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Ambooth1022
Level 2

Mercari & Poshmark

This year I began selling on Mercari & Poshmark.  Based on my sales report I will be receiving a 1099 from Mercari and may possibly reach enough sales to receive one from Poshmark as well.  All items I have sold have been mostly used items from my personal closet and not sold for profit - like a yard sale or flea market.   Will I be required to file these 1099s and be taxed, since items were sold for under the original purchase prices?

1 Best answer

Accepted Solutions
Opus 17
Level 15

Mercari & Poshmark

@Ambooth1022 

@rsimon92281 

 

Because a 1099-K was issued, you have to deal with this on your tax return, but the 1099-K by itself does not mean the money is taxable.  It depends on what you did to get the money.  

 

You might be selling as a business or a hobby.  Since one of the key factors for treating your income as business income is the desire to make a profit, selling old items for less than their purchase price is not a business for tax purposes.  However, if you mix selling old and new items for profit, then you have a business, and the answer below does not apply.

 

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 items with a combined loss of $1000 and one item with a gain of $10, you have a $10 capital gain.  

 

You need a spreadsheet listing your items with a description, date purchased, cost when new, date sold, and selling price.  If you don't have receipts, make your best guess and hope you aren't audited.  Without proof of your cost, the IRS would be allowed to disallow your costs and declare the entire proceeds as taxable income.  A listing made at the time of sale is better than nothing, but not as good as receipts.  Basically, do the best you can.  The more complete and businesslike your records, the more the likely auditor is to cut you some slack if some of your items are less-well documented.  Keeping your listings may help as well, if you are listing items as used, that will help to establish they were your previously purchased used items.  Without good records, you have to hope not to get unlucky, and do the best you can. 

 

An easier, but less correct way, would be to combine all the sales of items sold at a profit and list it as hobby income.  Ignore the sales of items sold for less than you paid.  This way you only enter 1 item on your tax return instead of many, but you pay higher income tax since capital gains have a lower rate.

 

On your tax return, there are two ways of dealing with the 1099-K.  There may be a new procedure for 2022 since so many more people will be getting 1099-K forms, we don't know yet.  These are the old procedures.

1. Leave the 1099-K off your return.  Report your sales as capital transactions on schedule D.  File by mail and include a written explanation of why you left off the 1099-K.

2. Enter the 1099-K as "other income."  Then create a negative item of other income to offset the 1099-k.  Enter your sales as capital transactions, and e-file.  The IRS may as later for an explanation of the negative item, you would reply with a letter of explanation and a copy of your records.  

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

View solution in original post

9 Replies
EricE_CPA
Employee Tax Expert

Mercari & Poshmark

Yes.  The 1099s you received was also reported to the IRS as income you earned.

You will need to report that income on your tax return.

 

 

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Ambooth1022
Level 2

Mercari & Poshmark

I should have been more clear.

 

These items have been sold online at a loss as I would if I were to have a yard sale, purging items from my own home.  Items were not sold for gains.

 

I understand that there are "yard sale exceptions" but how does one rectify this on their tax forms since the 1099s will need to be reported?

EricE_CPA
Employee Tax Expert

Mercari & Poshmark

You can't report losses on personal items used for personal use.

 

If you don’t know the FMV or the cost basis of the item when you purchased it, you’ll generally have to pay capital gains taxes on the entire amount of the sale, rather than the net profit (i.e., how much you sold it for minus the FMV or cost-basis).

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Ambooth1022
Level 2

Mercari & Poshmark

If I sold clothing that I personally purchased years ago for  approximately $50/item and sold each item on Mercari/Poshmark for less than $50/item, would capital gains taxes be required in this situation?  How would I file the 1099 in this case?

rsimon92281
Level 1

Mercari & Poshmark

This is not consistent with a reply I got yesterday in the post titled  RECEIPTS?   That answer was to make the best estimate you can of the original cost if you don't have receipts.   And to keep a note explaining what you did in case of an audit.   I really think IRS should be providing  more guidance since there are a lot of us in this situation.

Opus 17
Level 15

Mercari & Poshmark

@Ambooth1022 

@rsimon92281 

 

Because a 1099-K was issued, you have to deal with this on your tax return, but the 1099-K by itself does not mean the money is taxable.  It depends on what you did to get the money.  

 

You might be selling as a business or a hobby.  Since one of the key factors for treating your income as business income is the desire to make a profit, selling old items for less than their purchase price is not a business for tax purposes.  However, if you mix selling old and new items for profit, then you have a business, and the answer below does not apply.

 

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 items with a combined loss of $1000 and one item with a gain of $10, you have a $10 capital gain.  

 

You need a spreadsheet listing your items with a description, date purchased, cost when new, date sold, and selling price.  If you don't have receipts, make your best guess and hope you aren't audited.  Without proof of your cost, the IRS would be allowed to disallow your costs and declare the entire proceeds as taxable income.  A listing made at the time of sale is better than nothing, but not as good as receipts.  Basically, do the best you can.  The more complete and businesslike your records, the more the likely auditor is to cut you some slack if some of your items are less-well documented.  Keeping your listings may help as well, if you are listing items as used, that will help to establish they were your previously purchased used items.  Without good records, you have to hope not to get unlucky, and do the best you can. 

 

An easier, but less correct way, would be to combine all the sales of items sold at a profit and list it as hobby income.  Ignore the sales of items sold for less than you paid.  This way you only enter 1 item on your tax return instead of many, but you pay higher income tax since capital gains have a lower rate.

 

On your tax return, there are two ways of dealing with the 1099-K.  There may be a new procedure for 2022 since so many more people will be getting 1099-K forms, we don't know yet.  These are the old procedures.

1. Leave the 1099-K off your return.  Report your sales as capital transactions on schedule D.  File by mail and include a written explanation of why you left off the 1099-K.

2. Enter the 1099-K as "other income."  Then create a negative item of other income to offset the 1099-k.  Enter your sales as capital transactions, and e-file.  The IRS may as later for an explanation of the negative item, you would reply with a letter of explanation and a copy of your records.  

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
Meldanfish
Level 2

Mercari & Poshmark

I agree, this is all a bunch of BS!

Hailey165
New Member

Mercari & Poshmark

Okay so if I sell $500 on Mercari and $100 on Poshmark…. Does that mean I have to fill out a 1099 because I reached total sales of $600 COMBINED? Or does my profit have to be $600 from each selling website? 

Affordabletaxes2021
Level 5

Mercari & Poshmark

You don’t fill out a 1099 form. You receive a 1099 from them you report it on Sch C if your claiming this is a business and is subject to self employment tax, or it’s entered as misc income and not subject to self employment income. 

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