Ebay tax reporting drops from $20,000 to $600

[BobC]

Originally Posted by Lucas00

I'm definitely new to this, I don't play with stocks or really any investments. Mainly Just cash and cards as much as possible (I know cards are an investment but I guess I never looked at them that way, especially when selling on eBay to purchase another card or whatnot). I honestly don't know the ins and outs at all. Just from simple research headlines that I guess didn't explain it very well to me. I was under the impression the deductions were only possible if you were set-up as a business. I'm pretty sure the eBay fee part at least? Maybe not, I have no idea.
I have only based my possible losses on the information I had which added up to the 40% of the total sale which is clearly wrong. I almost always sell on smaller margins so this implied say I got a card for $100, sold it for $150 I would be taxed 40% of $150 being $60. I wasn't aware it was only on the net gain. I Actually feel foolish now knowing that. I also couldn't find anything not flashing a 28% tax rate until I dug far deeper. Seems clickbait and scare tactics definitely worked on me this time.

Thanks for the rundown.

I want to make it clear though, I still think it is unnecessary and terribly egregious for a small time seller. And should be reversed asap.

Well, I'm the polar opposite of you, and definitely not new to taxes. LOL

I was afraid from what you were typing that you might not be familiar with how this works tax-wise in regards to cards and our hobby, so jumped in to hopefully provide some guidance. I've typed way too many answers for things like this already so, rather than repeating myself and just typing more, go back and read anything else I already posted in this thread. And then do a search for posts I've made and you can go read through and catch up on all the tax related posts I've made. You will find a wealth of knowledge in them. Just remember though, tax laws can (and sometimes do) dramatically change overnight, so something I wrote/said a while back may not be 100% valid anymore. And when in doubt, reach out and try to check with a qualified tax professional, especially one familiar with the state you're in.

As for this whole thing being so egregious for the small-time sellers, I don't necessarily disagree. The government is out for the bigger fish, but unfortunately these new reporting laws and thresholds are seen by them as the most efficient, thorough, and possibly politically correct ways to go about seeking better compliance with and enforcement of our tax laws. Unfortunately, for these new laws/methods to work, they kind of have to cover and be applicable to everyone to work. Don't forget that part of this is also to deter others from skirting the tax laws in the future. And the big fish of tomorrow usually start out as the little fish of today. So unfortunately, I doubt you'll see these new rules/laws being repealed anytime soon, if ever at all.

To expound on my earlier fish analogy, think of the government/IRS as fishermen casting out their nets to get a great catch. As in reality with real fishermen though, when they pull the nets back in they will, along with the big fish they sought to catch, also inevitably have ensnared a lot of little fish and other unintended creatures they weren't really after. Not much else they can do though if they really want to crack down on the tax evasion/fraud problem. Good luck, and feel free to ask if you have any more questions.

[Exhibitman]

Paying taxes you owe isn't new. The only thing that is new is eBay reporting our sales to the IRS directly so they can catch scofflaws who do not report their income or pay taxes on their profits. If you maintain accurate books and declare your income from cards already, the 1099 is a popcorn fart. I get dozens of them every year (lawyers get 1099d for everything) and just toss 'em in the shredder since I have accurate books I can document as needed.

Note that taxes are paid on profits, not gross receipts, as Bob pointed out. If you sell a card for $10 that cost you $9 you pay tax on the $1 profit. If that puts you at a loss with eBay fees, you need to be in a different business because your margins are too thin.

[BobC]

Originally Posted by Exhibitman

Paying taxes you owe isn't new. The only thing that is new is eBay reporting our sales to the IRS directly so they can catch scofflaws who do not report their income or pay taxes on their profits. If you maintain accurate books and declare your income from cards already, the 1099 is a popcorn fart. I get dozens of them every year (lawyers get 1099d for everything) and just toss 'em in the shredder since I have accurate books I can document as needed.

Note that taxes are paid on profits, not gross receipts, as Bob pointed out. If you sell a card for $10 that cost you $9 you pay tax on the $1 profit. If that puts you at a loss with eBay fees, you need to be in a different business because your margins are too thin.

Adam,

You need to incorporate so they don't have to send you 1099s anymore. LOL

For the ones you do get though, I hope you at least take a quick look at them before they are shredded. In the past, I've had clients get 1099s that reported incorrect amounts, and we'd contact the issuer to get it corrected before filing my client's tax return so it didn't screw things up. You never know!

[RL]

you are supposed to claim the income to the IRS regardless of a 1099

[Snapolit1]

At some point in 2022 this is going to cease to be breaking news, right?

People were getting their piss hot about this last August.

[BobC]

Originally Posted by Snapolit1

At some point in 2022 this is going to cease to be breaking news, right?

People were getting their piss hot about this last August.

