IRS may tax E-Bay Sellers Profits

RobBobGolf

IRS May Consider eBay Sales Taxable Income

Something to ponder as April 15th approaches.

easttexascardsandgames

And?? If you have been selling and reselling on Ebay for profit you have always been required to pay income taxes on it.

goudeygold

yea, sure... we all do this don't we! Believe me I carry enough freaking freeloaders already with my tax rate. They are only going after significant accounts IF they even do that. The common person doesn't have to worry about it. Everyone is so paranoid in america. You ever notice that?

GG

jrdolan

I may make a proft on some individual cards, but not being a "dealer" I spend more money than I receive. I'd be happy to reduce my tax bill accordingly if IRS really insists.

larryallen73

I am NOT a CPA but I believe we could probably make an argument that we may make a buck on one card but we have losses on other cards, expenses (PSA grading fees), etc... so probably not worth the IRS's time as any of us could amend old returns and show tons of expenses (because most of us "lose" money if this were a business). HOWEVER, if you live in a state like I do that is broke, I am worried about the state coming after us for sales tax. Our state is broke and looking to make money and Ebay sales is as good as any other revenue item for the state. Ebay keeps very good track of everything we sell so I would think they could come after us for sales tax... at least if sold to others within our state!? I sell a few hundred dollars a year so I doubt they want to mess with me but I would be interested if anybody knows what the sales tax rules are for different states.

easttexascardsandgames

That is true, that is why I report mine because 90% of the time I shw a lose of money come tax time, although you cannot claim loss for more than a couple of years in a row before your business returns to being considered a Hobby and you lose your deductions.

helionaut

When I go through TurboTax there's entries in there for income not covered by W-2s, and it discusses hobbies. You are required to report all income, whether or not it's from a hobby, but you can offset hobby income with expenses. If you buy a card for $50 and sell it for $100, you are required to report the $100, but you can offset $50 of it because of the original expense. You cannot, however, deduct more than your total income from the hobby with expenses in the hobby. For instance, if you sell $1000 worth of cards during the year, but spend $2000 on cards in total, you can't deduct $2000 from your overall income. In this way, I think, you will be able to save yourself at least somewhat from taxes and IRS hassles over selling cards, as long as you report it all. If you don't report it, and they audit you and see a bunch of deposits in your bank account from sales here and there without the money being declared, you could have a headache. Even if you don't end up actually owing money, it's better to keep records of all cards you buy specifically to sell. I think you may have to prove your expenses were specifically for resale, and not just consumer items you purchased for a permanent collection. And it may have to be in the same calendar year or something, I don't know. But hey, if it was easy to figure all this out, there wouldn't be a need for tax laywers and CPAs.

MajorDanby

aren't you also supposed to report sales tax on internet purchases in your state return? Most of the dealers i buy from are out of state, so as a Californian, i would need to report a 8.25% tax on these sales.

lostdart58

<< <i>aren't you also supposed to report sales tax on internet purchases in your state return? Most of the dealers i buy from are out of state, so as a Californian, i would need to report a 8.25% tax on these sales. >>



IN state sales are sales tax taxable. Out of state sales are not.

easttexascardsandgames

Most states actually require the buyer to report items they have bought and make them pay a use tax on them, but this is next to impossible to enforce. I do know Louisiana has been looking for ways to enforce this.

MajorDanby

<< <i>Most states actually require the buyer to report items they have bought and make them pay a use tax on them >>



I started buying from ebay this year and i cringed when i saw that i had to report purchases made on the internet from out of state dealers. That Willie Mays rookie purchase from the guy in New York is going to cost me!

