eBay - The IRS Wants Its Share!!!!!

[DMRick]

Yet technically if you're buying to resell that's when you must claim it on your taxes. This is what has been discussed on ebay boards and the auction board I frequent and collaborated by tax pros. Anything over $400 is considered self employment and that's when you file a schedule C.

Technically, this is incorrect information ..it's not about buying to resell
I'm over on those ebay boards too, and the tax pros have always said that all your income is taxable.You have to determine what is your income, and that's where the schedule C comes into play. If you are making a small amount, you are right, you may not owe SE taxes (which is your Social Security also). However, all income has to show up.
It doesn't matter if you are buying to resell, or reselling what you already own. You owe income tax on the profit..and the profit is either the gross, or the net if you fill out a schedule C. The biggest difference is, it's assumed (although you can be asked to prove it in an audit), if you are selling your "old" stuff, that you are selling at a lose (although this is not always true, since some of us have cleaned out parents houses and gotten a lot for some of their old stuff).

You must claim all income on your income taxes, however, and the Schedule C is what allows you to take off your costs.

I think you are misunderstanding what the tax pros are saying on the boards. You have to file a Schedule C if you want to be able to take off your expenses from $1..otherwise put your gross income under misc. You may not owe any taxes or SE if the $400 is your only income, but most of us have other jobs, and our final income is over $400, so we'll still owe income tax on the whole.

 

[DMRick]

As an ebay buyer, I have a different problem. The wonderful state of New Jersey wants us to pay the sales tax on items we've purchased through the internet or ebay. If no sales tax was collected on these purchases, on our state income tax form we need to send it in as USE TAX.

NYS is also doing that, and now, several of the places I do business with out of state are now collecting for NYS. It's putting a real crimp in my cheap out of state prices.

 

[grlpwrd]

Technically, this is incorrect information ..it's not about buying to resell
I'm over on those ebay boards too, and the tax pros have always said that all your income is taxable.You have to determine what is your income, and that's where the schedule C comes into play. If you are making a small amount, you are right, you may not owe SE taxes (which is your Social Security also). However, all income has to show up.
It doesn't matter if you are buying to resell, or reselling what you already own. You owe income tax on the profit..and the profit is either the gross, or the net if you fill out a schedule C. The biggest difference is, it's assumed (although you can be asked to prove it in an audit), if you are selling your "old" stuff, that you are selling at a lose (although this is not always true, since some of us have cleaned out parents houses and gotten a lot for some of their old stuff).

You must claim all income on your income taxes, however, and the Schedule C is what allows you to take off your costs.

I think you are misunderstanding what the tax pros are saying on the boards. You have to file a Schedule C if you want to be able to take off your expenses from $1..otherwise put your gross income under misc. You may not owe any taxes or SE if the $400 is your only income, but most of us have other jobs, and our final income is over $400, so we'll still owe income tax on the whole.

I don't think I misunderstood. I read info on the ebay boards and another auction board I frequent yet I collaborated the info with tax pros (attorney, accountants, CPAs) as I don't necessarily accept info on bulletin boards as fact, including a few Powersellers who I am friends with who also were told the same things. There's a lot of anti-tax people on those boards so that info has to be taken into account as well. Again, I don't accept the info that people post on boards as fact until I can verify the info.

Read one entry here:

dctaxattorney (44 ) View Listings | Report Mar-28-05 14:59 PST 64 of 101
Listen up on the income tax implications of selling on eBay from someone who does this for a living. Most of the advice on this board is wrong.

If you sell something for more than you paid for it you generally have taxable income, regardless of whether you are in business or not.

If you are engaged in a business, you pay ordinary income rates on the profit you make, but you will be entitled to deductions for the "ordinary and necessary" costs of operating the business.

If you are not engaged in a business, the IRS will treat you as engaged in a hobby. That means you treat gains as capital gains income, which is generally taxed at lower rates. But, you do not get to deduct business expenses and there are stricter rules on the ability to claim losses.

Selling on eBay (or anywhere else) is not an activity that is exempt from federal and state income tax implications. If you are selling anything on eBay, you need to keep track of your transactions and you may well need a professional tax preparer to help you file your returns appropriately. It is against the law to file a tax return that understates your income!

