@mgjr73 wrote:
By the way, I don't consider this as a business. I just happened to have been using Ebay for a while and my friend didn't want to bother creating an account for himself to list his own stuff.
Q2 is easier. Selling tangible personal property is a capital transaction reported on form 8489 and schedule D. If you sell for more than your cost basis, you have a capital gain. If you sell for less than your basis, you have a capital loss. However, capital losses on personal property are not deductible and do not offset your gains. So if you sell 10 guitars with a combined loss of $1000 and one guitar with a gain of $100, you have a $100 capital gain. Capital gains are taxed at lower tax rates if you owned the item for longer than one year.
I don't think we know yet how to report this on your tax form, since many more people will be getting 1099-Ks for the first time. We don't know if the IRS will stick to the old procedures or create a new procedure. In my example you might get a 1099 for several thousand dollars but only have $100 of taxable income. The old way of doing this was to either:
a. report the 1099-K, then report a negative 1099-K in the same amount, then report the income on schedule D. This way the IRS computer sees the 1099-K.
b. Leave the 1099-K off your return and just report the sales on schedule D.
In either case, the IRS might send a letter asking for an explanation, and you could send them a spreadsheet or other proof showing the items you sold and how you calculated your gain or loss. You would need to include the purchase date, purchase price, selling date and selling price, along with a description.
Q1 is a mess. Basically, you are acting as an agent for someone else who should be reporting a gain or loss in the manner I described. Linking their account to yours is not wise under the new laws.
I think you need to treat it as a business. You have gross income of $1000 (from the sales) and you have expenses (the $800 payment, plus listing fees and shipping). The $200 is self-employment income you need to pay tax on. Then also, because you are a business and you are paying someone else more than $600, you need to issue a 1099-MISC to your friend for the $800. There are several web sites that will allow you to e-file a 1099-MISC for a few dollars with the correct copies going to the friend and to the IRS. (You need your friend's social security number to do this.)
Then your friend needs to report the $800 of income as taxable income, or report it as a sale of capital property for a loss, if that's what happened.
