@ryder3 wrote:
There was no estate. He had no assets. He had a toy collection. I am the only one selling those toys. The proceeds from the sales have gone to pay for burial. Now anything sold is extra. So how would I claim the income? As self employed, since I have incurred costs for selling and shipping items. I know it's complicated but trying to figure out the easiest way to navigate this.
Yes, he had an estate. His estate is whatever was left behind. (Estate is a legal term for whatever is left behind. It doesn't have to be large. The estate is a legal entity that exists to carry on any business the deceased left behind. Most of the time it just means rolling up final expenses and so forth.)
You can't legally do any of the things you did without being appointed the executor of his estate. That's the person appointed by the state to handle the deceased's final affairs. In the case of a small estate with little value, and where no one is disputing you as the choice of person to do those things, it might just mean filing a simple form with the county court. It depends on your state law. You can't sell or dispose of any of his assets without proper permission.
Then you have to determine who his heirs are, if he had no will. You can't distribute property to where you think it should go, you have to distribute it according to state law. If he was unmarried and had no children, the estate might be divided by siblings. If he had children, they probably get it (but not you). In some states, his spouse gets everything, but in other states, the spouse gets 50% and the rest is divided among children. You need to review your state laws on intestacy (dying without a will).
If he had income in the year he died, someone has to file a final tax return for the income he earned up to the date of his death. Thats the responsibility of his personal representative or executor. If taxes are not paid, the IRS can claw the money back from the heirs, because the heirs can't get any money until the taxes are paid. There are no estate or death taxes for someone who owns less than $12 million when they died, but there might be income taxes owed on wages, pensions, or IRA distributions that were taken before he died.
You can't distribute any money to the heirs until all debts are settled and all taxes are paid.
If you are not the heir, you can't sell the property because it doesn't belong to you. It either belongs to the estate or to the heirs. If the estate owns the property, then you can sell it as a representative of the estate, but you are not a schedule C business. You are disposing of property acquired over the years by the estate and the income belongs to the estate. If you are an heir, you can sell property in your own name, but its still not a business because you are not making a profit.
If you sell tangible personal property without the idea of making a profit (here it is not a profit because the items are being sold for their stepped up cost basis) it's not taxable income, but you can't deduct any expenses like shipping. Expenses can only be subtracted from taxable income and if the income isn't taxable, you don't have anything to subtract expenses from.
You should pause selling the items and get your situation corrected with the state or county court, then determine who actually owns the remaining toys. Then the owner (who is maybe not you) can sell them. I already described above why the sales proceeds are not taxable income to the heirs and is not business income. You can't subtract or deduct expenses. The proceeds just go to the heirs. Then if a 1099-K is issued, you tell the IRS that the 1099-K is non-taxable. I already told you how to do that, too.
You may want to speak with an attorney or CPA who specializes in small estates.