Ironically, that is exactly what the other experts have been telling me, too.

I urge all sellers to please consult with a tax attorney and secondarily a CPA or accountant as a tax attorney would be the best way to confirm current tax codes. I stand by what I have stated... Schedule C is required for ebay as a business and you also have to report any other taxable income according to tax code - generally, you will pay taxes on net sales. Of course, YMMV so that's why I state seek a professional. Otherwise, if you're selling what you already own it's not necessary. Of course, if you're selling for someone else, things you are reselling, or your grandparents' items that's considered taxable income.

I have known 2 people who were audited due to ebay sales and they are not business sellers. They advised me to know the approximate values of what you sell, keep records or receipts, report your taxable income before the IRS comes looking for you, and consult with a tax pro.

GL to all sellers, personal or business!

 

[Lewisc]

NYS is also doing that, and now, several of the places I do business with out of state are now collecting for NYS. It's putting a real crimp in my cheap out of state prices.

Doris--Some places don't collect the sales tax for NYS but are happy (or at least willing) to send NYS a computer tape listing all the merchandise that was sent to NYS residents.

You might want use the table to calculate the use tax you owe. You may come out ahead.

 

[DMRick]

Doris--Some places don't collect the sales tax for NYS but are happy (or at least willing) to send NYS a computer tape listing all the merchandise that was sent to NYS residents.

You might want use the table to calculate the use tax you owe. You may come out ahead.

Yes, I understand that some don't. I was just responding that several do. Believe me, I do everything I can to legally lower my own taxes I'm right on top of it, with my taxes and others

 

[vossjemi]

Where are these ebay boards? On ebay website? I've never sold on ebay, but was thinking about it...this tax stuff though discourages me. I may just end up taking half price for my junk at my next garage sale so I don't have to deal with all this hassle. If the IRS wants to come to my garage sale, I'll welcome them and invite them to take something from the free box.

 

[DMRick]

I don't think I misunderstood. I read info on the ebay boards and another auction board I frequent yet I collaborated the info with tax pros (attorney, accountants, CPAs) as I don't necessarily accept info on bulletin boards as fact, including a few Powersellers who I am friends with who also were told the same things. There's a lot of anti-tax people on those boards so that info has to be taken into account as well. Again, I don't accept the info that people post on boards as fact until I can verify the info.

Read one entry here:
dctaxattorney (44 ) View Listings | Report Mar-28-05 14:59 PST 64 of 101
Listen up on the income tax implications of selling on eBay from someone who does this for a living. Most of the advice on this board is wrong.

If you sell something for more than you paid for it you generally have taxable income, regardless of whether you are in business or not.

If you are engaged in a business, you pay ordinary income rates on the profit you make, but you will be entitled to deductions for the "ordinary and necessary" costs of operating the business.

If you are not engaged in a business, the IRS will treat you as engaged in a hobby. That means you treat gains as capital gains income, which is generally taxed at lower rates. But, you do not get to deduct business expenses and there are stricter rules on the ability to claim losses.

Selling on eBay (or anywhere else) is not an activity that is exempt from federal and state income tax implications. If you are selling anything on eBay, you need to keep track of your transactions and you may well need a professional tax preparer to help you file your returns appropriately. It is against the law to file a tax return that understates your income!


Ironically, that is exactly what the other experts have been telling me, too.

I urge all sellers to please consult with a tax attorney and secondarily a CPA or accountant as a tax attorney would be the best way to confirm current tax codes. I stand by what I have stated... Schedule C is required for ebay as a business and you also have to report any other taxable income according to tax code - generally, you will pay taxes on net sales. Of course, YMMV so that's why I state seek a professional. Otherwise, if you're selling what you already own it's not necessary. Of course, if you're selling for someone else, things you are reselling, or your grandparents' items that's considered taxable income.

I have known 2 people who were audited due to ebay sales and they are not business sellers. They advised me to know the approximate values of what you sell, keep records or receipts, report your taxable income before the IRS comes looking for you, and consult with a tax pro.

GL to all sellers, personal or business!

