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oldradio99
Level 2

1099 adjustments for sales

I am a hobbyist and am retired. I have reached the age where I need to start liquidating my vast array of parts purchased at flea markets and garage sales.
Last year I sold less than 200 lots totally just over $2,000.
The problem for this year I have no memory or documentation of what I paid for these parts, sometimes over 20+ years ago.
I dread the thought of paying taxes on the gross amount but have no idea on the cost of goods.
I know that some items will sell for less than I paid and some more.
I will know my EBay and PayPal fees which can offset the gross amounts.

What do I do for cost of goods?
Will I need to pay any Self Employment tax?
One suggestion I saw posted was to just list an amount as a negative equal to the gross sales.

Thanks

1 Best answer

Accepted Solutions
Mike9241
Level 15

1099 adjustments for sales

If you earn gross income relating to a hobby, the income is taxable. Any allowable expenses are limited to the gross income earned from the hobby. If you sell goods as part of your hobby, cost-of-goods-sold is deductible, subject to the gross income limitation If the activity is a hobby, you will report the income on Schedule 1, line 8 section of Form 1040. The income won’t be subject to self-employment tax. the cost would be shown as a negative in the line 8 section. 

unless you use zero for the cost you'll have to use your best estimate. realize that if you are audited and can't satisfy the auditor, the entire cost you deducted could be thrown out 

 

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4 Replies
Mike9241
Level 15

1099 adjustments for sales

If you earn gross income relating to a hobby, the income is taxable. Any allowable expenses are limited to the gross income earned from the hobby. If you sell goods as part of your hobby, cost-of-goods-sold is deductible, subject to the gross income limitation If the activity is a hobby, you will report the income on Schedule 1, line 8 section of Form 1040. The income won’t be subject to self-employment tax. the cost would be shown as a negative in the line 8 section. 

unless you use zero for the cost you'll have to use your best estimate. realize that if you are audited and can't satisfy the auditor, the entire cost you deducted could be thrown out 

 

Opus 17
Level 15

1099 adjustments for sales

@Mike9241 

I disagree. Tangible personal property is capital property, so the sale of tangible personal property is a capital gain reported on schedule D.

 

@oldradio99 

If you are selling off of your hobby, and you do not have the motive of making a profit or engaging in “an ongoing trade or business “, then I would agree this is a hobby. But this is not “other income“. Selling off items that you have held more than one year results in a capital gain or a capital loss and you report this on form 8949 and schedule D. 

Your cost basis is what you originally paid. If you have no records, you can estimate, but if you are audited, the IRS is likely to disallow any estimate you can’t back up with proof.   However, the long-term capital gains rate is 15%, or maybe even 0% depending on your other income, so this may offset the pain of reporting zero bases in the entire sales proceeds as your gain.

 

Because this is personal property, you can’t actually deduct the losses or use the losses to offset your gains, but they will still be reported on the forms.

 

The tricky part is going to be reconciling your schedule D with the 1099K. The IRS may  institute new procedures  for 2022 since many more taxpayers will be getting 1099K forms.  In general, you could either ignore the 1099 K and hope the IRS realizes that you’re reporting the same income on schedule D, or you could report the 1099 K, then back out to 1099K (so the IRS computer sees it being reported) and then still report your actual gain on schedule D. I would wait until the tax forms come out before worrying about exactly how to report the income.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
Mike9241
Level 15

1099 adjustments for sales

I agree only service income from hobbies goes on schedule 1. personal property sales go on schedule D. but aren't the losses on the sale of personal property disallowed? 

Opus 17
Level 15

1099 adjustments for sales


@Mike9241 wrote:

I agree only service income from hobbies goes on schedule 1. personal property sales go on schedule D. but aren't the losses on the sale of personal property disallowed? 


Correct, I overlooked that here.  Capital losses on personal property are not deductible and do not offset gains.  However, I would still list all the sales on form 8949.  That way, the total of the gross sales will equal or come close to the 1099-K, so the IRS sees that it matches.  

 

If there was no 1099-K, you would list the sales that had a gain and ignore the sales that had a loss.  I guess that was the "good old days" of income taxes?????

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