goudeygold

I'm telling you guys... your CRAZY if your paying tax on internet purchases. If the government allows Sam Walton to shelter nearly 100 billion dollars when he died, do you think they are going to go after your $1,000 purchase or sale at a card show?! Do you really think ebay is going to just give all this information out and take the bad publicity and hit in stock price? I seriously doubt it. As for deposits in your bank account setting off flags, that is a witch hunt. For all they know your selling assets, which you don't pay sales tax on nor do you report it as income. Sure you may have gains, but nobody (individuals) have records of this crap. And if your cheating or fudging your return anyway then this will raise the flag and expose you to further scrutiny. If your truely worried about it simply start paying cash. All the in and out transactions at your bank will be better disguised as "normal". The states are so mismanaged when it comes to your taxes its a fallacy. Here in Illinois, we have freaking toll collectors sitting at toll booths making $80,000 a year. I personally knew a union plumber that was told to put push buttons on public park water fountains in NOVEMBER when the water wasn't even running to the fountains. On top of this it was a sunday so the city had to pay him TRIPLE time or nearly $120 and hour! There is so much pork rolling i'll be damned if i'm paying taxes on my freaking hobby!! Also, if you simply want to minimize auditing, then do NOT file electronically. The IRS is cutting staff and pushing electronic filing becasue this makes it tooooooons easier for a computer to spit out your return after comparing it to the other years you've filed. Break out the pen and paper and file the old fashioned way because it substantially reduces your exposure for auditing.

GG

justanoldtimer

Time to Break out the Tar & Feathers!! I have no worries Spent about 100 times more then I sell But I have been known to Enron my Wife here and there LOL ..
BTW why can't we write it off as "Historical Preservation" like a house ??

thefootballcardstore

<< <i>aren't you also supposed to report sales tax on internet purchases in your state return? Most of the dealers i buy from are out of state, so as a Californian, i would need to report a 8.25% tax on these sales. >>



It is my impression, that if you organize as a business, in some states if not all states (including Florida) you would not have to pay the state sales tax on purchases from out of state sellers because you are purchasing for resale and therefore would be exempt by virtue of the resellers resale certification.

easttexascardsandgames

I agree with GG that all this is probaly not going to affect small sellers one bit as most would not even hit their radar screen and the enfocement of such laws would be next to impossibe. That being said LEGALLY if you earn more than 400 dollars from a "hobby" in a year you are required to report that as income, which does have its advantages because if you keep track of everything you can nearly always zero out any profit you may have earned with deductions.

Most states have a use tax which under most state laws is required to be paid on any out of state purchases you make. The buyers have to pay this directly to the state it is not the seller responsibility to collect it. However again this is very hard to keep track of and monitor to enforce. It comes down to if you feel you should or not, since I have a tax ID I am required to pay sales tax on in state sales and I also report all my profit and losses as income in addition to my job, just for the deductions I am allowed to take.

I don't see how it makes a difference how you file your taxes, when the IRS recieves them I am willing to bet they are entered into some electronic filing system that produces the same results as they would get electronically filing.

Last year I did not file electronically, I needed to go and get a copy of my tax return for that year for a pell grant for my wife. The college needed it to verify income I misplaced it when we moved earlier in the year I went to the local IRS office gave them both of our socials and they printed it right out took about 5 minutes total.

glmueller

Never happen - Too many other fishes in the sea for the IRS to worry about.

wolfbear

Did I read goudeygold's post correctly
that if government is inefficient it's okay to cheat on your taxes ?

Aren't half the posts on this board crucifying eBay sellers for trying to cheat someone ?
Guess somebody needs to explain to me when it's okay to cheat and when it's not.

DeutscherGeist

I have talked to tax people, and they all said that income from garage sales were never a topic of IRS intrusion. Ebay sales are the same way.

If you are an average joe Ebay seller, you most likely will have to file schedule C on your tax return. Basically, keep track of all sales and expenses. You will add it all together for a sum. Most of the time, you will end up with zero or a negative number, therefore no tax. Even if you have a positive number, there is some minimum (like $400) that you must meet before it being taxable.

Take this example:



Rickey Henderson 1980 Topps purchased with NO RECEIPT--paid cash, sold for $300 (on ebay)
Nordstrom Jacket purchased $300 (receipt kept from 1999), sold for $20 (on ebay)
Tom Glavine 1988 Fleer PSA 9 purchased for $30 (reciept from 2000 off ebay), sold for $7 (on ebay)

total purchase amount= -$330 , total sold= $327


net total -$330 + $327 = -$3


Make sure you also substract an fees and expenses associated with selling the three items such as shipping, packing materials, paypal fees, etc.

