Deduction question

Forum|Forum|4 years ago
January 18, 2022
2 replies
29 views

I sell postage stamps to collectors. Most of my sales are through an Ebay dealer. I give him the stamps, he scans, describes, post on Ebay, collects and ships. For this he takes 40% and I get 60%. Is his 40% tax deductable and should I get something in writing to back this up? Also, where nshould this duction be taken in Turbo Tax?

TurboTax Home & Biz Windows

Mike9241

Level 15

a crucial issue is whether this is a business or a hobby.

if this is conducted as a for-profit business you report on Schedule C your income and expenses including the 40% you pay. if this is a business and the Ebay dealer is not incorporated, you should be issuing the seller a 1099-NEC. even with that you should have documents that show you paid these amounts as a commission or other expense.

an activity is presumed to be for profit if gross income exceeds deductions for 3 or more out of 5 consecutive years. if you are a dealer, the sale is ordinary income inventory and not the sale of collectibles.

if its a hobby, then the expenses aren't deductible but the sale is of collectibles that get capital gain treatment

Mike9241

DianeW777

Alumni - Intuit

Perhaps! In addition to the important information about hobby vs business from @Mike9241, the answer to your question about deducting the 40% given to the eBay dealer is dependent on whether the income reported to you includes the gross amount. If you are claiming the gross amount (100% of the sale for each transaction) as income, and if you consider yourself a business, you would be allowed to deduct the 40% fee.

IF you report the net, only the 60%, as income then the fee to the eBay dealer would not be a deduction.

Also, if you do consider your activity a business, and if you report 100% of the sales proceeds, then you must determine if you have a reporting requirement on those payments to the eBay dealer.

You are not required to file information return(s) such as Form 1099-NEC, if any of the following situations apply:

You are not engaged in a trade or business.
You are engaged in a trade or business and
- the payment was made to another business that is incorporated, but was not for medical or legal services or
- the sum of all payments made to the person or unincorporated business is less than $600 in one tax year
  - Who is required to issue Forms 1099?