new 1099-K rules

[BobC]

Originally Posted by sb1

Bob,

Won't this require most to now file a schedule C as a business in regards to the 1099?

Also for those selling used items on ebay, of which their basis is higher than the price realized(think used clothing or other household goods), do they now have a loss to offset other income? Or... since they sold the items for less than the original cost, has a "taxable event" actually occurred?

And another thought. For those selling collectibles, it appears this 1099 will be lumped in and figured at the filers AGI marginal rate? Otherwise in the past it would/should have been filed as a collectible sale. So going forward those in the lower brackets would be far ahead.


Just more food for thought.

Maybe!!!

Look at what I said in post #19 about maybe reporting such sales as a business through Schedule C, or otherwise as a type of capital/loss through Schedule D. Having sales reported on a 1099-K doesn't automatically make you a business, even though that may be the initial assumption of others, like the IRS. Another good reason to file and be sure to report your 1099-K activity yourself, the way you want and should be treated. Not leave it up to the IRS to initially treat you how they think you a should be.

I've mentioned multiple times on this forum how someone can be a dealer/seller/flipper in business to make money now, an investor ultimately looking to cash in on items acquired at some point down the road, or a true collector/hobbyist who never really got into cards to make money at all. And I would argue that it is potentially possible for someone to be all three at the exact same time. Would depend on how well they segregate and keep records for different parts of the card inventory/collection they own.

And each one of these three different options has a different tax outcome and/or treatment. For simplicity, a dealer would likely use Schedule C to report their sales activity (unless the set up a formal business to run it through, like an LLC or corporation), while an investor or a collector would normally report their sales through Schedule D of their personal tax returns (with the individual sales details reported on the applicable Forms 8949).

Regardless of whichever way they decide to report it, someone now getting a 1099-K for sales will definitely have more work to do in preparing their taxes if they never reported anything for such sales before.

As for your second question regarding selling items for a loss, if they report as a dealer in business using Schedule C, they can offset the ordinary loss against all other income on their current year return, and potentially carry over, or back, any excess current year loss, depending on the rules and their actual situation. If they report the loss as an investor on Schedule D, it is a capital loss and is first netted against any capital gains on their return. If they end up with a net capital loss after offsetting the current year capital losses (and any capital losses carried forward from prior years) against their current year capital gains, they can deduct up to $3,000 of that excess net capital loss against all other taxable income on their current year return, with any remaining excess net capital loss then carried forward to future years (with no time limit). However, if they report the loss as a collector on Schedule D, they actually just report the result of such capital loss sale as $0, with no current year offset against capital gains or other income, and certainly no carry forward capital loss to future tax years.

You still want to report any loss sales on your tax return that were included on a 1099-K form you receive. Remember if you don't those sales, the IRS will assume 100% of what you did receive was taxable income to you, even if the sale was for a loss.

Now I'm not exactly sure what you're asking about in your third question in the second to last paragraph of your post. If you sell a collectible you still get to deduct your tax basis in the item sold, along with direct costs to sell it, from the sales price, and you should only pay tax on the net amount you ended up profiting on from that sale. You don't just include the entire amount on your 1099-K as taxable income. Plus, AGI stands for Adjusted Gross Income, and basically includes all the income you're reporting on your return, but this isn't what you pay taxes on. You still have other deductions you take off your AGI, like the Standard Deduction or your Itemized Deductions, to come up with your Net Taxable Income amount, which is what you do end up paying your income taxes on then. And the tax you actually end up paying is then based on the tax rate schedule for your particular filing status (married filing jointly, single, etc.)

Anything you sell as a dealer, or that results in a short term capital gain (owned and held less than 12 months) that is sold by an investor or a collector, is treated like all other ordinary income (wages, interest, etc.) and is subject to being taxed at up to the highest marginal rate you end up at based on whatever tax rate schedule is applicable for you. However, if you sell an item at a profit as either an investor or a collector, and you owned and held that item for one year or more before selling it, that profit is considered as a long term capital gain. And because baseball cards and memorabilia are considered collectibles, the long term capital gain tax on the profits from such sales is capped at 28%. So basically you add the net income from the sales of such collectible LTCGs in with all your other taxable income to be able to determine what the highest marginal income tax bracket is that you end up being in. As long as it doesn't exceed 28%, you pretty much just pay whatever the tax comes out to be. But if you end up in a top bracket over 28%, you go back and refigure your taxes so the amount on the LTCG from just the collectible sales doesn't end up being taxed at over a 28% rate. Don't know if this exactly answers your last question, but is a simplistic overview of how LTCGs on collectibles is supposed to work and how they get taxed.