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Sat Jan 22 2022 11:29:47

What's Left Out of the $600 Reporting Threshold Debate

By: Reader

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Dear Ina,
This is regarding the 2022 1099-K $600 threshold. The literature that says if you are selling your personal items casually you WON'T have to pay taxes is a bunch of horse hockey!!!

As a seller and a former CPA here is the real deal as to why it is such a burden:

I will use a recent sale of mine as an example:
Item sold for $30
Shipping $9.50
Sales Tax $3.51 
eBay Fees $5.70
Actual Shipping Out $9.04

On this transaction my actual earnings WITHOUT considering the cost of the item were $24.76. On my 1099-K eBay will report that I earned $43.01. So how do I deduct the $18.25 in expenses?

There are 2 ways to report the earnings:

As a casual or hobby seller on Schedule 1 of form 1040 or as a business on Schedule C.

If I don't report anything (like the literature is saying) it will raise a huge red flag with IRS and I become vulnerable to audit.

So I report the $43.01 on schedule 1. How do I deduct the expenses? I have to list them on Schedule A as an itemized deduction. If my total itemized deductions are less than the standard deduction, I cannot deduct anything and will have to pay taxes on the entire $43.01.

Scenario 2: I report it on Schedule C as a business. So I deduct all the expenses and have my $24.76 to report on my 1040. The problem is NOW I have to pay self employment tax on that $24.76 which is 15.3% PLUS my regular income tax rate on that $24.76.

There are other deductions that can be made on Schedule C and I did not include the cost of the item just to make my example simple.

For the small casual seller this is a no win situation. There will be millions that have no clue about the truth of reporting this income and will have a surprise when they file their 2022 taxes!

Congress has to Act to increase this threshold!
This is going to hurt the little man!
Teta

Comments (37) | Leave Comment | Permalink
Readers Comments

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by: railady This user has validated their user name.

Mon Jan 24 12:16:53 2022

"Market value at time of acquisition" is really pretty questionable ....  My widget cost $25 when I bought it in 1980.... can I factor that amount into 2022 dollar values ????   $25 in 1980 surely doesn't equate to $25 today.  

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by: Daniel D.Teoli Jr. This user has validated their user name.

Mon Jan 24 12:30:52 2022

I don't get it. If I am selling personal property, I want to get rid of at a loss. Are they saying it is all profit for me?

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This user has validated their user name. by: Marie

Mon Jan 24 13:21:59 2022

@Chicago48

"I haven't listed on Ebay in a week and I sleep well at night.  I delisted all my listings because of the micro-managing robot, and I sleep well at night.  I now concentrated on AMZ Merc & Posh listings."

The subject of this thread, the 1099K is NOT specific to Ebay.  You will get one for Amazon, Mercari and Poshmark.

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by: Snapped This user has validated their user name.

Mon Jan 24 13:41:54 2022

“ $25 in 1980 surely doesn't equate to $25 today.”

Decidedly not.

“ $25 in 1980 is equivalent in purchasing power to about $84.59 today, an increase of $59.59 over 42 years. The dollar had an average inflation rate of 2.94% per year between 1980 and today, producing a cumulative price increase of 238.35%.”

There’s an old joke about a guy wanting to sell some gold.  When quoted a price, he decided to wait ‘until the price goes up and it’s worth more’.

The merchant responds - ‘round about the late 1800s an ounce of gold would buy you a fine steak dinner and a good horse.  Today it can buy you…a fine steak dinner and a good horse.  

‘Course, they didn’t have income tax back then…

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This user has validated their user name. by: iheartjacksparrow

Mon Jan 24 15:35:24 2022

@Teta - I doubt seriously that the "average declutterer" is going to be audited by the IRS. It would cost more for the agents' salary than what they would gain in an audit.

As for valuations, there are so many resources on the internet that you can use. I'm selling a bunch of my old Lego sets and there are sites that list the release date and MSRP of every set ever released. If I can't find a price that would be reasonable, I use $1 as item's value. I also don't claim ridiculous deductions which is more likely to trigger an audit.  

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by: Toledo Maude This user has validated their user name.

Mon Jan 24 15:53:22 2022

If one is a ''hobby'' seller there maybe bad news filing income taxes due to new 1099K  income reporting requirements.