Last August??? This was signed into law back on 3/11/2021. A colleague and I were talking about it right after, and knew then this would create one heck of a $#%©storm when everyone finally realized what was happening. Some people/clients we told about it right away were having a fit after we had explained what this would mean. Thing is, it was buried in the American Rescue Plan Act, and no one in the media ever really talked about it. That is what usually happens with some of these random tax law changes, until the tax season hits, and then everyone finally hears about it and creates an uproar. This delayed reaction isn't something new. In fact, I can almost guarantee that come this time next year, there will still be people just finding out about this reporting change when their 1099-K form shows up in their mailboxes, totally unexpected! LOL

[Michael B]

Bob,

I admire your willingness to assist all of the handwringers. And gratis, no less! The patience of Job. I get it all the time even from people in my own office. Explaining the UCC code and District of Columbia statutes on property law. I learned 4 simple rules over 30 years ago that have helped. I sleep quite well obeying them.

1. Use/consult a tax professional.
2. Report your income.
3. Pay your taxes.
4 When in doubt refer to Rule #1.

I have used the same person since 1989 and the guidance has been invaluable.

[bobbyw8469]

Originally Posted by BobC

Last August??? This was signed into law back on 3/11/2021. A colleague and I were talking about it right after, and knew then this would create one heck of a $#%©storm when everyone finally realized what was happening. Some people/clients we told about it right away were having a fit after we had explained what this would mean. Thing is, it was buried in the American Rescue Plan Act, and no one in the media ever really talked about it. That is what usually happens with some of these random tax law changes, until the tax season hits, and then everyone finally hears about it and creates an uproar. This delayed reaction isn't something new. In fact, I can almost guarantee that come this time next year, there will still be people just finding out about this reporting change when their 1099-K form shows up in their mailboxes, totally unexpected! LOL

Elections have consequences. And we are sure as heck paying the price now.

[Stupe the Second Sacker]

Originally Posted by BobC

As for this whole thing being so egregious for the small-time sellers, I don't necessarily disagree. The government is out for the bigger fish, but unfortunately these new reporting laws and thresholds are seen by them as the most efficient, thorough, and possibly politically correct ways to go about seeking better compliance with and enforcement of our tax laws. Unfortunately, for these new laws/methods to work, they kind of have to cover and be applicable to everyone to work. Don't forget that part of this is also to deter others from skirting the tax laws in the future. And the big fish of tomorrow usually start out as the little fish of today. So unfortunately, I doubt you'll see these new rules/laws being repealed anytime soon, if ever at all.

Interesting...Does the Gov't define the big fish as those that make more than $600 but less than $20K? In theory anyway, wouldn't the same big fish be caught at the $20K threshold? At face value, it doesn't feel like those are the people they are going after.

[53toppscollector]

I think the ideal solution here is simply to have ebay take out a portion of the final sale price to offset the tax that we'd ultimately have to pay and let ebay pay the government.

If I sell an item for $50, and ebay takes their 13% in fees, then takes 10% in what I'd typically have to pay as a gains tax, then at least I know that when I sell something, I get 77% of the hammer price, and thats my money and I don't have to worry about being taxed on it later. Then I can figure out what my minimum sale price should be.

What I am curious about is how auction houses handle the taxes now. I've never sold through Heritage or Mile High or Goldin. If you consign with them, do you get a 1099 form? Or do they pay the tax to the government? It seems like they have moved toward direct depositing the proceeds into bank accounts, so since there is no paypal in the middle, how does that work? I've heard that is how Probstein does it too. So if you send Probstein a bunch of stuff and they list it on ebay and it sells for $1000, they take out their cut and you get the rest, but do you get a 1099 in that case? I can't imagine how that would work.

[hockeyhockey]

the 1099 portion of this is a question i hear a lot from people who are casual sellers. and i'm far from a tax expert (and haven't read far into this thread), but maybe bob c can answer this:

with regards to the 1099, are people paying for the total amount collected on the cards, or is the amount you paid for the card taken into consideration?

sorry if this was answered already.

[Gorditadogg]

Originally Posted by hockeyhockey

the 1099 portion of this is a question i hear a lot from people who are casual sellers. and i'm far from a tax expert (and haven't read far into this thread), but maybe bob c can answer this:



with regards to the 1099, are people paying for the total amount collected on the cards, or is the amount you paid for the card taken into consideration?



sorry if this was answered already.

You subtract the cost of the card and all your expenses connected with selling it.

Sent from my SM-G955U using Tapatalk

[BobC]

Originally Posted by hockeyhockey

the 1099 portion of this is a question i hear a lot from people who are casual sellers. and i'm far from a tax expert (and haven't read far into this thread), but maybe bob c can answer this:

with regards to the 1099, are people paying for the total amount collected on the cards, or is the amount you paid for the card taken into consideration?

sorry if this was answered already.

