I am retired on Social Security and a state pension. Over the past 30 years I have accumulated a lot of “junk” from eBay EBAY,
I’m also now looking to clean up my house and sell it at cost or a small profit.
With eBay now sending 1099, I guess I owe tax on the profits.
Is it possible to use the income figure on the 1099, say $6,000, and contribute this amount to an IRA rather than claiming the small profit and paying taxes? Of course, I would have found the $6,000 to put into the IRA and get the taxes deferred.
Determined to downgrade
All you want to do is clean up your house and make a tax-efficient move with your money.
All I want to do is give you a clear answer. But I can not.
Your question touches on a hot topic and an open question about what tax forms and tax obligations small businesses and potentially many regular people will face during the upcoming tax season.
In its stacks of documents, the Internal Revenue Service has the 1099-K form. This is a form that payment platforms generate when a payment recipient earns a certain amount of money. (In this case, you’re the recipient once you’ve been compensated for the stuff you sold. Meanwhile, eBay is the platform that would send the form to you and the IRS.)
Under the old rules, third-party payment platforms would produce a 1099-K once combined payments exceeded $20,000 And there have been more than 200 transactions.
In the 2021 American Rescue Plan — the same sweeping bill that authorized the third round of stimulus checks and temporarily increased child tax credit payments — lawmakers enforced reporting thresholds much earlier.
““If you sell personal property at a loss — like pocketing $100 on eBay for a bike you originally bought for $200 — the tax code’s capital loss provisions don’t apply.”“
As of this year, only $600 in payments are needed before these third-party platforms need to send a 1099-K. This can happen with just one transaction. Assuming these reporting rules hold, you’ll likely receive a 1099-K, given your estimated $6,000 in sales.
A coalition of businesses and online marketplaces, including eBay, PayPal PYPL,
and Etsy ETSY,
— wants Congress to pass legislation before the end of the year that pushes the 1099-K reporting threshold higher.
Among its grievances, the coalition says the low threshold will create too much confusion for people who may not have tax obligations. If you sell personal property at a loss, like pocketing $100 on eBay for a bike you originally bought for $200, the tax code’s capital loss provisions don’t apply.
So keep watching Capitol Hill to see what happens next during an intense lame duck session.
“EBay has been working diligently on behalf of its sellers to change the new 1099-K reporting threshold from the unreasonably low $600 level,” an eBay spokesperson told me. “While we hope Congress takes action on this important matter, we are also helping our vendors prepare for any outcome,” the spokesman said, pointing to online resources the company has developed on what vendors should know about 1099-Ks. .
Forget politics, let’s talk about taxes
Regardless of the dollar amount that triggers a tax form, if you make a profit on the sale of personal property you have a capital gain that the IRS would like to tax. Profit is the difference between what you paid for the asset (the “cost basis”) and what you sold it for.
“If you sold an item you owned for personal use, such as a car, refrigerator, furniture, stereo, jewelry or silverware, etc., for a gain, your gain is taxable as a capital gain,” the IRS said in a set of frequently asked questions about the refurbished 1099-K. “If you have a loss on the sale of an item you owned for your personal use, don’t report a loss (the loss is not deductible),” the agency noted.
You could make money when you sell your stuff, and I hope you do. One person’s “trash” is another person’s treasure. But the money you’re getting isn’t necessarily a capital gain for tax purposes.
First, you’ll need to know how much you originally paid to determine the cost basis for the capital gain. If you have receipts on your accumulated trash, I applaud your meticulous record keeping. Remember, the sale of stocks, bonds, and other investments at a loss triggers the tax code’s capital loss provisions, but the sale of personal property doesn’t allow for losses.
“Personal losses are not normally tax-declared events, but this 1099K threshold makes that impossible,” said Ryan Ellis, an enrolled agent. Ellis is also president of the conservative-leaning nonprofit, the Center for a Free Economy. He wants a return to the pre-existing threshold to avoid the “fuss” he says highlights your scenario.
Ellis said he fears that if taxpayers don’t report such online sales transactions on their income taxes, they will receive a letter from the IRS asking for an explanation.
The IRS itself says it will match 1099-K data with tax returns. The 1099-K data “will be used for systemic computer matching with tax returns to identify potential unreported income,” the IRS said.
For his clients, Ellis said he could put the 1099K in a catch line on 1040 for unspecified income and also in a catch line for deductions. “So honestly, I hope for the best,” she said.
Ask: “How do I report Form 1099-K on my tax return?” The IRS writes, “The information on your Form 1099-K can be used to calculate your gross receipts or sales. You should follow the return instructions on the form you are completing to report your gross income or sales.
Is it worth squeezing the juice?
Remember my apologies for my inability to offer a clear and simple answer? It’s about to get even more complicated.
You are considering putting the proceeds into an IRA. Here’s the catch: Contribute to an IRA with earned income such as “wages, salaries, commissions, tips, bonuses, or net self-employment income,” as the IRS notes.
To generate earned income that goes towards an IRA, Ed Ryan, an enrolled agent and founder of Ryan Financial in Rutherford, NJ, said, “You have to say you’re in the business of selling junk.”
But if you’re self-employed, you’ll also have to pay self-employment income tax, Ryan noted. For a retiree he wants to downgrade to cost, Ryan said that might not be the best route. “The juice isn’t worth the squeeze,” he said.
If you want stock market exposure and tax benefits, put your eBay proceeds in a brokerage account.
If the market rebounds in 2023, you can sell and lock in profits after a year. This gives you long-term capital gains rates. (It’s 15% for most families. It’s 0% for single filers up to $41,675 and up to $83,350 for married couples filing jointly this year).
If the bear market remains for 2023, you finally have capital loss provisions to fall back on. You can offset other capital gains with these losses. If your losses exceed your gains, the IRS will allow you to shave up to $3,000 from your income and carry on the remaining loss.
If these tax questions seem new to you, remember that you are not alone. As Ryan put it, “How many customers sell a couple of things on eBay? I’ll find out this tax season.
Have a tax question? Email me at: email@example.com
Thanks for reading. I want to help you think more broadly about the issues surrounding your taxes. I’m not offering tax advice, just an attempt to look at what the flurry of tax rules and economic conditions might mean for your portfolio.
I’m here for the reader who faces taxes with a resigned air. You’re not that interested in taxes, I get that. I was once that guy. Under the slang, he thinks of your taxes as a maze, with the money at the end. Or a trap you need to avoid.