to me expenses are allowed to be deducted, which might make the gov't entities sorry they ever insisted in the first place. 

[divwido]

Schedule C is accounting.  I spent this, I sold for this, my fees were this, my expenses......  It should be kind of obvious.

[bigdicebuddha]

If I add up everything, cost of goods and shipping, I lost money. Very little bit but still it was in the negative. So I am unsure of how to "file", I dont really care about deducting "business" expenses but will If I have to in order to not have to pay more taxes. I just wondering how to file and where and if it absolutely has to go to a tax prep place? I have my receipts all in order so i'm not worried about an audit in that sense, just wanna make sure I do the right thing but wondering if a loss like this causes more loss via taxes.

[divwido]

Maybe not last year.  Did anyone profit in the end?

[coastaltechsolution]

Yes and if you are not claiming expenses and other deductions (mileage, office space, internet, phone and more) then you are just flushing could be saved money down the drain and it is not "Fish" or raise IRS eyebrows for an audit. That is why the deductions are on the books so please use them 

[simply-the-best-for-you]

On your schedule C.   We do our own.  It's not necessary to go to a place, but if you've not done it before, you may want to.   Honestly, what is the most helpful, if you haven't filed before, just to to IRS website & read the schedule C & many of your questions will be answered just by reviewing it & the instructions. 

[bigdicebuddha]

No we didn’t profit. 

[coastaltechsolution]

@bigdicebuddha 

I get a W-2 and also have a business and eBay, that is what a schedule C is for - showing profit and deductions

up to the person filing if they feel comfortable enough or feel they nee/want to go to a tax specialist, not always a bad idea first time or so to get a good idea of everything. 

Tax software can walk you through a lot of this 

[stainlessenginecovers]

If you sold over $20k in stuff with over 200 transactions, this was not a garage sale, this is now a business...whether you agree or not. It is.

Deductions for this business are done on Schedule C, as you were already told (so not sure why you are still posting you don't know what to do). 

The difference between a 'business vs. a hobby' is that a business may do $20k in sales and lose $10k building that business (after ALL expenses) and then that $10k can carry over into your W2 on your 1040. If it's a hobby, you can still use Schedule C, but you CANNOT carry over any 'loss' on to your 1040. 

Again, talk to a tax person or do Turbo Tax; it will walk you though it. Schedule C cost about $100 more to file with the 1040 if using TT. 

[lacemaker3 · Accepted solution]

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@bigdicebuddha wrote:

Let's say I had payouts totaling $20k, but the cost I spent on said inventory was $21k, how do I report this? Thank you in advance for any help or guidance.

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That depends on whether you are selling things that you purchased or your own use, or items you purchased with the intention of reselling them, and whether you qualify to file as a business or not. 

The IRS, as a default position, considers Online Sellers to be Gig Workers. They are required to report all income they received for the gig work, whether the income was reported on a 1099 form or not (for example, if the income was below the threshold, or was from barter or exchange, rather than currency payments).

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

Basically, there are three possible situations that eBay sellers may be in:

1. Selling items you purchased for your own use or collections, or inherited, when you are not operating a business activity.
   • If you selling your own personal possessions or investments, you can treat them as capital assets, and file Schedule D (Form 1040), Capital Gains and Losses.
   • You can deduct the cost-of-goods-sold from the gross amount you received for the items, to determine if they were a net capital loss or gain.
   • Ideally you would have receipts or records to document the cost basis of the items, for the cost-of-goods-sold:
     • However, if the items were inherited then you need to use the fair market value on the date they were inherited.
     • If you don't have receipts (as for items that were bartered or exchanged, or if receipts are not available) then you can use the fair market value when they were acquired.
     • The fair market value needs to be determined consistently, and according to accounting principles.
     • For more information, see IRS Publication 551, Basis of Assets.
   • Your net income from the sale of capital assets, is your gross income, minus the cost-of-goods-sold as shown on Schedule D. If this produces a net loss, then there is no tax liability (tax owing) on the sales.
   • If you have a net capital loss, then you may be able to report the net loss, up to certain limits, and depending on the type of items that were sold and how long you owned them. See the IRS instructions or consult a tax expert for details.
     
     
2. Acting as a business: If you were selling things that you purchased to resell, and/or if you were selling the items intending to act as a business and make a profit (even if they were originally your personal possessions), then you may qualify to file as a business.
   
   • Here are the guidelines that the IRS uses to determine if an online selling activity qualifies to act as a business:
     https://www.irs.gov/newsroom/earning-side-income-is-it-a-hobby-or-a-business
   • You don't need to meet all of these points to qualify, and none of the points are more important than any others. For eBay sellers, perhaps the most important thing they need to do to qualify as a business, is to take actions and make decisions that will increase their chances of making a profit, and be able to demonstrate this if they are audited.
     • For example, look for good sources of inventory, and stop using sources that not profitable.
   • Businesses can file Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship).
   • You do not need to have an LLC, or a business license, or be registered as a business to use a Schedule C. You just need to qualify according to the IRS guidelines above.
   • You can use Schedule C to report your gross income from the business, and to deduct business expense. These can include:
     • The cost basis of your items sold as described above for capital gains or losses.
     • Other normal and customary business expenses. This can include eBay fees, shipping and packaging costs, rent for office space or inventory storage, etc. See the IRS instructions for details.
       
       
3. Not-for-profit activity:  If you are not filing a Schedule C : Capital gains or losses, and if you don't qualify to file as a business (according the the IRS guidelines above), then your activity was considered to be a not for profit by activity the IRS.
   • If you don't qualify to file as a business, then you can't use the Schedule C. This will be the case for many eBay sellers who consider themselves to be "hobby sellers". The IRS considers them to be "gig workers" as described above.
   • In this case, according to the 2021 Instructions for Schedule C:
     • "To report income from a nonbusiness activity, see the instructions for Schedule 1 (Form 1040), line 8i. "
       See page 1: https://www.irs.gov/pub/irs-pdf/i1040sc.pdf
   • You need to report your gross income from the not-for-profit activity on Schedule 1 line 8i as stated above.
     • You can calculate the gross income from the not-for-profit activity according to Publication 535, Business Expenses (section: Not for Profit Activities: Gross Income)
     • "You can determine gross income from any not-for-profit activity by subtracting the cost of goods sold from your gross receipts. However, if you determine gross income by subtracting cost of goods sold from gross receipts, you must do so consistently, and in a manner that follows generally accepted methods of accounting."
       See page 8: https://www.irs.gov/pub/irs-pdf/p535.pdf
   • If you use this method of determining gross income to report on Schedule 1 (Form 1040), line 8i, and the gross income is substantially less than the amount that was reported on your 1099-K, then it is possible that this may increase your chances of being audited.
     • If you are audited, you should expect to be asked to show how you determined your gross income. You should be able to demonstrate how you calculated your cost of goods sold, and subtracted that from your gross receipts.
     • As long as you calculated the cost of goods sold reasonably and fairly, including the actual cost or fair market value of the goods of sold, and any other expenses, and accurately calculated your gross income, this should be acceptable to the auditor.