Another tax thread - selling on eBay

I have two machines I restored and will list for sale. Although I buy a lot on eBay I haven’t sold anything in years. Wow, is it a lousy situation today. Each machine should sell for around $1000. The eBay selling fee for that range is now 13.5 % I think so that’s $135 bucks gone to begin with. They charge the fee on the total purchase including shipping.

Until this year the threshold you had to hit before the IRS collected taxes on your eBay sales was $20,000. They changed it a little bit - you now have to pay taxes starting at $600! So that’s another 15% or so gone. I stand to give up $285 on a $1000 sale. That’s not much profit left.

eBay is appealing the IRS decision claiming that people who only sell a few things are not businesses.

It looks like I may be able to write of the cost associated with buying and refurbishing the machines but I’m not sure. I don’t itemize anymore so I hope this can be done with just an additional form of some sort.

Why would any one-off seller use eBay anymore? I use Facebook Marketplace and avoid the “I sent you a code …” scam.

I am not a tax attorney, and I’ll probably end up in IRS jail at some point.

This is my understanding, and this is what I have done. I’m happy to be proven wrong, but if anyone does think I’m wrong, I’d really appreciate citations or at least appeals to authority, not just “everyone knows that…”

My wife occasionally sells art she creates, and I have a condo that I rent out. The details of the two are different, but the fundamental principles are the same—I decrease the amount of income by the actual expenses of the endeavor. I’ll discuss the art sales, because that should be analogous to your situation.

She sells through some commercial venues that send her a 1099(?, some number) form in January. It shows the amount she earned by selling. So if she sold $1150 worth of stuff, and paid a 15% commission to the venue, then the 1099 is for $1000. This corresponds exactly to the $1000 check she received from the venue.

In tax terms she has a small home business that sells art, and she can deduct from $1000 earned any expenses related to creating the art. Because I don’t have any interest in going to IRS jail, I only deduct direct expenses, and nothing like a portion of the house she uses for the art or anything like that. I also am not concerned about business losses, just offsetting some of the income with expenses. In years there is no income from selling art, I leave the whole thing off the taxes.

I collect all of her receipts for materials and supplies from the same calendar year and enter those as business expenses. That might add up to $350 purchased in the year she earned $1000. It does not matter if the materials purchased that year went into the art sold that year. All that matters is the income and expenses for that calendar year.

In this example, after $1000 in income and $350 in expenses, we then pay taxes on $650.

Under my understanding and usage of the system, If you bought the machines in 2022, and sold them in 2023, you can’t deduct the cost. There may be carry forward, or other sophisticated tax ways of moving expenses from one year to another, but I’m not able to answer that kind of question.

You, like my wife, might be in a situation where what was sold in 2023 was bought (and possibly deducted) in 2022. What was bought in 2023 and deducted from 2023 income will be sold in 2024.

These business deductions are different from personal deductions. We use the standard deduction for that, and do not take any personal deductions, which would be things like mortgage interest, medical expenses, local taxes, etc.

This is false. What those numbers refer to is whether or not eBay files a report with the IRS; you are required to include self-employment income in your income tax forms no matter how low the income. But there is a great deal of tax evasion in this country and as a general rule most people don’t include side income for very small amounts of income.

Keep the paperwork, whether online or dead-tree, and file it when you file your taxes. Better safe than sorry.

Small business income, or even “hobby for profit” income is reported on Schedule C or C-EZ and is independent of whether the taxpayer itemizes the deductions or takes the standard.

I’ll stop there before I say something that’s now a few years obsolete since I was last in that situation. An increasingly common event for me.

Bigger audience, better tools, a bit more streamlined operation. FB Marketplace is growing in its usability but still doesn’t feel as rich an audience to me as eBay, for many items. It’s definitely superior for large items you don’t want to ship.

FB Marketplace is possibly a bigger scam city, especially since there’s less recourse built in for the buyer. Not to mention the one person who I’m pretty sure was going to rob me.

For OP, note that “need to pay taxes” isn’t contingent on any particular form, you still need to pay them if required. Generally this is supplementary income >$400 where you have to start paying SE tax and it’s been this way for a long time. You don’t need to itemize, this is on Schedule C. And unlike itemizing, you can write off reasonable expenses including costs. I haven’t seen eBay’s new 1099/K forms but I’m guessing they already remove their fees so you don’t need to there. But if you’re selling at cost basis, it’s not all net profit.

As has already been mentioned, but is worth repeating, income from any source is taxable, regardless of whether anyone sends the IRS a 1099 reporting that income. And since people can make mistakes, receiving a 1099 that indicates income was reported to the IRS does not necessarily mean that you have taxable income.* You are required to calculate your income yourself. The 1099 reporting rules are there for the IRS to know about payments made by businesses that want to deduct those expenses, and thus need to be reported as income by someone (if subject to US tax). You receive a copy of the 1099 as a courtesy; whether you receive it yourself has no bearing on whether the IRS receives it. If the latter happens and not the former the payer might be in hot water, but whether you receive it or not has no bearing on whether it’s income.

