Tax Questions for Sellers (Schedule C)

[glchen]

I started selling cards for the first time last year, mostly via ebay (and some BST here, and am planning on using GSB in the future). I'm working on my taxes and am filling out schedule C for the first time, and have some questions. If this thread is not appropriate for this board, please delete it.

(1) For type of business (Line B at the top), would this be: 454112 Electronic Auctions?

(2) For revenue (Part I, line 1), I assume I exclude any sales tax paid to me by buyers (which I then pay to the state). Is this correct? Basically, I'm assuming that I do not need to put sales tax paid to me anywhere on my return.

(3) If I buy an item meant for resale, but then return it with a restocking fee, is there a particular line that is meant to handle this loss? For example, if I purchase an item for $100 but only receive $80 refund for it, is there a particular line that I put this loss on?

(4) Similarly, if I bought a card, but later find it is deemed worthless (e.g., because the card was not authentic), is there a line that I can write off this loss?

(5) If I lose/damage a card, is there a line to write off this loss? I'm not sure if (3-5) can just be grouped under separate line items in line 27 / Part V?

(6) For purchases under Part III, Cost of Goods Sold, line 36, I assume that this means any items (purchased for resale) that I purchased in 2010, and would include both items I sold in 2010 and items not sold (but placed in inventory). Is this correct?

(7) I assume under line 39, Other Costs for Cost of Goods Sold, I can put the costs of sending the cards to TPG's for grading / authentication. Is this correct?

(8) Finally, for checkbox 32a/b, the question is whether "All investment is at risk" or "Some investment is not at risk." Is it correct to check that all
investment is at risk? Although I don't expect all of my cards to go to 0, all of my cards can decrease in value from the price that I purchased them at. Is this the correct reasoning.

Again, thanks for any help here. I called the IRS on Friday night to ask some of my questions, and was on hold for 3-1/2 hours. I talked to them for 5 minutes, and then my call dropped. Crazy.

[ValKehl]

Hi Gary - I'll try to help you with your Schedule C questions. However, FYI, I am a retired corporate & governmental accountant (NOT a tax accountant), and the only tax returns I do are my own; but I do Schedule Cs for our (my wife and me) eBay sales activity. If there are any tax accountants/attorneys on this Board, please do not hesitate to correct me if I am wrong. This said, here are my responses to your questions:

(1) Yes
(2) Yes
(3) I would include this $20 "loss" on Line 36. Alternatively, it could be included on Line 39.
(4) Yes, by virtue of including the cost of this worthless card on Line 36 and not including it on Line 41, you will in essence be writing this "loss" of via the Cost of Goods Sold on Line 42.
(5) Same as (4) above. If you put items (3) thru (5) on Line 27-Part V, the end result will be the same, however I believe that the costs associated with the products you sell should be reported in Part III.
(6) Yes. The purchases you didn't sell would be reported on Line 41.
(7) Yes. And, the TPG costs for cards you didn't sell become part of your end-of-year inventory on Line 41.
(8) I trust that you realize that checkbox 32a/b is applicable only if you had a net loss on this business activity. I assume you would check box 32a, unless there is an unusual situation, such as someone else having agreed to cover any losses that you incur.

I hope this is helpful to you. Please don't hesitate to LMK if you have any questions.
Best,
Val
ekehl333@aol.com

[glchen]

Thanks, Val. Really appreciate your answers. That helps a lot. For (8), yes, I did incur a small loss for my first year. Thanks! Gary

[alanu]

One thing to keep in mind is that if you continue to only have "losses" on your returns, the IRS may determine them to be "hobby" losses, which are not deductible.

[egbeachley]

I disagree with item #1 and #4 and #6.

For item #1, that would be the business type for Ebay, Inc. You would be a reseller of some sort.

For item #4, maybe. But you need proof that the card is wortless, i.e. rejection by TPG and then disposal. I prefer to just sell it as a reprint and then I can get the actual loss.

For item #6, the items you purchased in 2010 and didn't sell is inventory. Think of it this way....you can't buy/sell for a profit of $200K for the year and just buy a T206 Wagner on Dec 31st for $200K and say that is COGS and no profit was made.

[vintagecpa]

Definitely be careful about having a loss year. Whenever you are borderline, make it a net gain for the year. Having a loss 3 out of 5 years can put you on the audit radar, especially with this type of business.