You will wind up with a negative number, so you don't have to worry about paying tax on it. Just make sure you keep organized records so you can show the IRS that there was no income to report.

If you do not have proof of purchase like a receipt, then you cannot claim an expense. Selling that Henderson rookie gave you a $300 profit even though you might have paid $245 for it (but because it was in cash, there is no proof how much you paid, so you would have to errr on the side of no expense). You need to save the receipts because you never know when you are going to need them. While you lost out on the Henderson in terms of showing a bigger profit than what actually is the case, you can make it up by selling all those Nordstrom items that are worn or not needed any more for pennies. Because you still have all the Nordstrom receipts, you can claim hundreds of dollars in expenses. SAVE RECEIPTS. If you have no receipt, the IRS assumes you did not spend any money to acquire it. We live in a society of documentation, so do save all those receipts and store them someplace safe and make sure they are organized in date order so they can be found easily when needed.

So, in the end, you will sell products at large profits, but you can offset those by selling junk on ebay for pennies and show proof that you paid $1000's for them.

If you have a lot of cards for sale that are going to bring in thousands of dollars and you no longer have receipts to offset the profits actually earned, then you can sell your junk car that you bought for $25,000 seven years ago for $4,000 on ebay. That way you have a $21,000 loss to offset the thousand you make in profit from the cards as an ebay seller. Does this make sense?


People like DSL SPORTS are obviously selling tons more than buying, so that is an actual business that must file.

For most people on here, I think you guys do sell well, but then buy a lot off ebay too. You are the ones that won't show a net gain buying and selling off ebay. As long as you have the records to show your net total is less than $400 buying and selling on ebay, then you have nothing to worry about as far as filing or reporting. The IRS knows that most people on ebay are buying and selling at a loss or a negligible gain. There are a few that are making ebay into their primary business, so that is when taxation comes in.

Now for those of you that are thinking of using ebay losses to offset your primary income in order to pay less income tax, you must be careful. You can certainly claim losses, but you cannot do it more than twice in a 5 year span. You have to prove that your ebay "business" is trying to make a profit before you can claim the losses as your benefit. So to prove it, you have to show 3 years of profit and two years (max) of a loss, otherwise you cannot touch the primary income.

I have done a lot of research on this because I am setting myself up for ebay sales and I want to make sure I know the game rules before playing. I stand corrected if you can show me contrary to what I written. I am no lawyer or accountant, but I am educated and do read up on tax laws. So, take what I have written as your starting point, but do not quote me on it.

goudeygold

Your answer is very thorough, but i'm telling you guys... your freaking paranoid if you think the IRS is going to hunt you down for ebay profits if it is a very small fraction of your income. The tax law is very complicated and looking at the audit rates it simply is fed by self policing and paranoia. So wolfbear, go ahead and pay my taxes and keep looking over your shoulder. Uncle Sam appreciates your integrity. Another tid bit... You know how many times I've been charged sales tax at card shows? zippo. It is sheer insanity to "keep records" of all this stuff.

Lets say I buy a card for $50 at a show, no receipt. Have it graded and then trade it in for $100 in credit on a card worth $200, again no receipt. Then I sell it a few weeks later for $250 on ebay. So if I play by the rules I should then pay for my sales tax on the original $50 to Illinois. Then I can deduct the grading cost from the $50 in trade gains and I should claim the remainder of the $50 in trade credit as income. Then I pay the sales tax to illinois again on the $100 for the balance on the $200 card. Then when I sell it for $250 I then pay more tax on the remaing $50, then I pay uncle sam my income tax rate on the theoretical $100 gain minus the ebay fees and shipping costs (in which supplies are again taxed already). If I itemized this out and "did the right thing" my taxes would be such a jumbled mess I would probably then be audited.

I stick by my oh so rebelious and shocking opinion... "Quit being so freaking paranoid!!"

