Reporting sales of large $$ items

[mrreality68]

Originally Posted by BobC

The reporting of electronic sales by third parties to the IRS has been around for a few years now, and is accomplished through the filing of Form 1099-K. Form 1099-K is used to report income received from electronic payments such as credit cards, debit cards, PayPal, and other third party payers. In most cases, the payment settlement entity (PSE) will send you a 1099-K by January 31 of the following year. This income needs to be included in your total business earnings, or otherwise be included elsewhere in your return.

Under current law in effect through the end of 2021, the threshold for requiring a PSE to send a 1099-K to the seller and IRS is $20,000 or more of total gross sales for the taxable (calendar) year AND 200 or more total sales transactions. Beginning on January 1, 2022 and going forward, the threshold for required reporting by a PSE of electronic sales activity via form 1099-K is reduced to simply $600 of total gross sales for the taxable (calendar) year and no minimum required number of sales transactions.

If Ebay is asking for your social security/tax ID # now, and saying they are going to then issue and send you and the IRS a 1099-K form for 2021 based on a $600 gross sales threshold, they can do that. Even though the 2021 reporting threshold is still $20,000 of gross sales and 200 transactions, that is just the required minimum threshold. There is no rule or law that says the PSE can't report gross sales below the threshold, and it has always been like that.

It seems to me that Ebay may be starting to use this new reporting threshold early so they can start gathering everyone's tax and reporting data now so that next year (2022) they don't have any issues or problems implementing this when the new threshold really takes effect. You can try contacting Ebay and ask them why they need this tax info now if the new threshold doesn't take effect till 2022, and you aren't going to go over the 2021 sales or transaction threshold. My guess is they'll simply tell you they need the info now so they can start the proper reporting.

And failure to provide them with your proper tax iD information won't necessarily get you kicked off selling on Ebay, but it could ultimately result in the seller being subject to what is known as Backup Withholding. In that case, Ebay would be required to deduct Backup Withholding right off the top of a seller's gross sales, and send that money to the IRS. And I believe the current federal Backup Withholding rate is 24%.

So let's say you don't give Ebay your correct tax reporting ID info and become subject to mandated Backup Withholding. Now you sell something that cost you $75 on Ebay for $100. Ebay is going to take $24 of your money and send it to the IRS, they'll also take their commission and sales fees, and send you whatever is left over. So you probably just lost money. The only way to then get any overpayments from this Backup Withholding back is to file a tax return after the end of the year, claiming the proper income and expenses from your card sales on the return, and treating the Backup Withholding like an estimated federal tax payment or the federal withholding off you W-2 wages. Otherwise, the IRS just keeps the cash.

It is also possible that Ebay could alternatively terminate your ability to sell on their platform if you don't give them your proper tax ID info, but that will be up to them.

And as Scot from Aquarian said, his auction house currently isn't required to report gross sales of consignors to the IRS or his home state of PA. I believe that will be pretty much the same for all the other auction houses out there, at least for now. But that could change in the future. I would not be surprised if in the coming years the government institutes a further requirement of Nominee reporting of sales income by Scot/Aquarian to his consignors, as well as requiring it of all other auction houses and consignment type sellers out there. As Scot said, he's already required to hold onto the sales info to individual consignors for a number of years, so any appropriate tax authority could walk in and demand to see such information. Keep that in mind. (Scot, Sorry for using your and your AH in my example, but since you already posted in this thread, I figured you wouldn't mind. Thanks.)

Great information and in the end partner with your tax adviser for your specific situation and state laws

[Jewish-collector]

Thank you Bob !!!

[philliesfan]

Bob C. - Thanks very much for that information. It is very helpful!
Robert

[Yoda]

I believe your profit equation should be: Price sold - Price Paid + expenses = Profit. I certainly take expenses when I file my income taxes for Past Ball Vintage Cards.

[BobC]

Originally Posted by Yoda

I believe your profit equation should be: Price sold - Price Paid + expenses = Profit. I certainly take expenses when I file my income taxes for Past Ball Vintage Cards.

Depends, are you filing and paying taxes on card sales as a Dealer, a Collector/Hobbyist, or as an Investor?

[Eric72]

The hypothetical below is the way I understand things. If I'm wrong, someone please let me know.

Costs associated with the disposition of an asset should also be taken into account. To keep things simple, I'll use very small numbers.

Let's say you bought 1,000 Joe Shlabotnik cards a few years ago. they've doubled in price, so you sell them off.

You paid $10 each. You sold them at $20 each.

However, you also paid $4 in postage and supplies (bubble mailer, soft sleeve, top loader) for each one you shipped out.

Your total profit is $6 each after all is said and done. You would owe tax on the $6,000 profit.

[Frankish]

Originally Posted by Eric72

The hypothetical below is the way I understand things. If I'm wrong, someone please let me know....

I'm not a tax professional and may well be too conservative, but my understanding was that for a hobby (unless you are a reseller/dealer) you can't always add the costs of grading, postage, etc, to your cost basis, so I've always just gone with my gross cost. But if I'm wrong I hope someone will chime in!

[ValKehl]

Originally Posted by Yoda

I believe your profit equation should be: Price sold - Price Paid + expenses = Profit. I certainly take expenses when I file my income taxes for Past Ball Vintage Cards.

John, I believe a seemingly small, but important, adjustment to your basic profit equation is needed, as follows: Price sold - (Price paid + expenses) = Profit.

[BobC]

Originally Posted by mrreality68

Great information and in the end partner with your tax adviser for your specific situation and state laws

Yes. +1,000,000,....................................... .