Reporting sales of goods that was sold at a loss

[Supdisjason]

Hello! 

What if we sold goods, in this case shoes at various sales prices, but some of them were sold at a loss (less than what it was purchased for). Do we still get taxed on these losses because the IRS taxes the whole total of sales?

How do we avoid getting taxed twice if we already paid a sales tax for the original price of the goods?

[kdevere]

It really depends on what you are selling.  If you are selling used household articles (if the shoes are "gently used" for example) you've used in the past, you may qualify for "occasional garage or yard sale" treatment. According to the IRS, if your online auction sales are the Internet equivalent of an occasional garage or yard sale, you generally do not have to report income from those sales.

Assuming that you originally bought the used items for more money than you are selling them for, you don't have to report the income received from the eBay sale. For example, if you sell a bicycle that you paid $500 for two years ago for $350 on eBay, you usually don't have to notify the IRS—and you can't claim a loss on it.

If you are buying and selling shoes, that would be a gig or small business activity, then you would report the aggregate of the sales, so the total amount of sales as income then you would report your cost of goods, which would include what you paid for the product as expenses to arrive at a net taxable income or net profit.

[GreenFallsHollow]

@kdevere ,  can you please clarify your statement: "... if you sell a bicycle that you paid $500 for two years ago for $350 on eBay, you usually don't have to notify the IRS"?  Assuming the payment was via Venmo, PayPal, etc., and you had other similar payments of the course of 2022 totaling >$600, wouldn't the IRS in essence be notified of that $350 bike sale and now be looking at it as income?

[kdevere]

1099-K's will be issued for amounts over $600.  The amount has just changed and at this time, it is really unknown how that will be handled.  The best approach, if it isn't reportable income, in the event of used household goods, for example, would be to keep that document with your tax records for that year, with notes as to the transaction in the even you would be asked about it.  

[Supdisjason]

In terms of buying and selling shoes- if the shoes being sold were part of a collection and have been with me for years but I’m selling them to downsize, does it still count as a gig or business activity?

for cost of goods sold- if I paid more than retail for the shoes and have since sold them, does that value count as the purchase price or is it only retail? 

[kdevere]

If you are just selling used household goods, clothing etc., it is not a taxable event, as it would be treated as the occasional garage sale type of sale.  Your cost of goods sold should reflect what was actually paid for the product, regardless of retail.

[Supdisjason]

What constitutes a business or gig vs other? If I’m using a specific shoe selling platform that will report the cash flow, does this automatically make all sales from it a business gig type?

[kdevere]

Generally, you are self-employed if any of the following apply to you.

• You carry on a trade or business as a sole proprietor or an independent contractor.
• You are a member of a partnership that carries on a trade or business.
• You are otherwise in business for yourself (including a part-time business or a gig worker).
  
  So the IRS considers it to be a trade or business, if it is carried on with the reasonable expectation of profit or making money.  If you are in the shoe selling business, and you are doing that on the side to earn extra money, that would be a gig or a small business endeavor.  If you are a business/gig, then you would be able to deduct expenses related to your business, versus if it is Other Income, which would not include the business deductions which would be reported on the Schedule C.

[Supdisjason]

how would we report the expenses and cost of goods sold since I will be reporting it as a side gig or small business? Within the Schedule C?

Also do I need to create a legal business if it’s just side money/gig?