And it's all correct, and just what I have been saying, except for "Otherwise, if you're selling what you already own it's not necessary." Because if you don't have a reciept, or aren't posting under a schedule C, you will have to claim the total you sell for. I too have advised my clients to know the worth, however, the IRS, when doing an audit, will want actual reciepts, or they may disallow.

As I've said a few times, and I'll quote from your posting "If you sell something for more than you paid for it you generally have taxable income, regardless of whether you are in business or not." Going a little further with this..I would have said, that often once the cost is deducted, and eBay fees, most household items end up with no tax implications. However, if this person is talking about reselling, it's to be expected that income tax will be owed.

So you really aren't telling me anything different from what I keep saying. This has nothing to do with your posting:

"Anything over $400 is considered self employment and that's when you file a schedule C. "

which is misinformation. I have clients who have filed with $200 in income (heck I had no income my first year after depreciation), a thousand dollar lose and got to take that against the income from their "real" job.

 

[DMRick]

I really recommend that everyone go to a tax professional the first time they are claiming income from eBay. No one should pay more taxes than they actually owe, and believe me, a Schedule C is much better than having misc income. You don't want to pay income taxes on your ebay or Paypal fees. You want to be able to legally deduct those, and even though most people have an honest return, an audit is a pain in the butt..so start keeping your receipts or a ledger if you buy from garage sales. Don't take advice (including mine) from a board, but get yourself over to a cpa (I don't advise Block or any of the others, unless the person you get also sells on eBay, and knows all the fees, and I've worked for Block). If eBay is the main reason you use your computer, or even a percent, learn how to keep a ledger for that use, so that can be depreciated. Using your ISP mostly for eBay..another deduction. Have a room you use just for eBay..another great deduction (and if you are being honest on your return, don't listen to those that say it's a red flag and might trigger an audit. I've not seen that, and even if it did, why fear an audit..they are often just paper audits looking for more info). There are so many ways to lower your tax..please be sure to use them!

 

[crazymomof4]

..this tax stuff though discourages me. I may just end up taking half price for my junk at my next garage sale so I don't have to deal with all this hassle.

I hear you! I'm in my third week of being an ebay seller. And this is my experience thus far:

*I'm not exactly setting the world on fire with selling my used stuff from around the house. (~ $100 for the 3 weeks after fees, etc)

*I find it to be time consuming. Probably bc. I'm new at it, but still--hours of time!

*The eBay and paypal fees really add up more than I'd expected.

*Many items don't sell at all so I've listed them at a loss.

*I've been reading on another thread about nightmares with non paying, scamming, rude and threatening buyers. Just waiting to run into one of those.

*NOW THIS THREAD! Well, if I'm going have to pay a "Tax professional" to do my taxes and be asked to come up with a reciept for things that have sat in my attic or in the top drawer somewhere for the past 15-20yrs (That's why they're being sold!), to prove that I didn't make a profit on selling them..............FORGET IT!

I"ll stick with it for a few more weeks but so far, it's not at all like what I've been reading so much about.

I'm packing up the back of the Suburban and joining my SIL's Yard sale this weekend!!!!!!!!!! All IRS men are welcome! Maybe they can help keep and eye out for the theives that always help themselves to a "Five-finger-discount" at my yard sales!

 

[grlpwrd]

And it's all correct, and just what I have been saying, except for "Otherwise, if you're selling what you already own it's not necessary." Because if you don't have a reciept, or aren't posting under a schedule C, you will have to claim the total you sell for. I too have advised my clients to know the worth, however, the IRS, when doing an audit, will want actual reciepts, or they may disallow.

As I've said a few times, and I'll quote from your posting "If you sell something for more than you paid for it you generally have taxable income, regardless of whether you are in business or not." Going a little further with this..I would have said, that often once the cost is deducted, and eBay fees, most household items end up with no tax implications. However, if this person is talking about reselling, it's to be expected that income tax will be owed.

So you really aren't telling me anything different from what I keep saying. This has nothing to do with your posting:

"Anything over $400 is considered self employment and that's when you file a schedule C. "

which is misinformation. I have clients who have filed with $200 in income (heck I had no income my first year after depreciation), a thousand dollar lose and got to take that against the income from their "real" job.

