I sell used goods, can I file it under hobby income or as a business?

[AnnaCx]

It's been difficult finding steady employment. So I'm currently unemployed and living on savings, plus the side money earned from selling used goods on eBay, Poshmark, Mercari, etc. 

My used good though, are designer items and pricey. Things I've collected when I was younger and impulsive. I've been having some bad luck, so I've been selling off a lot of those valuables, like solid gold/ diamond jewelry, vintage designers, rare items, collectables, etc, to foot my bills and my pets bills. I expect my 1099k to be somewhere around 14k. But I have sold all of these items at a loss. 

Can I still file it under other income as Hobby income, or will the 14k seem too much like a business and trigger an audit? I don't quite understand what I should be filing as. 

And if I am reporting a loss, or at the least 0 net profit, where do I submit my original receipts to prove it? Or do I not need to, unless there is an audit? 

Thank you for the help. 

[Texas Roger]

See these IRS Tax Tips for how to decide whether you have a business or hobby: 

https://www.irs.gov/newsroom/heres-how-to-tell-the-difference-between-a-hobby-and-a-business-for-tax....

[AnnaCx]

Thanks for th link. but I have already visited this. The reason why I ask is because I do not sell in effort to "make a profit" but I do rely on it to pay for bills. If it was a lower amount I would be comfortable stating it was a hobby but I am afraid at 14k, IRS would see it as a suspicious amount to not be considered a business. So I don't know if to claim it under hobby income or file taxes differently as a self-employment. 

Simple terms, is 14k too much for the IRS to be considered a hobby, would it raise a red flag and trigger an audit? If not, how to I file it as a hobby income. ?

[Hal_Al]

There's a third choice: you report the profit as a capital gain, since you are selling personal assets.

But, there appears to be no gain to report (" I have sold all of these items at a loss") .  You are not allowed to claim a loss  on the sale of personal property.  However, a loss on the sale of "collectables" is technically allowed.  However, if everything was sold for less than your cost, it's unlikely the presonal items qualify as collectibles for tax purposes.

Since you only  have a loss on the sale of personal items, technically, nothing, normally, needs to be reported on your tax return.  However, since you will be getting a 1099-K, you should report it, to head off an IRS inquiry. For how to do that, see: https://ttlc.intuit.com/community/taxes/discussion/i-sold-some-personal-items-on-ebay-and-received-a... 

You do not submit cost basis receipts with your tax return.  That only comes later, if you are "audited".

If you sold any individual items for more than your cost basis, you are required to report the profit on those item(s) as income.  You do not get to reduce the profit on those items by the losses on the other items.  Report the sale as "investment" sale, so that the gain is taxed at long term capital gains rates. 

[Hal_Al]

Q. Simple terms, is 14k too much for the IRS to be considered a hobby?

A.  No. But, reporting  it as hobby income is not correct, as previously explained. . You don't have a hobby, you just have an online "garage sale".  But, $14K is too much to not report it.  Yes, there is some risk that  the IRS will flag it as possible business income.   But, your's is a common sitaution.

[fanfare]

if you sold  personal items you can report it on Form 8949 as follows

"personal items (1099-K)", acquired:"various", sold:12/31/2022,       14000 Proceeds, 16000 Cost, 2000 Adjustment Code O (other) ,

  Gain or (loss)  -0-

@AnnaCx 

[fanfare]

oops cost has to be more than proceeds. updated

@AnnaCx 

[AnnaCx]

Thank you for your answer. This is what I was looking for. If you don't mind I have a few clarification questions. 

Because these websites will generate 1099k forms, when you say I do not  have to report it since they were all sold at a loss, I can just file normally and ignore the 1099k forms? And then if IRS has an audit, I show receipts and a breakdown of items sold? 

OR 

Since my main concern is triggering an audit because that gives me so much anxiety, I have sold things that I know were at a loss, but paper receipts most likely lost or thrown out from years ago. 

If ignoring the 1099k forms make me nervous, Do I file as Individual/self-employed (or Individual/Unemployed) and breakdown income earned and cost of goods to show a negative or 0 amount? 

Would it be this correct answer from the link you sent? >>

"However, when a Form 1099-K is issued, the IRS receives a copy, as well. The IRS will be looking for this income to be reported on your return.

Rather than wait for the IRS Notice, report the sale and the cost of that sale, as long as it does not create a loss by entering Form 1099-K as Less Common Income and entering the offsetting amount as negative income. This will in effect report -0-, but it does acknowledge the Form as issued, which will satisfy the IRS automatic search to match their records.