Quick answer, you are only supposed to pay taxes on the NET taxable income or NET capital gains, after deducting applicable expenses and the cost of items sold, from your gross sales amounts. The 1099s only report gross sales, not net taxable income or gain.

And yes, this was also addressed earlier in this thread. Do go back and read through the thread.

[BobC]

Originally Posted by 53toppscollector

I think the ideal solution here is simply to have ebay take out a portion of the final sale price to offset the tax that we'd ultimately have to pay and let ebay pay the government.

If I sell an item for $50, and ebay takes their 13% in fees, then takes 10% in what I'd typically have to pay as a gains tax, then at least I know that when I sell something, I get 77% of the hammer price, and thats my money and I don't have to worry about being taxed on it later. Then I can figure out what my minimum sale price should be.

What I am curious about is how auction houses handle the taxes now. I've never sold through Heritage or Mile High or Goldin. If you consign with them, do you get a 1099 form? Or do they pay the tax to the government? It seems like they have moved toward direct depositing the proceeds into bank accounts, so since there is no paypal in the middle, how does that work? I've heard that is how Probstein does it too. So if you send Probstein a bunch of stuff and they list it on ebay and it sells for $1000, they take out their cut and you get the rest, but do you get a 1099 in that case? I can't imagine how that would work.

Great, then the guy that bought a T206 Wagner for $500,000 twenty-five years ago would definitely be happy to sell it on Ebay today. If he now gets $1,500,000 for it, Ebay takes 10% ($150,000), and sends it to Uncle Sam. Meanwhile, the seller's actual profit on the card was $1,000,000, which if that full amount was subject to the maximum federal cap gains tax rate of 28%, it means he actually should have owed $280,000 in federal taxes, so your idea may have just saved the seller $130,000. Of course, it also just means the rest of us federal taxpayers have to use $130,000 of our tax payments to make up for the shortfall. Oh, and what about state and local taxes on the seller, or is Ebay going to somehow take care of that as well?

James, not trying to put your question/idea down, just demonstrating how impossibly hard it might be to have such a concept work and not always equitably satisfy everyone involved.

Your question in paragraph #3 has already been addressed in earlier posts in this thread. You can go back and look.

[BobC]

Originally Posted by Stupe the Second Sacker

Interesting...Does the Gov't define the big fish as those that make more than $600 but less than $20K? In theory anyway, wouldn't the same big fish be caught at the $20K threshold? At face value, it doesn't feel like those are the people they are going after.

Great question, to which I have no perfect answer. In theory, you would think that even at a $20,000 threshold they would get all the "big fish" as I termed them, but then you're forgetting the other threshold factor under the old rules. You also had to have 200 or more transactions. That means someone could sell a T206 Wagner, a PSA7 '52 Topps Mantle card, and a PSA10 1986-87 Fleer Jordan rookie card on Ebay for well over $1 million total, but if those are the only three cards they sold on Ebay all that year, using Paypal, they shouldn't get a 1099-K because they didn't meet the 200 transactions threshold. Meanwhile, some guy cleaning out his garage found 200 different items he could (and did) sell for $100 each, does get his sales reported on a 1099-K for that year. So who would you say qualifies as a "big fish" in my example now? See the issue?

In my opinion, the law fixed the new 1099-K reporting threshold at simply $600 as that was already the long established reporting threshold for having to give 1099-MISC or 1099-NEC forms to certain individuals/entities (and the IRS) for work, services, or other things they provided and/or performed. Probably politically easier to defend, most everyone else has a $600 reporting threshold for getting a 1099, why shouldn't you? And because a lot of people performing work or providing services to others get paid nowadays via Paypal, Zelle, Venmo, etc., as opposed to just by cash or check, it makes sense to impose the same $600 threshold across the board. Unfortunately, these payments platforms are used for GOODS and services payments, so selling items on Ebay gets caught in the same net as say using Paypal to pay for the guy who mows your lawn and plows your driveway.

Technology like using these online payment services is great for the users. It is also great for the businesses, individuals, and governments that want to track and keep better tabs on what those users are doing, unfortunately.

[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 ???

[BobC]

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 ???

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.

[sb1]

Thanks Bob,

Agree and understood.

Just curious how they match up the 1099's.

In my other business, non-card related, I receive a handful of 1099's. All my CPA does is copy them and keep them with the return and none are ever line itemed, just lumped in with the rest of the business income, of which they are a small fraction. The return is electronic, so how does the IRS see or account for them?

Is this normally how they would be handled?

Scott

[BobC]

Originally Posted by sb1

Thanks Bob,

Agree and understood.

Just curious how they match up the 1099's.