I'm not the one who stated "If you sell something for more than you paid for it you generally have taxable income, regardless of whether you are in business or not." I quoted the poster on the ebay board plus he used the word "generally." Hence my addition of "YMMV" and to further check with experts. There are too many variables to be absolute.

Just curious... are you a tax attorney, CPA, or accountant? Are you experienced with ebay sellers and their taxes/tax forms? If you're posting in such a capacity I would think you should use a disclaimer if you post advice like this because people could sue over advice given online. Like I stated, too many variables to be absolute, but I am sure as sole proprietor making over $400 you are required to file a schedule C. Beyond that I can't advise on people's particular situations.

Hmmm... I don't see why I am being targeted in this discussion... just relaying what I have learned. I have sold my personal items for 5 years and always claimed that I made and then now for the past 2 years as a business seller I do it as a homebased business. Then again always consult with experts regarding your own particular situation. I consulted my tax attorney and I will go by his word and I encourage for everyone to do the same.

 

[deltachi8]

all i know is for what i have sold, the hassle of just figuring out weather i pay, not pay, who what where to file and everything just made it not worth my time.

i will go back to donating my used items to goodwill and the salvation army. and i dont ask for a recipt either because i do it to help and get rid of stuff not to save any money on taxes (plus i dont itemize and dont want to go there!)

 

[DMRick]

Are you experienced with ebay sellers and their taxes/tax forms? If you're posting in such a capacity I would think you should use a disclaimer if you post advice like this because people could sue over advice given online.
*********
I am a tax preparer, certified. Why would I need a disclaimer? I'm not giving out advice for people not to file, or incorrect info, but encouraging them to be sure to claim their income. I'm not doing anything other than explaining how income tax works, and I can back up everyone of my statements. I think it's important that people not be afraid of filing their earnings, or filling out a tax form, or doing a Schedule C (which benefits them more than paying taxes on their gross earnings). As I said, everything you posted in that quote, I agreed with, except the one thing, which I thought was you adding to the quote..so why would you have a problem with anything I have posted?

I'm certainly not meaning to target you, but you posted, and so I responded. That's how I was under the impression it works on a board. You were not the only one I, or others responded to. I read a lot of eBay boards, and there is a lot of bad info out there. It's important people know the difference between reporting their gross and their net, and which forms allow for which. If you go back to last year, and the year before, you'll see I also gave the same advice on this board. Very little has changed, and that new story posted about owing taxes on your eBay winnings, is actually an old story revamped.

Sorry if you are taking this personal, it's not meant to be, and from my PM's, I think others are benefiting from the info.

 

[grlpwrd]

Really, I am not taking it personally nor am I offended. I am taking what I learned from the link and from what the other poster stated... the crackdown is directed at scammers, basically. The majority of ebayers here at DIS are those who are selling what they own often at a loss compared to what they paid versus those who buy to resell or have ebay businesses like me.

I was particularly referring to disneysnowflake's remark because she seems so discouraged:

I sell our own family things like clothing we no longer fit in and such. I usually sell at a big loss over what I originally paid, but I don't keep receipts for everything I buy. There would be no way for me to prove what I originally paid.
With having to keep all those receipts and having to file more paperwork with the IRS it doesn't seem worth it to me.

That's why I remarked "Otherwise, if you're selling what you already own it's not necessary." She is taking a loss on what she already owns. We really shouldn't worry about keeping receipts from long ago for sales of items you already owned. The IRS keeps lists of "reasonable cost" or "reasonable value" from long ago. It's the "from now on" receipts and records we should keep track of, especially due to this enforcement.

BTW I did a quick search on "ebay taxes" and came upon a thread from last month: http://www.disboards.com/showthread.php?t=732474&highlight=taxes Phorsenuf had asked about filing taxes and referred to having to file if she made more than $600. Actually, that $600 mark applies if you're an independent contractor/self employed person in which a company would send you a 1099 form. That only applies to making over $600 as an independent contractor/SE person, not necessarily as an ebayer... I believe you used that $600 amount in your post in that particular thread without any preface.

edited...

That is why I always state repeatedly "YMMV" and certainly check with a tax attorney, CPA, or accountant as there are always different variables.

to all ebayers!

