ebay sales and 1099k's

[Opus 17]

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@FHH11 wrote:

I am 84 years old and am selling my life's accumulation of stuff, mostly electronic or sailboat equipment made in the 1930s,40s, 50s, 60s and 70s and associated with my ham radio and sailing hobbies..  I have no records of actual purchase dates or amounts for much of this stuff.  All told, this stuff is being sold at a loss, and in some cases at a great loss.   I had no intent to be a business do not expect any profits, only losses.  Nor did I want to throw the stuff in a landfill.  Nor did I intend to have to buy a Turbo-tax upgrade to get a Schedule C.   Can I avoid Schedule C by showing the income as Miscellaneous Income, attaching the Schedule K and including a reasonable  explanation that I am not in a business and that the Ebay sales were sold at a loss?

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If you are only selling items for less than you paid, you don't have any taxable income to report.  However, the IRS may take the information from the 1099-Kk and start to ask you questions to prove that all the items were sold for less than the purchase price

If you are not in an "ongoing trade or business" with an intent to make a profit, then you are not self-employed.  It sound like you will be running an eBay business for many months or a couple of years to sell off all the things you want to sell off, whether that would be an "ongoing trade or business" would ultimately depend on the views of the IRS auditor if you are audited.  https://www.irs.gov/businesses/small-businesses-self-employed/business-activities

You probably have two options at this point.  You could simply claim that everything is being sold below your original cost, the income is not taxable, and not report any of it.  When you receive a 1099-K that is not income, the IRS asks you to file by mail and attach a written statement explaining why the money is not taxable, and a copy of the 1099-K.  They may come to you later asking for more proof.

Or, you could acknowledge that you have no proof of original cost, which would make all the money taxable, but that you do not have an "ongoing trade or business" carried out in good faith with a profit motive, so the income is "other non-wage income" instead of schedule C income.

It will behoove you in any case, and especially in option 1, for you to keep accurate and detailed records of all the items you sell, and as much as you can reasonably remember about how you acquired it (bought new, bought used, received as gift, and the approximate year at least.). 

[user3143]

I have entered my ebay sales under hobby. Doing this reduced my tax refund by $1500.  This seems crazy!

I sold used items. Totaling $4900 in sales that probably cost more. When I put the cost in as the same as the sales my tax refund remained at $1500 less than it was.

Why would I pay $1500 in taxes on $4900 worth of used crap sales?

Please help me put this in turbo tax another way so that it isn't hurting me.

Thank you!

[Opus 17]

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@user3143 wrote:

I have entered my ebay sales under hobby. Doing this reduced my tax refund by $1500.  This seems crazy!

I sold used items. Totaling $4900 in sales that probably cost more. When I put the cost in as the same as the sales my tax refund remained at $1500 less than it was.

Why would I pay $1500 in taxes on $4900 worth of used crap sales?

Please help me put this in turbo tax another way so that it isn't hurting me.

Thank you!

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You have posted to the bottom of a 2 year old discussion that answers all your questions.  Did you read the entire discussion?

https://ttlc.intuit.com/community/taxes/discussion/ebay-sales-and-1099k-s/00/1695360

Briefly, you only have taxable income if you sell items for more than you paid for them.  If all you did was sell used items for less than you paid for them, you don't have to report the 1099-K as taxable income.  However, if you are audited, the IRS will consider all your income taxable unless you can prove otherwise.  You would need (at a minimum) a list of the items you sold, with your best guess as to when you bought the item, how much you paid, a description, the selling date and the selling price.   

You can either leave the income off your tax return, or add the 1099 in the "other income" section and then add a negative item of other income (minus $4900) to cancel it out with the reason "used items sold for less than cost" or something.  Or, leave the 1099 off entirely, print your return and file by mail, and attach a copy of the 1099-K and a written explanation of why the money is not taxable (don't include the detailed proof-save that for later if asked.)

[GeorgeM777]

@user3143.   Unfortunately for people who earn income from hobbies, the Tax Cut and Jobs Act (which went into effect in 2018) completely eliminates the itemized deduction for hobby expenses, along with all other miscellaneous itemized deductions. The prohibition on deducting these expenses continues through 2025. This means that taxpayers will not be able to deduct any expenses they earn from hobbies through at least 2025, but they still have to report and pay tax on any income they earn from a hobby.  The deduction is scheduled to return in 2026.

While it may seem to “make sense” to offset the deductions from a hobby directly against the income from that hobby, in effect to "zero out" the hobby income and the tax associated with that hobby income, that is not the proper treatment.  Because this is the case, it is likely the reason why when you entered your hobby income and hobby expenses (and those expenses are no longer deductible) that you saw your tax liability increase and your tax refund decrease.  

In the future, if your hobby eventually turns into a business, you would have more options available to you in terms of expenses, and deducting those expenses from your profits.  Below is an IRS webpage that addresses hobby income and the factors the IRS uses to determine if someone is engaged in a hobby or a business.  You might find this information helpful.  

What Taxpayers Need to Know About Paying Taxes on Hobby Activities

[February 8, 2022 at 12:46 PST]  

After further review of your question, we felt it appropriate to add to our initial response with the following information relating to the sale of personal use property and the sale of personal property.

In your question, you indicated that you had sold items on eBay.  If the items you sold on eBay were personal use property, then the income you earned may not be taxable.  Personal use property is whatever you own and use without the primary intent to profit from its sale.  For example, the clothes you wear, the food in your pantry, and your cellphone all constitute personal use property.  You probably purchased these items not intending to sell them for a profit.  Rather, you most likely purchased them to use (i.e., personal use) and selling them was more of an afterthought.  Personal use property can’t be used for business or rental purposes.