From Google comes the following: ''Unfortunately for people who earn income from hobbies, the TCJA completely eliminates the itemized deduction for hobby expenses, along with all other miscellaneous itemized deductions.''

This could mean no cost of goods sold deduction or mileage deductions  or shipping expense deductions and on and on.

A ''rule of thumb'' for the IRS the difference between a hobby and a business is record keeping.  Receipts, receipts and more receipts...  

Good Luck!!!


 

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by: ThebigR This user has validated their user name.

Mon Jan 24 18:15:03 2022

A lady last week bought a item at SA for $3.98 she sold it on ebay for $40050.00 she brought in the sold sheet to brag to the employees. When I told her don't forget you'll be owing a slice to uncle sam she replied nope ebay collects all the taxes...  

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by: Old School Seller This user has validated their user name.

Tue Jan 25 09:07:38 2022

Unfortunately, the unscrupulous who sell on platforms such as Instagram and request that the buyer pay via a cash app by selecting "Pay Friend or Family" will continue to temporarily get away with murder.  The powers that be will eventually close that loophole as well.

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This user has validated their user name. by: iheartjacksparrow

Tue Jan 25 11:41:39 2022

@ThebigR - Just wait until your friend gets a return request and receives back a box of rocks.

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by: ThebigR This user has validated their user name.

Tue Jan 25 13:30:34 2022

Won't be returned it was high end enough it went through ebays verification service before it was shipped on to buyer...  

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by: onlinesales This user has validated their user name.

Tue Jan 25 14:21:37 2022

Iheartsparrow et. al,
What is sad is I think your correct on 2022 taxes there will be a wake up call, and people will blame Biden or whatever. When it was Trump that pushed through these tax cuts to corporations. So what is sad the anger is at Biden, (I personally don't like him) but that anger is misplaced. Ebay gets a break on their taxes we get to pay them for them, no matter what party people are with they should wake up.

Isn't it interesting they didn't push this change through to start until 2022, although it was enacted in 2017? Of course, this is how they pay for the tax cut at our expense. I don't see it changing is what makes me sad at the end of the day. People will hate on each other, based on party while the super rich and corporations tell us how they give back to society, create jobs, all for your benefit, all the while using the same roads, etc. They just don't pay for it.

Jeff Bezos made five billion during the pandemic in one year, how did his warehouse workers fare? No sick time that is paid, had to bring their own PPE etc. People need to wake up, I don't see this law changing because politicians will simply push hey its the other side took your money!!! All the while laughing at us behind closed doors.

It is sad and I am out of answers as I keep thinking perhaps it will get better for the little guy. I don't see it, big business owns our politicians on both sides. For those of you that want to contend Trump saved all these jobs, why did Carrier leave during his tenure? Why were the ports backed up (hint, everything is coming from China) because we gave a tax break that rewarded them to take jobs overseas. Biden is no better on this, other than his infrastructure bill required to get the money must hire employees at a decent wage. But it won't be enough.

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by: onlinesales This user has validated their user name.

Tue Jan 25 14:23:34 2022

I must be crazy,
So a number of sellers have been skirting the taxes, I get that. I am not one of them, and it is wrong, but what is being done about companies like Apple, Amazon etc. that pay no taxes, nothing. We fund them at our expense all the while they contend how were lucky to have them and they saved America and the people out of the goodness of their hearts, along with hiring people on poverty wages so that helps them, just ask the corporate big wigs.

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by: onlinesales This user has validated their user name.

Tue Jan 25 14:31:43 2022

Comments/everyone,
Both political parties have failed to expand the IRS. They know if they do, the rich might have to pay something, it is easier to your point to send a letter saying comment you owe $300.00. You say I don't but I pay it because for me to hire a cpa to fight them ain't worth it.

I have a friend that is a cpa been around along time. Most people audited are those that make less $75K a year, with a 1099, and typically 28K -100k w2 income. Why, because its easy picking see the rich will hire a lawyer fight you, attack your credibility, beat you down so you get death threats and the fun continues all the while people are applauding this behavior until it happens to them and eventually it will.

