My wife has been buying used items from yard sales, Goodwill, etc and selling them on Ebay for the past couple of years. In the past, we’ve used that money via PayPal to pay for online purchases and occasionally transferred money into savings to pay college expenses. I have never paid much attention to this situation as I always viewed it as my wife’s “hobby”. This year we received a 1099K which showed over $20,000 in sales. We’ve never received one of these before and to be honest, I was stunned. I had no idea she was selling this much stuff and according to her, she just never paid that much attention.
I started doing our taxes and realized that this is uncharted territory for me. This will be the first time we’ve ever had to write a check to Uncle Sam. I am not complaining about paying taxes, I just want to figure out what to do to be better prepared for 2017 and what we should do (that we probably should have done) to be better prepared. As much as my wife doesn’t want to believe it, she is running a business as far as I am concerned. Based on the 1099K we received, we are going to be taxed on the total amount and that amount doesn’t accurately reflect actual profit as there were postage/mailing expenses, packing supplies and the initial cost of whatever she sold. She knows how much she spent on shipping, so can that amount be deducted from the total amount stated on the 1099K?
I guess I am looking for some guidance/advice as to what we need to do to be better prepared to deal with this next year since the 2016 ship has already sailed. Would it just be simpler just to keep her sales under the $20,000 cap or, does she need to start keeping track of every little expense? As corny as it sounds, it isn’t really so much about the money, she loves doing it.
If she’s buying and selling, it’s important to keep a log of purchases. That way you can calculate your cost of goods sold. Then the $20k as income is offset buy a significant expense.
typical small business stuff, all expenses incurred to generate the revenue reduce the taxable income, just can’t charge for labor
mileage, packaging, postage, procurement costs, if she bought a trailer to haul the stuff, went to a training class, bought software, bought a computer to post ads, etc
i’d stay away from the home office thing, but use the Section 179 deduction for any assets purchased for the business
I would be inclined to call the profit $0 and let the auditor come challenge me. No way I would pay taxes on this. If I buy a shirt for $50, wear it a few times and sell it on ebay for $20, I did not make a $20 profit. Simple as that.
That being said, if you are “making things” and selling them on ebay, then you likely would be making some sort of profit.
Again, talk to an accountant. They can probably give you some advice on how to handle this scenario in a manner which might cause you less likely to get audited here.
I would be inclined to call the profit $0 and let the auditor come challenge me. No way I would pay taxes on this. If I buy a shirt for $50, wear it a few times and sell it on ebay for $20, I did not make a $20 profit. Simple as that.
That being said, if you are “making things” and selling them on ebay, then you likely would be making some sort of profit.
Again, talk to an accountant. They can probably give you some advice on how to handle this scenario in a manner which might cause you less likely to get audited here.
What he said^^^^
A great accountant may cost you $300-400+/-…which would more than cover what you are about to pay in taxes on what you “think” you may owe…
“Endeavor to Persevere.
Give,Give… Never Take.”
EC
I would be inclined to call the profit $0 and let the auditor come challenge me. No way I would pay taxes on this. If I buy a shirt for $50, wear it a few times and sell it on ebay for $20, I did not make a $20 profit. Simple as that.
That being said, if you are “making things” and selling them on ebay, then you likely would be making some sort of profit.
Again, talk to an accountant. They can probably give you some advice on how to handle this scenario in a manner which might cause you less likely to get audited here.
Based on the OP, these items were purchased used and then resold, not worn and resold… BIG difference.
It is now on the IRS radar with the 1099…
Also, prolly puts in into the realm of a sales tax audit from the State of SC unless they can prove they don’t have Nexus… which with a home business they do for SC taxes…
Not to discuss finances, but I paid about $450 for my accountant to do my taxes. Also note that that tax preparation is a write-off in itself, so the reality of it is that $450 really only costs you $350 or so and as pescazorro said, the money he will save you in taxes paid for itself by multiples.
Not to discuss finances, but I paid about $450 for my accountant to do my taxes. Also note that that tax preparation is a write-off in itself, so the reality of it is that $450 really only costs you $350 or so and as pescazorro said, the money he will save you in taxes paid for itself by multiples.
Depends on if your Misc. Exp. are greater-than 2% of your AGI.
Even then, you’re only allowed to deduct the miscellaneous expenses above and beyond 2% of your AGI – not the full amount.
Yeah, pretty apparent that if she wants to continue her “hobby”, she is going to have to start keeping some records and we’re going to need an accountant. Man, nothing is easy.
“Apathy is the Glove into Which Evil Slips It’s Hand”, but really, who cares?