To do this in TurboTax, follow these steps:

1. From the left menu, go to Federal and select the first tab, Wages & Income.
2. Add more income by scrolling down to the last option, Less Common Income, and Show more.
3. Scroll down to the last option, Miscellaneous Income, 1099-A, 1099-C and Start.
4. Choose the last option, Other reportable income and Start and Yes.
5. Enter the applicable description and amount and Continue
   • First, enter Form 1099-K as received. It is essential that the full amount be entered.
     • For a description, include Form 1099-K and Personal Property Sales if this is coming from personal items sold similar to selling items at a garage sale.
   • Next, enter an adjustment to reflect the cost of these items as an offsetting, negative amount up to the amount of the income.
     • For the cost description, include Form 1099-K and Cost of Personal Property 
     • In other words, if the goods cost you $100, but Form 1099-K was for $10 in sales, the maximum cost allowable would be $10."

[fanfare]

rather than enter a negative offsetting amount, which is distasteful, 

report it on Form 8949 as I suggested above.

strictly speaking, you have to itemize to show that every item incurred a loss.

It's unlikely that IRS will go that far with reporting scrutiny.

@AnnaCx 

[Hal_Al]

Choice 3: Report the sale and the cost of that sale, as long as it does not create a loss by entering Form 1099-K as Less Common Income and entering the offsetting amount as negative income. This will in effect report -0-.  This is the most commonly reccommended method, in this forum. 

But, I like  @fanfare 's suggesstion better (it appears that TurboTax has been updated to do this better than it did in the past).  Either way is "correct".  Report it as the sale of personal items. 

In TurboTax (TT), enter at:
- Federal Taxes tab (Personal in  Home & Business)

 - Wages & Income

Scroll down to

  -Investment Income

   -Stocks, mutual funds, Bonds, Other 

Answer no, when asked if you got a 1099-B. Then follow the interview.  You will reach a screen that says "Select any less common adjustments that apply".  Check "any loss from this sale is not deductible for reasons other than disallowed wash sale (personal use property, sale to related party, etc)"

Next select "Personal use property".  TT enters code L (rather than code O) on form 8949 and shows $0 net gain or loss. 

Since you probably don't know your actual cost basis, it doesn't matter what you enter as long as it is no less than what you sold it for (you want to show 0 gain/profit and no loss)

[Hal_Al]

New for 2022.  TT has a place to enter a 1099-K.  

In TurboTax (TT), enter at:

- Federal Taxes tab (Personal in Home & Business)

 - Wages & Income

Scroll down to:

- 1099-MISC and Other Common Income

    - Income from form 1099-K

On the next screen, select Sale of Personal Items and follow the interview.  It will  go on form 8949, with code L, as described above.

See screen shots at: https://ttlc.intuit.com/community/taxes/discussion/1099k/00/2803118

[AnnaCx]

Thank you so much for your help so far, it has lessened my anxiety for the coming tax season.

I've sold maybe 150 items. I understand strictly speaking I would have to itemize every one, but is it okay just to report each of the 1099k forms? ie. one entry for Mercari, one entry for eBay, one entry for Poshmark.

(And provide itemized accounts of each sale if there's an audit) 

[Mike9241]

you have to review the criteria the iRS uses to make your own ddeteermination

https://www.irs.gov/newsroom/heres-how-to-tell-the-difference-between-a-hobby-and-a-business-for-tax... 

each sale does not have to be entered separately. and even the use of the 1099-K is more for your convenience.  since detail of those entries is not sent to the iRS you could either skip them by saying you never got them or use just one and combine amounts. 

[fanfare]

"you have to review the criteria the iRS (sic) uses "

IRS requires details of your SELL transactions to be supplied on some Form 8949,
or on your other forms (e.g. consolidated 1099-B or spreadsheet) which have the same information and in the same manner as Form 8949.

Detail Reporting Exception: The only exception is for Category A or Category D transactions without adjustments.
Personal items sales reflected on 1099-K are not Category A or D.

Therefore it is not possible to hide Gains on certain personal items by aggregating with other personal items sold at a Loss all on one line.

In this scenario, most personal items will not be sold at a gain.
Aggregating all personal items sold at a loss into one line showing Total Proceeds and Loss = -0- is not strictly correct.

@AnnaCx