"Warning"Change in 2022. tax laws
- Thread starter Coin-Saver
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Cherry Picker
Forum Supporter
That's sales tax, not income tax.
Cherry Picker
Forum Supporter
So what happens to the tax collected by eBay when you sell an item? They charge the buyer tax, which should be income not sales since you're the one selling the item not them. If they charge tax, then they should be responsible for the income tax?
Attachments
I presume eBay sends the sales tax collected to the appropriate state department of revenue.
And it's always the buyer that officially pays sales tax.
As for income tax, you're the one one selling and therefore, you're the one making the money (as far as the IRS is concerned). So you'd be responsible for paying the income tax. People who buy aren't generating income with a purchase (only a sale).
Rudy
Admin
It's pretty simple really.
Sold goods aren't taxable as income if you are selling a used personal item for less than the original value. If you flip it or sell it for more than the original cost, you have to pay taxes on the surplus as capital gains.
Here is a good writeup on what the new law means for those that sell their used personal property. https://www.1040.com/blog/2019/7/12/selling-stuff-online-taxes-for-etsy-ebay-letgo-and-more/
Sold goods aren't taxable as income if you are selling a used personal item for less than the original value. If you flip it or sell it for more than the original cost, you have to pay taxes on the surplus as capital gains.
Here is a good writeup on what the new law means for those that sell their used personal property. https://www.1040.com/blog/2019/7/12/selling-stuff-online-taxes-for-etsy-ebay-letgo-and-more/
Oh, that's the easy part of the law. The hard part is what people are supposed to do if they say...made* $800 during the course of the year, but it took 34 transactions to earn that. And none of those transaction have any paper trail beyond the 1099 or the sale on eBay b/c the seller bought the goods from flea markets and yardsales in cash.
EDIT: *Made = gross sales revenue. It doesn't actually mean there was a net profit.
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Tom_in_CA
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TorqueMaster
Elite Member
Just to clarify: Income from a hobby is taxable. You just can't deduct any business expenses.
My wife just retired and likes sewing - especially for the grandkids. She posted some pictures on social media and some people wanted to buy some of her creations. If she were to run it as a business, she would have to track all her costs (materials mainly) and inventory. Then if an item costs $20 to make and she sells it for $40, she would show a profit of $20 and pay tax on it. However, as a hobby, she reports $40 as income. It's just to costly/time consuming to do all the bookkeeping.
In addition, if she does all the record keeping, and her costs are more than the sales, she may not be able to deduct the loss from taxable income because the IRS can say it's just a "hobby" and there's no intent to make profit.
So many "anti-little guy" rules and laws. And billionaires pay little/no taxes.
I'm no tax expert, but my limited research showed that costs incurred can be deducted from hobby income, and all that needs to be reported as "hobby income" is really hobby profits. Where-ever I read this, it had very specific examples about material costs, versus selling prices. One only reports a positive number, but never zero or negative. If you want to report a loss, you must be a small business, and deal with all the headaches that go with that.
In the case of a few hundred dollars, pay on the total hobby income if you want to be completely covered, or just the profit, and have reasonable numbers to back it up. Seriously, they have badder fish to fry. Badder than someone who actually reports hobby income.
TorqueMaster
Elite Member
I'd say if one routinely purchase items with cash with the likely intent of flipping it sometime down the road, peck a note into your smartphone or jot it down in a memo pad. No official receipts, but at least there's a record. It is annoying the new policy is forcing ebay sellers to be more tax honest, whether big or small, but the tax was always applicable.
But would the IRS accept hand written or self-made notes? That's what I'm curoius about. Because if they would, then it's no big deal. But I presume (b/c it's the IRS) that they would take your hand written notes and tell you to go jump off a cliff.
And by handwritten notes, I'm referring to any assertion that you're making about the cost basis in a transaction where you have no way of backing up what you're saying.
I've completed tax schedules before where I just input data. So in a way, that's just a handwritten note. But I had actual receipts or official records to back up what I was saying (like receipts from buying or selling stocks).
And I understand you don't need to attach receipts to your return. But you need them in case you get audited. So what happens when you get audited due to your $800 or...$2,000 in yard sale flips where you have no way of proving what you paid for the items you sold? Tough luck and you just have to pay what the IRS says you owe them?
Rudy
Admin
Just keep track of each item you buy with the intention to sell. 36 transaction a year seems more than the casual hobbyist selling some used equipment and more like someone flipping for income.
Seriously?
Many of us metal detect more thane 36 times a year. Are we doing it for fun or for business?
Excuse my snarkiness towards you (not trying to shoot the messenger), but I'm just incredulous to the idea that making $600+ in beer money counts as a business as far as the IRS is concerned (irrespective of any tax obligation).
Coin-Saver
Elite Member
well said
Coin-Saver
Elite Member
My whole point of bringing this up wasn't about how the law works in and of itself. It. was more about how NOW, all transactions will be reported to the IRS.The real problem comes when they decide to tax EVERYTHING. and they will. AND when they do, they will have the records to prove what you owe whether you have documentation or not. But many don't believe they will do that.......All I am saying is look around at everything else they are doing. In time YOUR losses won't mean squat to them. All that will matter is your gains and trust me when I say they will get their share of your gains. Even if they come at a loss.
Tom_in_CA
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Dude, they have ALWAYS "chased" 600 bucks. I began my business in the 1980s. And even then, there was the 1099 rule, for whenever customers paid us $600 or more, in a calendar year.
Now as to whether or not everyone COMPLIED with that, is a different issue.
The only difference between then, and now, is that these days: $$ is changing hands digitally more and more. Not with paper checks and cash. So this is just keeping up with the times. It only SEEMS like this is "something new".
Besides, let's be honest : When you found that $10 bill lying the street last month, you dutifully reported that as income on your income tax. RIGHT ? So what are you griping about then ?
ToySoldier
Forum Supporter
Most online merchants, including Ebay, didn't used to collect sales tax. It was the buyer's responsibility to pay it. Guess what? They didn't. Even after the IRS did some education on "use tax" and revised the forms to make that requirement clear. As a result, most online merchants have to collect sales tax and remit it to the appropriate state.
This wouldn't work for income tax because the online merchants don't know the personal tax implications of those transactions for the seller. I might be selling video games from my personal collection for a loss. Somebody else charging the same amount for the same games might be making a profit because they bought the games at thrift shops.
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CallMeGrey
Forum Supporter
But, it's not simple. If you sell it on Ebay for example, you get a 1099. It doesn't explain how you do NOT report that as income.
Dude, they have ALWAYS "chased" 600 bucks. I began my business in the 1980s. And even then, there was the 1099 rule, for whenever customers paid us $600 or more, in a calendar year.
Now as to whether or not everyone COMPLIED with that, is a different issue.
The only difference between then, and now, is that these days: $$ is changing hands digitally more and more. Not with paper checks and cash. So this is just keeping up with the times. It only SEEMS like this is "something new".
Besides, let's be honest : When you found that $10 bill lying the street last month, you dutifully reported that as income on your income tax. RIGHT ? So what are you griping about then ?
You missed another difference: inflation. $600 in 1989 was worth more than $1,300 in 2021 (or more than $1,800 in 2021 if using $600 back in 1981).
If the IRS is gonna update their laws with the times, they should update their laws with the times.
Just sayin'
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