 

[DMRick]

We really shouldn't worry about keeping receipts from long ago for sales of items you already owned. The IRS keeps lists of "reasonable cost" or "reasonable value" from long ago. It's the "from now on" receipts and records we should keep track of, especially due to this enforcement.

I'm sorry, and I'm not picking on you, but I don't agree. If there is an audit you will be expected to show receipts. It seldom goes that far, but you should always be prepared.

Actually, that $600 mark applies if you're an independent contractor/self employed person in which a company would send you a 1099 form. That only applies to making over $600 as an independent contractor/SE person, not necessarily as an ebayer... I believe you used that $600 amount in your post in that particular thread without any preface.

I didn't need to preface anything, since the OP's question in the above quoted post had nothing to do with 1099's. but income. She thought you didn't need to claim income until you made $600. And that would be if that is your only income..she wouldn't owe any tax. Few people make less than a total of $600 since you have to include your "real" job and if filing jointly, your hubby's income. You need to claim from $1.00. 1099's are a whole different thing, and I have no idea why you think the other post had anything to do with 1099's. It's just a way the IRS has of keeping track of income over a certain amount, and if you have worked for someone else, you should get it. But the old post you quoted, was talking about income, not 1099's. In fact it had nothing to do with 1099's, so I'm not even sure why you brought that up. 1099's won't come into play for eBay either, which is what this thread was about. I have no idea what that has to do with what the OP posted. It doesn't mean if you don't get one, you don't need to claim it..but in any case, that other post has nothing to do with this one, and even less to do with 1099's. I'm not sure where you are going with this.

I've also heard that many tax prep companies aren't current with or have very little training with ebay selling and filing taxes in accordance to current tax codes.

Many of my tax courses were taken at a local college, as well as very good courses through Block, and I spent several years helping out on an AOL tax board, with what I think are some of the best...so I'm not sure if you are saying I'm not current, or have very little training, but you would be wrong, and I'm starting to take this personal. I do and did suggest people go to someone with eBay experience. And your training to give all this advice about what the IRS expects of us is??? OK..as I've said in PM's, I'd rather take this private, because I really don't want to keep defending myself, and my credentials. It's very simple, and others have said it. You need to claim from $1. You may not owe tax, receipts are very important.
This doesn't have to be made into more than it is.

 

[CarolA]

DMRick,
I think you have given decent advice. I think that the thing to do is realize that the advice is just something some folks don't like. What they really want you to say is "The IRS is wrong and you don't have to pay" LOL!

Having been a revenue auditor for the state of Tennessee I will say we took NOTHING for your word. Sure you could tell us that "I already owned those and I didn't buy them to sell on EBAY" It would be at the mercy of the auditor to determine if you were telling the truth. IF they didn't belive you for whatever reason, you have NO way to appeal or deal with them. You need proof that you bought the stuff for some reason then to resale. I would think that buying clothes one year and selling them the next or even several months later as used would work, but you would need proof you bought them new and they depreciated in your care.

As for sales taxes.... It is not an "I already paid" deal. We collect every time you sell so if you are buying to resale you might want to consider getting a sales tax number.

DMRick said early on you should probably seek a tax accountant who knows YOUR situation. I am a CPA. Taking my advice will do you absolutly no good. What are you going to do? Respond to the audit with "the folks on the DIS said it was taxable or not" That isn't going to fly with anyone!


(And by the way, if you don't think they will do anything... when I was a revenue agent we bought charges against a 77 year old woman. Now grated this was her third audit and she was breaking the law, but we pushed for a jail sentence..... Auditors have very little pity!)

 

[DMRick]

I think you have given decent advice. I think that the thing to do is realize that the advice is just something some folks don't like. What they really want you to say is "The IRS is wrong and you don't have to pay" LOL!
***********
Thank you. Wish it could be something I could say. And I wish people weren't so afraid of the tax forms. Many will come out ahead, if they just keep records and receipts, and life will go on. Like I said, and I bet you also believe, owing income tax on stuff you sell, is nothing new.