When you sell personal use property, you cannot claim a deduction due to losses from the sale of such property.  However, if you sell your personal use property for a gain, then you are liable to pay taxes on that gain.  Thus, it is important to have documentation showing the cost for any personal use property that you sold through eBay.  If you know the cost, then you will know whether you had a gain.  If you sold your personal use property at a loss or at cost, you would not be able to deduct that loss, but you would not owe any tax on the income you received. 

Check to see whether any of the items you sold on eBay qualify as personal use property.  If they do, and you did not sell them at a price greater than your cost, then the income you received is not taxable and you can remove such items from your return.  Keep any records of your sales through eBay including records showing the cost of such items.

Personal property is different from personal use property.  Personal property is property that was purchased with the primary intent to profit from its sale.  Some common examples of personal property would be stocks and bonds, to lesser-known property, like art and collectibles. Land can be an example of an investment property as well. 

If any of the items you sold was personal property, that is property you purchased with the intent to sell it at a profit, then you would pay tax on any gain from the sale.  If you had a loss, the loss would generally be deductible and could be used to offset any other capital gains and even some of your ordinary income.   

Therefore, determining whether the items you sold through eBay are personal use property or personal property is important.  Once you have the correct category for each item (some of them might be personal use whereas others might be just personal property), and when you know the cost for each item, then you will know whether you have any gain, and whether you will need to pay tax on the income received.   

[user3143]

I don't have to file it as a hobby.

If it saves me money I can input it as something else?

Thanks

[Opus 17]

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@user3143 wrote:

I don't have to file it as a hobby.

If it saves me money I can input it as something else?

Thanks

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Just because you received money, doesn't mean it is taxable.  You have taxable income if you sell items for more than you paid.  If you are only selling used items for less than you paid, you don't have taxable income and you don't have to report it, but you might be asked by the IRS to prove you were only selling used items for less than you paid. 

As mentioned, you can't deduct expenses (like shipping) even if you sold items for a gain.  But you only owe tax on items sold for a gain.

[user3143]

Thank you for your response.

The total of my 1099 K's from paypal and ebay is $4974.66.

If I am understanding you correctly, I do not have to claim this amount as income if I can show that I sold the item for less than what I paid?

What if I sold something for $38.00 and paid $25.00? Do I report the difference in what I actually did make?

Thank you so much,

Stacy

[ErnieS0]

Whether you report your activity as a hobby or a business depends on your intent @saki93-hotmail-c. 

The IRS says you should consider nine things when deciding whether to report your income as a hobby or business.

• Whether the activity is carried out in a businesslike manner and you keep complete and accurate books and records.
   
• Whether the time and effort you put into the activity shows an intent to make a profit.
   
• Whether you depend on income for your livelihood.
   
• Whether any losses are due to circumstances beyond your control or are normal for the startup phase of this type of business.
   
• Whether  you change methods of operation to improve profitability.
   
• Whether you and your advisors have the knowledge needed to carry out the activity as a successful business.
   
• Whether you were successful in making a profit in similar activities in the past.
   
• Whether the activity makes a profit in some years and how much profit it makes.
   
• Whether you can expect to make a future profit from the appreciation of the assets used in the activity.

For more information about hobbies see our article: When the IRS Classifies Your Business as a Hobby

[user3143]

Definitely not a business.

Not all of the income reported is profit.

The items were paid for!

Thanks

[DawnC]

Keep detailed records of the items you sold at a loss in case you are asked for it, but you don't need to report those if you were reselling personal items, like having a garage sale.    See this FAQ about reporting income from personal items you sold online.   If you did have some gains, you can report those as investment sales.   There is an instruction FAQ to do that at the bottom of the linked FAQ.   Don't enter any personal loss transactions in the investments section.    

As previously mentioned in this thread, if your activity is a hobby, the income would be reported under hobby income and the related-expenses are not deductible.   If you have profit-motive in the activity, the income gets reported on Schedule C and you can deduct your business-related expenses.   

Do I have to report hobby income?    @user3143

[Opus 17]

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@user3143 wrote:

Thank you for your response.

The total of my 1099 K's from paypal and ebay is $4974.66.

If I am understanding you correctly, I do not have to claim this amount as income if I can show that I sold the item for less than what I paid?

What if I sold something for $38.00 and paid $25.00? Do I report the difference in what I actually did make?

Thank you so much,

Stacy

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Basically, you are correct.  You should have a spreadsheet showing the purchase date, cost, description, selling date, and selling price.  (For items that were gifts, you need the date of the gift and the approximate price paid by the giver, as best you can determine. For items that were inherited, you need the date of death of the previous owner and the fair market value of the item on that date.)

If you sell items for less than their purchase price, you technically have a loss, but you can't deduct losses on personal property.  If you sell items for more than their purchase price, you have a taxable capital gain.  If the item was held more than 1 year, you can use the lower long-term capital gains rate.

You would take your spreadsheet and report the income from the items sold for a gain, ignoring items sold for a loss (the losses do not reduce your gains).  You could report the total gains as hobby income, or you could report the individual gains as capital gain sales (sale of stocks, bonds and other property) on schedule D, to take advantage of the lower capital gains rate, but this would require listing each item of property separately.  (But also note, sales of coins and collectibles are taxed as ordinary income even if you owned them more than 1 year.)

If the IRS sends a letter asking why you reported income different than the 1099-K, you would reply with a letter of explanation and other detailed proof, your spreadsheet, copies of other records, and so on.