Selling Personal items through my LLC, taxable???

[LLC4Me]

I have a LLC that I buy inventory for and re-sell (mostly on eBay, about $1,000 a week). I inherited some toy trains about 10 years ago (my cost basis is @ inheritance I assume) that I want to start selling thru my LLC on eBay (since this account is a well established trusted userID).  Ebay of course sends a 1099-k each year making these toy train subject to state and federal taxes which I want to avoid. So is the process that I sell the collection to the LLC (at it's inherited cost basis) with a check made payable to myself? Would a toy train collection even be considered as a collectible by the IRS since it is not listed specifically in their publications? The collection has not really appreciated in the 10 years since I inherited it, so no tax would be due anyhow. It's just a matter of logging in a (legitimate) cost (of goods sold) for the collection to deduct off the 1099 eBay sends each year.

[tagteam · Accepted solution]

The LLC cannot sell the items to you if it is single-member LLC as the LLC is considered a disregarded entity for federal income tax purposes.

The trains would be collectibles if they are considered to be antiques.

[LLC4Me]

OK, Thx for that, but you say "The LLC cannot sell the items to you.....".  As my post notes, I was wanting to sell the trains TO the LLC.  Does that change anything??....thx

[tagteam]

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@LLC4Me wrote:

Does that change anything??

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No, because you and the LLC are essentially considered the same for federal income tax purposes. 

[LLC4Me]

OK, Thx!

[Mike9241]

@LLC4Me 

NOTE: On Dec. 23, 2022, the IRS announced that calendar year 2022 will be treated as a transition year for the reduced reporting threshold of $600. For calendar year 2022, third-party settlement organizations who issue Forms 1099-K are only required to report transactions where gross payments exceed $20,000 and there are more than 200 transactions.

Even though the Form 1099-K reduced reporting requirement for third-party settlement organizations was delayed, some individuals may still receive a Form 1099-K who have not received one in the past. Some individuals may receive a Form 1099-K for the sale of personal items or in situations where they received a Form 1099-K in error (i.e. for transactions between friends and family, or expense sharing). IRS is updating guidance to direct taxpayers to report these scenarios on the Form 1040, Schedule 1, for tax year 2022. See the section titled “Information for personal income” for additional information.

if you sell an item of personal property at a gain like the toy trains any gain is taxable as capital gain.

if you sell an item of personal property at a loss. the loss is not deductible.

[LLC4Me]

Thanks for that. I just wanted to be clear that I'm not trying to circumnavigate any tax liability. All I am really trying to do is sell the trains and offset the (perceived) gains with my inherited basis (from 2010) which is about the same as the value of the trains today. I read things online that say “An LLC owner, officially referred to as a member, may transfer assets from personal ownership into the LLC”. Some agree with that statement, some don't, some say only if not a singe member LLC. Again I have a well established eBay account in my LLC which I can receive a premium for the trains in (along with a discounted commission from eBay), so I prefer to sell them through that channel. I don't know why the IRS would object to this process (ie.- I sell $10,000 worth of trains to the LLC, I report my sale to the LLC on my personal return (less my cost basis of course), and the LLC sells them for what ever it can get and reports any gains/loss on the $10,000 basis on my Schedule C via Cost Of Goods Sold)

[Mike9241]

you do not understand, if it's a single-member LLC, then the tax laws treat it as if it doesn't exist (the reporting if property/inventory is being sold and you have a business would be on Schedule C) there's no reportable sale to your LLC and no gain or loss is recognized by you.  and yes the IRS would probably object because your selling to yourself from an income tax standpoint. consider it a non-cash contribution (not charitable and not taxable) to your LLC. for the trains it's tax basis is the date of death value.

think of it this way you're moving an item from your left pocket to your right pocket.

then the question comes up is your LLC a business if not you probably have a hobby

if you have a business are the train's inventory?  if inventory any income/loss on sale is ordinary

if not inventory then you're selling personal property. any gain is taxable and reported on schedule D and any losses is not deductible.

even with a multi-member LLC taxed as a partnership property can be contributed usually without any gain being recognized by the member. however, special allocations are needed when the property is sold.   

 here's what partnership instructions say about property contributions

Contributions to the Partnership
Generally, no gain (loss) is recognized to the partnership or any of the partners when property is contributed to the partnership in exchange for an interest in the partnership. This rule doesn't apply to any gain realized on a transfer of property to a partnership that would be treated as an investment company (within the meaning of section 351(e)) if the partnership were incorporated. If, as a result of a transfer of property to a partnership, there is a direct or indirect transfer of money or other property to the transferring partner, the partner may have to recognize gain on the exchange (in other words the partner/member is compensated for the contribution).
The basis to the partnership of property contributed by a partner is the adjusted basis in the hands of the partner at the time it was contributed, plus any gain recognized (under section 721(b)) by the partner at that time. See section 723 for more information

hobby

https://www.irs.gov/newsroom/know-the-difference-between-a-hobby-and-a-business 

[AmeliesUncle]

Forget the LLC for this purpose.  You can still use your same eBay account, but this sale has nothing to do with your LLC.

You are selling your personal-use items.  Those items are reported on Form 8949/Schedule D (I think the section in TurboTax is called Stocks, Bonds, Mutual Funds, etc.).

[Critter-3]

Agreed, I would sell the personal items and report them as sales of personal items in your case collectibles which will go on the schedule D and not on the schedule C. If possible a secondary account on eBay for personal sales only might be a wise choice if it can be done. If it can’t then Putting it through the schedule C and using the inherited basis won’t be the worst thing in the world.

[LLC4Me]

Your Right, I probably don't understand (being a rational human being that solves problems the easy way). The IRS (for reasons they might say are necessary for the good of the country), seems to often make people do things the hard way. Nonetheless, your insight is appreciated of course.

[LLC4Me]

I don't think that approach would work for me as the most important aspect of this is that I get my inherited cost basis to offset any net profit and taxes against. Once I sell the trains, those proceeds go onto the end of year eBay 1099 without a way to offset it (I presume since that inherited basis belongs to me and not the LLC(?).

[Critter-3]

@LLC4Me 

Just be aware .... the collectibles should be reported on the Sch D (where your inherited cost basis is taken into consideration) and you do NOT have to pay SE taxes on the profit.

But if you want to put it on the Sch C and pay more in taxes then that is your choice.