PayPal and income taxes

[sanderson]

doesn't take long to add a 1099 to your taxes. If you earned income, you owe tax - that's how roads get built and shabbily repaired. If your cost basis on an inherited rod or reel exceeds the sale price, you have no income to pay tax on. The 12.5% PayPal takes isn't a tax, it's their commission. (Barney) So, declare the value beyond the sale price, and you will not owe tax on it.

[tiptop]

"doesn't take long to add a 1099 to your taxes. If you earned income, you owe tax - that's how roads get built and shabbily repaired. If your cost basis on an inherited rod or reel exceeds the sale price, you have no income to pay tax on. The 12.5% PayPal takes isn't a tax, it's their commission. (Barney) So, declare the value beyond the sale price, and you will not owe tax on it."

True enough, but if we are selling our old rods and gear at a loss (hopefully not too big a loss ) and the total is more than $600/yr, I assume we would need purchase and sales receipts to prove to the IRS that no profit was made. I have gear that that I bought 15 years ago that I have an idea how much I paid but have no receipts to prove it. I don't know if the IRS will accept the net loss figures without receipts. And one more detail. Not only do we pay the IRS based on our net income but also the city and state income taxes which can total a fairly substantial percentage for the three combined depending on the tax bracket.

[PYochim]

Just a thought, if a piece of equipment has gained value over the years shouldn't that be considered passive income? that way it would be taxed differently based on the difference between the current price of a comparable item and the sale price of original item?

[tiptop]

Long term capital gains?

[ffftroutbum]

Folks, I believe personal assets are considered capital assets are are subject to capital gains. Although I am not sure how the reporting on the form will shake out. I believe only the gain would be taxable. Losses on personal assets can not be deducted. Whether or not you receive a 1099 for a personal asset sale, any gain would be subject to capital gains I believe. However, since sales on personal assets are typically sold at a loss it was never worried about in the past. But if you sold, say a rare Garrison rod for 10K, and paid 8K for it you have 2K subject to capital gains I believe. Even if you did not receive a 1099 and were audited for some reason the agent could ask were did this 10K come from, oh it was from the sale of this collectible, oh do you have something showing what you paid for it, did you report the gain on your return? So really whether or not you receive a 1099 or not, any gain on a collectible is reportable. It’s kinda a pain ass to keep the receipts etc, and it seems unfair that losses on personal assets are not deductible while gains are, but that appears to me to be the rule. These are just some random thoughts and I could be wrong here, so I would encourage you to ask your accountant for up to date and more accurate info.

[BruceHandley]

These new tax limits put me between a rock and a hard place. I have no paper work on most all of my rods, some of these rods go back to the mid 60's And to sell a rod or two for sure would put me over the $600 limit. And I have the same problem with reels.
Without putting a number to my rods, they are well over 75, and selling them at a rate of one or two a year will take more time than I have left on earth (I'm now 87). I may try to move some items thru the board, but that could be. a problem as most of my rods are antiques which would limit interest.
For now I think I'lll wait and see how all this works out, and try not to get run over by a bus.
Bruce

[tiptop]

Bruce - I think your situation is shared by many on this forum. It may be necessary to go back to the pre-Paypal days where we used postal money orders and personal checks held until cleared. Although, in your case, some of your rods were acquired so long ago they may have appreciated significantly and you may actually owe income tax on them. On the other hand, there's been quite a bit of inflation in the last 60 years and your rods may not have appreciated that much after all.

[davemaine]

If this is "income" tax, then selling a few rods or reels is not likely to put us into a higher tax bracket or add all that much to what we owe, right?

Much ado about little?

[GRASSNGLASS]

Turns selling a couple little things into a paperwork nightmare that many don't want to deal with.

I paid about fifty percent of my salary to the Feds and State while working. Never complained about it.

Now I'm old, retired and tired and don't feel like dealing with this nonsense. Feels like they're trying pick what little bit of meat is still remaining on our brittle old bones.

[BruceHandley]

davemaine,
I'm not looking at tax brackets, thats another problem. Without paper work to prove cost, how would you prove to the IRS what you might owe in tax. Do you think that the IRS will take your word for what you say, I wouldn't bet on it.
Bruce

[sanderson]

Anyone EVER been audited over fishing equipment sales? IRS hasn't got the manpower to audit 2% of returns, much less trying to recoup $200 on capital gains earned on a $1500 rod sale. IRS is no different than anyone else, they have limited resources, they aren't going to engender congressional support hammering a group of fishing collectors for a few thousand bucks when they have an endless pool of multimillion dollar enterprises running borderline businesses. Their hourly rate of return isn't maximized going after fishing pole collectors and sellers.