GG

larryallen73

I agree with wolfbear.

goudeygold

All wolfbear did was ask more questions. You agree with what? His questions? I guarantee that there isn't a single person on this board that has NOT claimed every possible gain working in this hobby, thus "cheating" as wolfbear suggests. If thats what you want to call it then sure, whatever. I'm not purposefully evading reasonably substantial taxes, but to suggest that your going to be audited and penalized after scrutiny by the IRS for not reporting meager card sales and up-trades as income on your income taxes is just nucking futs.

If your at a red light in the middle of nowhere at 2AM, are you so chicken shiit that you don't run it? Or do you sit there shaking in fear that you may get chased by a helicopter?

GG

larryallen73

I understand your point Goudy but if your reason for not paying tax is because Sam Walton set up a fancy estate plan to lessen his death tax or because a municpal employee gets overpaid for working a Sunday in my opinion that is not a good reason. If you have a taxable estate you can set up an intricate estate plan like Sam Walton to keep more money in your family. If you are upset about lowly skilled municapal workers getting paid $120 an hour vote for different people or do something like that. That's just MY opinion and you should do what you want and make up whatever rationale you want. I do not report my Ebay sales because they total a few hundred dollars a year and I believe they are not taxable as I lose money. I, however, do report all income I receive from misc sources of income as I like to follow the law. Maybe I am an idiot but that's what I do. I do not feel that I fear anybody I just feel that I prefer to follow the law. If someone shows me that the law says I am supposed to pay sales tax on my $20 of in-state sales this year then I probably will. Being a hobby does not make it ok to EVADE tax in my opinion. Not to make it political, but seeing where this discussion may be going, yes I am a white collar liberal but my life is great so I am very comfortable paying my tax. Enough of this. Have a great day.

goudeygold

Well said!! god I love thought out answers, sometimes they are quite rare here. I really appreciate it. My references to the toll man making 80K/yr or the plumber making $120/hr were just examples of states wasting your hard earned tax dollars. I'm not suggesting that this is a reason to purposefully evade paying taxes. HOWEVER, if your hobby is a few grand a year, trading here and there, buying, selling, grading etc... You shouldn't fear the IRS becasue you actually showed a gain of $405 or even a thousand for a whole year. Unless your raising red flags through other riskier tax schemes your simply not going to get audited for making a little extra money on ebay selling some cards. That was my entire point. Thats all. Sure its possible, the IRS randomly audits people at times but the overall audit rate is less than 2% I believe and most of those are people deducting their dog for psychotherapy. Honestly, does anybody know any casual collector that has been personally interviewed by the IRS for selling baseball cards on ebay? Or even anybody in the news, or whatever? Anybody? You know why not? Because it doesn't happen.

I'm simply loving these informative arguements. I'm not out to make anything personal of course.

GG

DeutscherGeist

GG

I understand you, but I see a lot of other posters not really getting the essence of your argument. In the previous post, I walked you guys through on why most of us have nothing to worry about as far as paying taxes on ebay sales. Most of us are not DSL sports, so we spend as much on ebay as we sell, so its a wash. All that data is kept by ebay or paypal and the IRS understands this and are not after people like us. They are going to be cautious about DSLSPORTS or KRUK CARDS, since those are real businesses that run profits.

GG, is not telling anyone to evade taxes or do something illegal. He is just trying to educate us into using common sense. I have tried to do the same thing with my example on the previous post too to illustrate how the tax law works for schedule C on the tax form.

I have not heard of anyone get in trouble for running ebay sales or garage sales. I know the tax law says something about reporting income from a hobby, but that is mainly stated so that people like DSLSPORTS won't get out of paying taxes because they declare themselves a hobby. Get my drift.

If you are still paranoid or concerned, then take my advice on recording keeping from my above post.

Just enjoy ebay.

DeutscherGeist

ttt

Lothar52

I dont sell, but what about taxes on purchases???? Ive bought a lot of vintage cards over the last 4 years at a decent expense....id hate for them to go back and say...."we know you bought this this and this"...here is your tax bill.

loth

easttexascardsandgames

Odds of that happening are very very slim, but under the laws of most states they could do so. It is very doubtful though they would ever have to do it.

Crusader765

Sure, why not. Cards sell for so close to book value on ebay all the time, I have no problem giving up a share of my huge profits.