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mgjr73
Level 2

Selling my friend's used items on Ebay

Q1. I'm selling my friend's personal guitars through my ebay account. If I sell it for $1000 and he tells me I keep $200 for commission and I issue him an $800 check. I still get the full 1099-K for the $1000 sale from ebay. How do I account for this in my taxes?

 

Q2. What about selling my used personal items for less than what I originally paid for? If they add up to the 1099-K threshold, how should I report it?

 

By the way, I don't consider this as a business. I just happened to have been using Ebay for a while as a buyer and a seller, and my friend didn't want to bother creating an account for himself to list his own stuff.

 

Thanks.

7 Replies
mgjr73
Level 2

Selling my friend's used items on Ebay

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.

Added post in original question.

Opus 17
Level 15

Selling my friend's used items on Ebay


@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.  

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
mgjr73
Level 2

Selling my friend's used items on Ebay

This looks to me is discouraging to the casual seller who just wants to get rid of personal stuff they no longer want or need. We want to be on the up and up with the IRS but they make the entire process for them to take our money gets so complicated. Most of us don't want to start a business and only want  to sell on occasion. Another issue is, let's say I bought a record player 10 years ago not thinking about selling it so didn't keep the receipt. Fast forward 10 years, I decide to sell it and get 1099K. I get asked by IRS for records I don't have (because it's not really a business), then what? It sounds like it's not worth the squeeze. I guess just give stuff away or take stuff to the dump.

 

I really hope they come up with better, clearer, FAIR guidelines for the occasional ebay seller.

Opus 17
Level 15

Selling my friend's used items on Ebay

It was Congress that changed the rules on when third party finance companies have to issue a 1099-K.  I’m sure it was a cash grab meant to increase tax revenue by capturing transactions that were going under the radar.  The IRS may have some leeway in how they implement the new laws, such as by creating simplified procedures for taxpayers in your situation. That assumes the IRS has either compassion or common sense.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
mgjr73
Level 2

Selling my friend's used items on Ebay

Agreed. One cannot just easily declare the activity as a business. As I understand it, you have to meet certain criteria, otherwise, it's a hobby in the IRS's eyes. Just opens a can of worms. As always, the regular taxpayer pays the price.

Opus 17
Level 15

Selling my friend's used items on Ebay


@mgjr73 wrote:

Agreed. One cannot just easily declare the activity as a business. As I understand it, you have to meet certain criteria, otherwise, it's a hobby in the IRS's eyes. Just opens a can of worms. As always, the regular taxpayer pays the price.


I think selling someone else's item on commission pretty much makes that side of it a business.  I would keep the personal side separate and report it as capital sales.   If you try and report the whole thing as a business, that wouldn't be right, and if you reported it all as a hobby, there's no easy way to deal with the $800 payout to the friend. 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
mgjr73
Level 2

Selling my friend's used items on Ebay

So does it mean I can be in business one year and not in the next? I just read this IRS article: 

 

https://www.irs.gov/newsroom/earning-side-income-is-it-a-hobby-or-a-business

 

And it's what I'm talking about meeting certain criteria to be considered a business. Making an extra $1000 to $2000 in a certain year for selling used items on ebay won't be enough to pay tax preparers and possibly tax lawyers.

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