In my other business, non-card related, I receive a handful of 1099's. All my CPA does is copy them and keep them with the return and none are ever line itemed, just lumped in with the rest of the business income, of which they are a small fraction. The return is electronic, so how does the IRS see or account for them?

Is this normally how they would be handled?

Scott

Depending on the type(s) of 1099s one gets (1099-K, -MISC, -NEC, -INT, -B, -S, etc.) there are certain places on one's tax return where these normally end up being reported. All 1099s the IRS receives, either electronically or via paper copy, are eventually entered into their computer system, and totaled by the various 1099 categories. Everyone's tax returns, either electronically or paper filed, are also eventually entered into the IRS' computer system as well. And then at some point they will run a matching program to make sure that the various 1099 totals, being independently reported to them, are also being reported by you on your tax return. They don't actually match up individual 1099s, they look to see if you've at least reported the total amount(s) of what was shown on the 1099s you also should have received. If the amounts reported on your return match or exceed what was shown on your 1099s, you're generally good to go.

If you reported less income on your return (or maybe put it in the wrong place) than what was reported on your 1099s, the IRS' computer system kicks it out as an error, and normally generates an automatic letter to the taxpayer outlining the discrepancy, as well as how much they calculate that you now owe them, plus interest and penalty charges, if relevant. They assume in the case of a 1099-K discrepancy that the total unreported gross sales reporting difference is ALL taxable income, with no offsetting costs or expenses. In other words, the opposite of criminal courts. You're guilty of owing the taxes they say you owe, until you can prove your innocence and that you actually owe no, or less, tax than they say.

This matching and sending out of letters in case of discrepancies counts as a formal IRS audit by the way. You do not need to actually meet in person, or even talk to an IRS agent on the phone, to undergo an audit. And it could take a year or two before the IRS gets around to running the cross-match of 1099s and people's tax returns. The IRS actually has three years from the later of the due date of a return you file, or the actual date you filed it, to examine and commence an audit of your return under normal circumstances.

And this is exactly how this is normally handled by the IRS. They are slow, overworked, understaffed, and dealing with what is now considered a crappy and somewhat outdated computer system, that has already been successfully hacked at least once to my knowledge.

This should have covered all your questions Scott. Have a good one.

[Stupe the Second Sacker]

Originally Posted by BobC

Great question, to which I have no perfect answer. In theory, you would think that even at a $20,000 threshold they would get all the "big fish" as I termed them, but then you're forgetting the other threshold factor under the old rules. You also had to have 200 or more transactions. That means someone could sell a T206 Wagner, a PSA7 '52 Topps Mantle card, and a PSA10 1986-87 Fleer Jordan rookie card on Ebay for well over $1 million total, but if those are the only three cards they sold on Ebay all that year, using Paypal, they shouldn't get a 1099-K because they didn't meet the 200 transactions threshold. Meanwhile, some guy cleaning out his garage found 200 different items he could (and did) sell for $100 each, does get his sales reported on a 1099-K for that year. So who would you say qualifies as a "big fish" in my example now? See the issue?

In my opinion, the law fixed the new 1099-K reporting threshold at simply $600 as that was already the long established reporting threshold for having to give 1099-MISC or 1099-NEC forms to certain individuals/entities (and the IRS) for work, services, or other things they provided and/or performed. Probably politically easier to defend, most everyone else has a $600 reporting threshold for getting a 1099, why shouldn't you? And because a lot of people performing work or providing services to others get paid nowadays via Paypal, Zelle, Venmo, etc., as opposed to just by cash or check, it makes sense to impose the same $600 threshold across the board. Unfortunately, these payments platforms are used for GOODS and services payments, so selling items on Ebay gets caught in the same net as say using Paypal to pay for the guy who mows your lawn and plows your driveway.

Technology like using these online payment services is great for the users. It is also great for the businesses, individuals, and governments that want to track and keep better tabs on what those users are doing, unfortunately.

Great response Bob as always. I didn't consider the 200 transactions component, but even still, I think they'll catch a lot more minnows than tunas. But at least they can defend the $600 with some logic...though it is bad for hobbyists.

[BobC]

Originally Posted by Stupe the Second Sacker

Great response Bob as always. I didn't consider the 200 transactions component, but even still, I think they'll catch a lot more minnows than tunas. But at least they can defend the $600 with some logic...though it is bad for hobbyists.

Unfortunately, it is what it is. And as a result, a lot of people selling some stuff on Ebay this year that never before paid taxes on such sales are going to end up reporting that sales activity on their 2022 tax returns. There's going to be a lot of hassles and questions come tax time next year. It ends up creating a lot more work for a lot of taxpayers, and for the IRS. So I'm not really sure anyone is really happy about this.

And don't forget, some of those minnows they are catching today are going to end up growing into the big tunas of tomorrow.