Tax Shock, E-Bay style.

Retirement Retired Fools
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E-Bay will be reporting all sales to the IRS starting in 2022. All sales will likely be considered “profit” and therefore taxable as income. It’s up to the seller to show expenses, etc. My wife is an active E-Bayer, and has several thousands of dollars of sales each year. Much of her sales are stuff she bought several years ago and no longer wants (It’s called “Down-sizing.”) She can download an Excel spread sheet from E-Bay listing all her sales. I wonder if she has to prove what she actually paid for the items? An example: Some Hallmark Christmas ornaments became “collectible” a few years ago and sold for a premium (sometimes a large premium) over list price. By now that fad has pretty much gone away. But my Countess still has a few (Out of many thousands a few years ago) and sometimes these still are marketable. E-Bay will report any sales as income, regardless of what was paid for it. She didn’t keep any records, so we will likely pay a bit of extra tax. I suppose it’s our contribution to reducing the deficit.

CNC

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“I wonder if she has to prove what she actually paid for the items?”

I’ve never had to deal with this type of problem, but I read that with stock transactions,
if you do not have your cost basis data available, the IRS considers the cost basis to
be $0, so all of the net proceeds would be considered income.

Not sure how the IRS handles items sold on EBay, seems like common sense that non collectible
hand me down items would be selling at a loss from purchase price.

ebay sellers on the subject:
https://community.ebay.com/t5/Selling/2022-IRS-Changes-selli…
there is mention of using “fair market value” on purchase date ( in other words, a guess )
for cost basis.

just for “fun” I tried doing a search on irs site for documents for “ebay” or
“direct seller” but didn’t come up with anything.

I’d be curious how this turns out for you, although it won’t affect anybody till they report
2022 taxes in 2023, so it’s a ways out yet.

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CNC
I’m not a tax pro, but this is my read of hobby income.

With the passage of the 2017 TCJA, hobby expenses are no longer deductible as a miscellaneous itemized deduction subject to the 2% of AGI floor, where losses may not exceed gains. As a result, for 2018 and beyond, hobby costs are not used to offset hobby gains.

This is from page 75 of the 2021 pub 17.

If you collect stamps, coins, or other
items as a hobby for recreation and
pleasure, and you sell any of the items,
your gain is taxable as a capital gain. (See Pub.
550.) However, if you sell items from your col-
lection at a loss, you can’t deduct the loss.

To determine whether you have a gain, you must subtract your basis (what you paid for it plus any improvements to it increasing its value) from your selling price. For E-Bay, the 3rd Party Settlement Organization, such as PayPal, will send you, beginning 2023 for TY 2022, a 1099-K that will be the total of all net proceeds from the sale(s) of items if this amount is $600 or more. You can then total up your cost basis for all such items and then subtract this from the net total sales to come up with a capital gain, which will be taxed at the rate of collectibles, which means if you held the item(s) for longer than one year prior to sale, the gain is taxed as ordinary income up to a max of 28%.

As you say, with old household items, it’ll be tough to come up with your original purchase price.

This is how I see it, but if it were my 1099-K and has significant $$ on it, I’d probably confirm this with a tax pro who does these kinds of tax returns.

BruceM

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BruceCM: As you say, with old household items, it’ll be tough to come up with your original purchase price.

Right. Also difficult to come up with purchase receipts for Christmas ornaments you bought 20 years ago.

CNC

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"difficult to come up with purchase receipts for Christmas ornaments you bought 20 years ago.

CNC"

The original box might still have a price tag - you did leave the ornament opened in the
original box?
Otherwise, you might also contact the vendor - Hallmark - and request some documentation.
Of course, you might also provide your best estimates of purchase price and you will have the
sales price that you obtain.

Howie52
Or - you could ignore the whole issue and see if anyone reports the transaction to the IRS.
Most lawyers and accountants I have dealt with in the past have generally concluded that you
do the best you can to get reasonable numbers - then you use the logic you have used if you
are called for an audit.

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Howie52 Or - you could ignore the whole issue and see if anyone reports the transaction to the IRS.

E-Bay is sending 1099’s.

CNC

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"Howie52 Or - you could ignore the whole issue and see if anyone reports the transaction to the IRS.

E-Bay is sending 1099’s.

CNC "

E-Bay is sending the IRS data that sez you are selling a product and making $X gross, (curiosity
question - Are they also sending state department of revenue data?). So you are trying to put
together a “best estimate” of the cost of those goods. Again - you as the seller can provide
your own best logic - to cover your shipping costs plus whatever you can provide as a basis for
the cost. Your original cost “logic” may or may not be questioned.

Howie52
In the absence of documentation, you can review your logic with an accountant or a lawyer -
for a fee. Said fee may also be included in the cost of goods sold I would think.

Cost of your time to accomplish all this would typically not be covered.

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Or - you could ignore the whole issue and see if anyone reports the transaction to the IRS.

As I said above, the new reporting requirement from the 3rd Party Settlement Organization, such as PayPal, beginning 2023 for 2022, is to send you a form 1099-K for total proceeds paid from the sale of items thru the on-line site, if the total is > $600.

Most lawyers and accountants I have dealt with in the past have generally concluded that you
do the best you can to get reasonable numbers - then you use the logic you have used if you
are called for an audit.

That’s right. But when you formulate that logic in coming up with the fair market value, be sure you WRITE IT DOWN, cause in 3 years when you get the audit notice (unlikely but possible), if you haven’t written it down and if you’re like me, you’ll have totally forgotten the logic you used.

BruceM

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That’s right. But when you formulate that logic in coming up with the fair market value, be sure you WRITE IT DOWN, cause in 3 years when you get the audit notice (unlikely but possible), if you haven’t written it down and if you’re like me, you’ll have totally forgotten the logic you used.

BruceM

Not an ebayer here, but years back implemented the exact BruceM edict for just the reasons stated.

Even including the file folder or computer directory*** info where I might find help.

The more stuff there is in the ‘memory attic’, the easier it is to question yourself: WHAT THE HECK WAS I THINKING HERE???

***Hopefully being prescient enough to assign appropriate names that will trigger memories as to where to find stuff. Sigh.

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Maybe not the same subject, but when I donate used items, say for example to the Salvation Army, they allow me to estimate the value of those items and place an amount on them, when I write off donations of goods on my taxes.

Maybe the IRS will come up with a similar rule.

-Footsox