[GRASSNGLASS]

Actually, the IRS has plans to hire 87,000 additional people to deal with new laws.

[PYochim]

It is unfortunate that every government agency does not operate with the same effectiveness that the IRS does.

[sanderson]

https://www.nytimes.com/2022/01/12/busi ... -2021.html

[prairieschooner]

Off topic, but it was bad enough when ebay was charging their fee on the purchase price and the shipping charge; I see now they are also charging it on the sales tax amount! Somehow that seems wrong to me but what do I know?

[Srock]

The big problem with this new law is that it will impose severe bureaucratic constraints on casual sellers who never intended their original purchases to become investments that they later would need to potentially pay income taxes on. Even if we sell them lower than original purchase price how do we prove this without receipts. Like several have mentioned, I began buying my fly fishing gear decades ago, I am now 72, and do not have the receipts. I never considered I would be held accountable for such purchases 30 to 40 years after I purchased them. This is unfair and will create bureaucratic nightmares for those of us who would like to sell some items on the broader market. It will be a big turn off to even put things up for sale if you have to justify all sales over $600. If such sales are cumulative who will keep track of these? Indeed, classic fly fishing gear by definition means it is older, and less likely to have clear original purchase paperwork. I will gladly pay income tax on my earned income. But to prove I do not have to pay income taxes on occasional sales of fishing gear by documenting everything on bureaucratic forms to me is absurd and not thought through carefully. This will also effect every casual seller, not just fly fishermen. I would like to think that once the absurdity and complexity of this policy is better known that it will be repealed or set back to limits like the $20K threshold. Time will tell.

[galt]

The hand written bill of sale received at the time of the long ago sale should suffice.

Galt

[tiptop]

Well stated by Srock. I spoke to my accountant about this and he was aware of the change but he didn't want to think about it until next year when we'd be filing 2022 taxes. He said there would be guidelines for accountants that would come out later this year on how to deal with this. Presumably, if a 1099-K is filed for our sales over $600 with the IRS, we would be able to list the value we originally paid to show no profit was made on the appropriate form - a schedule C maybe. If we did that and we don't have receipts to prove what we paid, chances are the IRS wouldn't question it unless it was a large amount. They are tremendously behind now. If they did question it however, that could be a problem resulting in having to write letters of explanation which might or might not be accepted. Something like this isn't going to trigger an audit but could result in a penalty, interest, and full payment of what they say is owed. Hopefully, this new policy will eventually be rolled back or modified to something more reasonable for those selling personal merchandise without profit.

[chugbug]

Back when I was working, I had a case where an elderly gentleman died with a good bit of wealth. He had been living among friends, none of whom had any clue he was anything other than an average Joe like the rest of them, some of whom were living off social security. He lived a simple life. He and a few of his friends had served in the military in WWII. Always proud to pay his taxes. His will left a few small but helpful bequests to friends and divided the bulk of his estate between a favored local charity and . . . the United States Treasury. The government, on learning of the gentleman's life and on confirming his taxes were in fact fully paid, . . . forfeited it's share of the bequest to the charity.

[roycestearns]

No one should be making financial decisions on what they read here! Like TJ mentioned this is nothing more than a heads up. This just ramps up the total paperwork/record keeping you'll need to do . Of course everyone was suppose to be doing this all along, including garage sale income! Will this fix our federal deficit ... no comment.

There is no requirement for this forum to track anything, just the payment platforms like paypal, ebay and Venmo

This is not Paypal, Ebay, or Venmo, taxing you this is the new federal requirement to report transactions that exceed $600 per year (previously $20000).

Taxes are charged by federal state and local jurisdictions. Unfortunately you'll be taxed at the state level also since it's reported as federal income.

This will adjust your income by the net of the sale, and apparently there is no adjustment for loss of income when you take a loss.

This is not a long/short term capital gains tax (which is on top of the income tax )

Your requirement is to keep a good record of original cost, +expenses (sales fees, packaging, postage and handling).

In Bruce's case, do your best to estimate the original cost (note it as an estimate in your record keeping) and expenses (material only) to get it ready to sell, and keep a record. Carla will love helping you set up a record keeping solution on your new computer. Add the net as other income on your taxes. The chances of being audited are pretty slim, and if you are your best attempts to estimate the original cost will go a long way to a reasonable outcome.