*I had a client receive dozens of 1099-NECs for no good reason due to a computer glitch. The payer corrected all of them with the IRS, but didn’t bother to send the client the corrections. The client was freaked out, but since they were all mistakes, he didn’t have to report them, even if they hadn’t been corrected by the payer. I found out they were corrected by the payer by getting him to get a Wage and Income Transcript, which showed the corrections that were filed.

Now when you’re selling stuff, rather than services, you generally have some cost to acquire the stuff, known in accounting as Cost of Goods Sold. If the stuff you’re selling you acquired for reasons other than to resell it, then you actually have a capital gain, not ordinary income. It’s unclear from the OP what’s the case here. You restored the items and are selling them, so I guess you bought them and restored them in order to sell them, but that’s not necessarily the case. You could have had them on display for awhile and then decided to get rid of them. In that case, things work a little differently, and I’ll go through each separately.

If this activity of restoring and selling machines was undertaken over a period of time with the intention to make a profit, then you have a trade or business, and report all the activity involved with the business on Schedule C by default. You first list your gross receipts, then subtract the Cost of Goods Sold to arrive at gross income, then subtract all the other expenses you incurred in the business for the purpose of restoring and selling them that are not Cost of Goods Sold to arrive at net income. There’s really no difference between Cost of Goods Sold and other expenses except for a few niche situations where it matters that Cost of Goods Sold is subtracted before arriving at gross income. If net income is at least $400 or so, you’ll pay self-employment tax on the income as well as income tax, which is 15.3% of “earnings from self employment”, the latter of which is defined as 92.35% of your net income from self-employment. This is because you get to deduct half of the self-employment tax for income tax purposes, as it’s basically the employer half of FICA.

All the activity on Schedule C is completely unrelated to the deductions that you take on Schedule A, known as itemized deductions. In reality, Schedule A deductions in general are kinda fake. They by and large don’t represent any actual reductions in your income, but are certain deductions allowed by Congress for whatever policy reason they devise. Some of them make sense (Medical), some of them really don’t (mortgage interest). There aren’t very many types of such deductions, and because practically all miscellaneous deductions are currently not allowed, they are simple to list: Medical (in excess of 7.5% of your income), Taxes (limited to $10,000), Interest (but only mortgage interest and investment interest), Charity (with various limitations depending on what and to whom you give), and Gambling Losses (to the extent of Gambling Winnings, but if you gamble as a living, that goes on Schedule C).

Now if you didn’t intend to do this for profit, that makes things much worse for you under current law, which does not allow any deductions for the production of income for activities not for profit. If you ask me, that’s unconstitutional, but the lobbying and legal power of hobbyists is minimal, and most of them are going to simply ignore the law anyway and claim they were trying to make a profit. Note this is one case where it matters what’s Cost of Goods Sold, because you can always subtract COGS to arrive at gross income, even if the rest of the deductions are not allowed. You would have to report all the income as “Other income” at the bottom of Page 1 of Schedule 1, the Cost of Good Sold on a specific line on Page 2 of Schedule 1 that I’m not going to look up now. At least in this case you avoid self-employment tax, because that only applies when attempting to make a profit.

If you didn’t intend to profit though, it’s more likely that you didn’t buy and restore them intending to sell them. In that case, as mentioned above, you might have a capital gain. If that’s the case, you need to add up all the expenses you incurred in buying and restoring the machines, and that’s what’s known as your basis in the machines. You report the sales on Schedule D and Form 8949, checking either Box C or F depending on if it was held long-term or not. You take the gross proceeds and subtract the basis to get the net capital gain. If you had a capital loss, you’d have to adjust the loss to zero because you can’t take losses on activities not for profit. Or you could simply not report the sale if the IRS wasn’t told about it - there’s no point in including it if there’s a zero bottom line and the IRS isn’t expecting to see it reported. In this case it’s hard to say that you were trying to make a profit in restoring these machines but didn’t initially intend to sell them. That would only be the case if you at least at some point planned to use them in a business some way other than selling them, and the IRS would want proof you were considering that if you claimed a capital loss on these items.

There’s one niche scenario that rarely comes up that I’ll mention for completeness that one might have noticed in the above. What if you intended to profit it from it, but it was a one-time thing that didn’t occur over time? That’s not going to be the case here since restoring the item is going to take some amount of time, but lets say you bought a machine simply because you knew a guy that would pay you more for it in its current condition than what you could buy it for yourself right now. Well, it’s not a capital gain if you bought it intending to sell it for a profit*, but it’s also not a business because you didn’t do it over a period of time, didn’t intend to do it over a period of time, and presumably will not not do it in the future with any regularity. In this situation, the rules are the same as in the case of doing it not for profit, but for rather different reasons which I won’t go into.

*But you say, aren’t stocks bought intended to be sold for profit? And aren’t those capital gains when sold? Yes, because you aren’t buying them to resell very soon for profit. If you in fact do intend to sell them very quickly for profit, then you become a dealer in securities, and then all the gain and loss is ordinary income of a business, assuming you do it more than once.

And of course, I’m only talking about US tax law with all of the above. I am not particularly knowledgeable with respect to the tax laws of any other country.