Quote:
Originally Posted by sb1
Bob,
A question on terminology for you. If a casual seller(not a business) on ebay or here or anywhere else, sells an item at a price lower than paid(probably more likely in the event of used merchandise than cards) no "taxable event" has occurred, yet they are receiving a 1099 for the gross proceeds.
In theory the new 1099 issuance is creating a tax reporting requirement that is many cases not required, as no tax liability was created ???
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Scott,
You've sort of got it right. Whether a casual seller sells an item on Ebay for a profit or a loss, the sale itself is always still technically a "reportable taxable event", regardless. But as you stated, if the casual sale resulted in a loss, so there would be no actual resulting tax actually due, the IRS and other taxing authorities are not really going to care if the sale wasn't reported on your tax return.
However, because the IRS religiously matches 100% of all 1099s they receive to taxpayer tax returns, if you got a 1099-K for a casual sale on Ebay one year where you lost money, even though you end up owing no tax on that sale, you do now want to report it on your tax return because if not, you're getting a letter from the IRS assuming your gross sales was all income you should have paid tax on.
The issuance and your receipt of a 1099-K form does not technically create a "tax reporting requirement" though. You're technically supposed to report all taxable events on your tax returns, whether included on a 1099-K form or not. What the issuance/receipt of a 1099-K form does is create a "tax compliance opportunity" for the IRS to double check the casual seller to make sure it looks like they are complying with the applicable tax laws. Hopefully you see the difference in the nuances.
If there is no 1099-K reporting of a casual seller's sales activity, it is pretty much up to their own conscience whether they report this activity on their tax returns or not. But whether they choose to report such activity or not, every sale is still technically a "reportable taxable event", whether for a loss or a profit. Just like every trade is also a "reportable taxable event". I 've said this before that all card trades, whether involving any cash as well or not, are also taxable events. People may choose not to report them on their tax returns, which is their personal choice. But if ever down the road you do get questioned by the IRS about your tax basis for say a T206 Red Cobb you sold, and you pull out an invoice from Brockelman Auctions for a different card you previously traded straight-up for that Cobb to now show your original tax basis, don't be shocked if the agent might start asking a lot more questions.
And just because the original casual sale you mentioned was for a loss, it doesn't always mean it may not still have tax consequences for the seller. As a casual sale, the seller is not going to be considered to be a Dealer in business. But is the casual seller then classified and operating as a Collector or as an Investor? As a Collector, the sale is part of the seller's hobby, and no losses are deductible. If operating as an Investor though, investment losses are potentially deductible, or eligible to carry over to future tax years as capital loss carryovers. So in the end, you may want to think about reporting a casual sale loss on your tax return after all.