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

[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 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.

[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 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.