 

[crazymomof4]

Having been a revenue auditor for the state of Tennessee I will say we took NOTHING for your word. Sure you could tell us that "I already owned those and I didn't buy them to sell on EBAY" It would be at the mercy of the auditor to determine if you were telling the truth. IF they didn't belive you for whatever reason, you have NO way to appeal or deal with them. You need proof that you bought the stuff for some reason then to resale. I would think that buying clothes one year and selling them the next or even several months later as used would work, but you would need proof you bought them new and they depreciated in your care.

..... Auditors have very little pity!

For crying out loud.....what if I showed family photos of my kids wearing the clothing I sold as "used" on my auctions? I'm dead serious.

Understand, by quoting you, CarolA, I'm not attacking you. It's just that what you stated in addition to the rest of this thread scares the pants off of me (I DO have the receipt for these jeans, though! )

I began selling 3 weeks ago. Before that, I never thought I'd be selling my kid's used clothing, anywhere. I always gave them away. So I kept the receipts for the kid's clothing until I took the tags off for them to wear the item and then I trashed the tags and the receipts. I'm sure that's what most people do. Unless you know at the time of the purchase that you will be selling those clothes, it's not REASONABLE to keep the receipts after you have worn and washed them.

Last week I sold a pocket knife that DH bought for ~ $36 more than 15 years ago. It sat in his drawer until it sold on ebay for $29. We have no reciept for that. Other than those people who live in squallor bc. they have a mental problem that does not allow them to throw anything out, who the heck keeps receipts for every purchase for 15+ yrs?

I understand that there are people out there making a lot of $$ and not wanting to declare it as income. But I cannot understand an "Auditor" with "very little pity" throwing the book at my family, and people like us, over the lack of receipts for these kinds of items, under these circumstances........I can see it happening, I just can't understand it!

 

[Cheshire Figment]

JudySue used to work for IRS until we retired. I am a CPA. We definitely kept records of sales and profits and filed a Schedule C each year with our Income Tax returns. Of course, if we had not filed the Schedule C and she was caught, unlike most people who would have just had to pay additional taxes, interest and penalties she could have been fired.

Note the basic concept on Income Tax Law is: "All income, from all sources, unless specifically exempted, is subject to taxation under the Code."

Since we had the Schedule C, when we moved to Florida we also got a Sales Tax Number and collected (and remitted) Sales Tax on all sales within the state.

To be proper and legal you should talk to an acounting professional; not necessarily a CPA. If you have a friend or relative who fits in this cagtegory they can assist you in setting up your recordkeeping and give you some advice about filling in a Schedule C on your tax return.

I will not give specific tax advise in an open forum; as a matter of fact I am relaxing after having completed three complex individual returns today. Also, unless you really know me personally, and I will do it for a dinner, you don't want to pay the fees I charge to set up an accounting system for someone.

Mike, CPA

 

[DMRick]

it's not REASONABLE to keep the receipts after you have worn and washed them.

The only thing that would be different if you didn't have the receipts, is you pay tax on the total. Lots of people just choose to do that. Believe me, lots of people do not want to be bothered with the paperwork. If you are just selling a few items, it won't amount to much. In your case, it might come to under $6.00..less, if you file a schedule C and take off the ebay and Paypal fees, for that pocket knife. It's not like you won't clear any money. I guess the IRS figure so many people try to say it's their old stuff, they need to see proof. Just look at the amount of clothes being sold on eBay. For the IRS, they see it as revenue. But again, this is nothing new..tax has always been owed. There is never an easy way to make a buck. At least you just started, and know now to save receipts.

 

[DMRick]

I will not give specific tax advise in an open forum; as a matter of fact I am relaxing after having completed three complex individual returns today.

Mike, CPA

I don't think anyone is giving specific tax advise. I don't think anyone has even asked for anything specific on the board. Without seeing the whole, it would be impossible. It's been given IMO very broad. You are right..CPA's and tax attorney's can be very expensive. There is lots of help out there that will cost a lot less, but I really do think it's important that the first year be set up by a professional or at the very least, by a friend, as you mentioned, who knows how. This time of year, isn't a really good time to get help to set up though. The help board on AOL, used to be very good, until no one had time to work it when it was needed.

Three complex in one day, eh? {{shudder}}
Thanks for putting in your thoughts.