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This user has validated their user name. by: Marie

Wed Jan 26 01:52:28 2022

@onlinesales
"Isn't it interesting they didn't push this change through to start until 2022, although it was enacted in 2017?"  They tried to change it in 2017 but it didn't happen, they tried again a couple years later under Trump, but it didn't get passed until the last American rescue bill in 2020.  It was originally slated to happen in 2020 or 2021, I forget which, but it was changed to 2022.

Along with those corporate tax cuts during the last administration, middle Americans had some deductions taken away.. My personal taxes were the highest I've ever paid since becoming an empty nester.

Oh but some of that stuff coming out of China is desperately needed.  The car industry is dependent on some computer chips that come out of China and it is what has caused the supply chain issue on new cars.  Which in turn has driven up the cost of used cars by just short of 40% in some areas.

A family member of mine had to wait over 2 months to get her new car.  Used cars in the area in the same make and model she wanted but a year or two older were selling for MORE than what a new car is selling for.

Supply and demand.

The harm done with the changes in the tax code that allows corporations to pay even less is going to be a hard nut to crack.  Especially when the Republicans are the ones that passed these cuts.  The republicans are not going to allow Biden to do a darn thing about this, just as many of them have publicly said that no matter what the Democrats want to get passed, the Republicans will fight it.  And clearly that is happening.

No, IRS is expanding.  They are funded to hire more staff.  

https://freemanlaw.com/is-the-irs-on-a-hiring-spree/





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by: leavingNY This user has validated their user name.

Thu Jan 27 04:02:21 2022

When I started to sell on Ebay, the fees were based on the items sale price only. Then I also got a 30% gold power seller discount on my FVFs. Fairly simple. Eventually ebay ended the power seller discount program and tuned it into you have to offer free shipping and return shipping or you get NO FVF discount. Since I cannot offer shopping/renting my items for free, poof, that discount is now gone for me. Ebay also changed their top rated seller program a lot over the years by changing the time line for returns from 3 day returns to at least 30 days now or you cannot be in the TRS program, which now gives you no benefits at all. A couple years back, we were forced to pay sales tax if you are in one of the states that is greedy enough to make online sellers pay sales tax now. Ebay is also changed to charging FVFs on the entire sales including sales tax and shipping cost. Since shipping cost keep skyrocketing, Ebay makes more with every increase they make. The self employment tax had my accountant talk me into being a corporation with only me as an employee to save on the self employment tax. I told him its too complicated for me to deal with all the peperwork and payroll and taxes, that as long as he took care of everything I was OK with being a corporation. That was aprox 8 years ago, he is now moving to FL and I am lost as to what to do now. The point is that over the years, online selling which used to be easy and uncomplicatted, has now evolved into a selling nightmare for many. The HUGE fees these selling platforms are now charging is driving buyers to places like facebook, craigslist,  and making their own website, where they do not charge a commission to sell. Sellers are forced to raise their prices so high that it is very hard to compete with those who do not have to pay the ever increasing seller fees by going elsewhere. Many platforms have priced themselves so high, the sellers just leave.  

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by: onlinesales This user has validated their user name.

Thu Jan 27 13:52:20 2022

Marie,
You get it......they took away some of your deductions, I have people swear to me that Trump didn't cause them to pay more. Fake news, than why did my income go down and taxes went up. I gave $6500 to charity the year of the tax law, and guess what? I was only allowed to deduct $500...see I shouldn't get a deduction but the corporations can.

What is sad is likely the IRS will be the one to go after you and I. All these people think from the forums they can sell stuff they already own and their business stuff to is in for a rude awakening. The IRS has stated (I will find the link) that they will be auditing returns with income on 1099 over $2500. So people can do $5000 on eBay or whatever venue and the fun begins doesn't it?

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by: railady This user has validated their user name.

Thu Jan 27 14:05:34 2022

@leavingNY - you need a good CPA knowledgeable in small business.  I have the same situation - a wonderful long term CPA who sadly passed away right at the beginning of filing season 2 years ago; her partner took over and did my return - but made a mistake on it!! Which of course the IRS discovered but it was a simple omission (THANKFULLY) and i paid the tax I did owe on the line he mistakenly left blank.  I am now looking for another CPA, myself.  NOT EASY. Good luck to you !!!

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