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I have had PAYPAL give me a 1099 report of $25,000 in receipts

Customer Question
for CY 2011. How...
I have had PAYPAL give me a 1099 report of $25,000 in receipts for CY 2011. How do I offset some identifiable $15,000 in expenses (PAYPAL fees, EBAY fees, etc,) + acquisition costs for the collectibles associated with this? I am not a business, but a retired SR. forced to sell off collectibles to raise cash. Many of these were acquired years ago at an unrecoverable cost figure, how do I account for this as I am selling many at a loss.

Thanks

Charlie
Submitted: 5 years ago.Category: Tax
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9/3/2012
Tax Professional: Anne, Master Tax Preparer replied 5 years ago
Anne
Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2,439
Experience: Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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Anne :

Hi

Anne :

Thank you for using justanswer.

Anne :

I see that you are offline at the moment, I'm going to switch the format of this question, which will make it easier to read.

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Customer reply replied 5 years ago


The answer indicated a switch in format? Not sure what this means. I am in line at this time at [email protected]


 


Charlie

Tax Professional: Anne, Master Tax Preparer replied 5 years ago
Hi again


On one screen it says you're not here and on this screen it says you are.

Either way, I just wanted you to know that I am answering your question, and you should see my answer shortly.
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Customer reply replied 5 years ago


OK, waiting here

Customer reply replied 5 years ago

Still waiting, are we on line here?


 


Charlie

Tax Professional: Anne, Master Tax Preparer replied 5 years ago
HI again

Thank you for your patience. We've having some problems with our chat rooms lately.


Since Pay Pal sent you a 1099MISC, for tax purposes, that makes you self employed, and you would need to file Form 1040 (Schedule C) to report the $25,000 as income.

However, as you stated, you also have expenses. You would have the $ amount you pay Pay Pal, shipping, Ebay fees, etc.

Your largest deduction by far will be the cost of the goods sold. I understand that you had the items for a while, and you no longer have the receipts. However, think of this as a "glorified garage sale"

Most of the time, you don't get back what you paid for the item. However, sometimes you do get more. I would hope that you would know what items, if any, you received more $ than what you paid the item.

Since you don't have the receipts, you will have to try and re-create your cost basis. (IRS is really big into lists) I know you won't be 100% sure of how much you paid for something, but you will have to give it your best guess. You would need to list the bigger items separately, and you can group others (for example: tools)

You do not need to mail this list to the IRS. The ONLY reason I'm telling you to make it now (and then keep it with this year's tax return) is JUST IN CASE you are audited The fact that you made $25,000 on Ebay will not necessarily cause you to have an audit. Since the still do "spot audits" (meaning random audits) it would be much easier on you if you make that list now so that you have it.

Again, thank you for your patience, and please feel free to ask any follow up questions you may have.

I truly hope this information is helpful but please do not rate until you are satisfied. If you want to click on 1 or 2 just click on the continue to work with me button instead. You will then be able to add any other info or respond to what I have posted so far. Rating 3-5 gives me credit and a good rating but you can still converse with me.



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Customer reply replied 5 years ago


OK, thanks. If the 'cost of goods sold' offsets the $25,000 and shows me at a loss, is any portion of that deductible?


 


Charlie

Tax Professional: Anne, Master Tax Preparer replied 5 years ago
If you have a pension, bank interest, retirement funds, etc. then yes, the loss would go against that income.

If the only other income you have is SS, it won't matter because none of your SS would be taxable.

I hope this helps.
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Customer reply replied 5 years ago

Thank you. I do have other income for an offset. How much of a loss will they stand for before an audit might be triggered? (I have never had an audit, but have had pretty consistent income since 2000, so this is the first big variation). And does this need to be broken out in any special way? I will be doing my own taxes this year for the first time in many years.


 


Thanks


 


Charlie

Tax Professional: Anne, Master Tax Preparer replied 5 years ago
Hi Charlie


As long as you have reported all of your income and all of your deductions, then the loss is whatever it is, and you get to use it to offset your other income.

I do not know of any $ amount of loss (outside of the obviously absurd losses of $100,000 with only $100 in income for example) that automatically triggers an audit.

More often than not, an audit is generated due to unallowed business expenses. (for example, one of the most common I've seen over the years is deducting child support from the business. The business is not responsible for paying the child support. The tax payer is. Therefore, this would not be a legitimate deduction to the business)

I don't think that that will be the case with you. Here is some information on small businesses and a listing on some of the things you can deduct.

Deducting Business Expenses

There is one other thing we should discuss. If you want the IRS to believe that this is a business so that you can write off your expenses (as opposed to a hobby, which would meant that you would pay tax on the full $25,000), then you must treat it as one.

The IRS has actually addressed this issue stating the difference between a hobby or a business . Please see below:

Online Auction Seller Activities Engaged in For Profit

Again, I truly hope this information is helpful but please do not rate until you are satisfied. If you want to click on 1 or 2 just click on the continue to work with me button instead. You will then be able to add any other info or respond to what I have posted so far. Rating 3-5 gives me credit and a good rating but you can still converse with me.
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Customer reply replied 5 years ago


Anne:


 


My objective in this is to sell my accumulated collectibles to raise cash. In the conduct of this, I do acquire other collectibles, which sold on a standalone basis, would individually make a profit in some cases. Smells like a business.


 


On the other hand, since I have been doing this for several years without reporting any of it, I'd like not to revisit prior years with IRS. The issuance of the PAYPAL 1099 is what turned it, since I now have to report that income.


 


I can probably make the 'hobby/business' show a loss or a small profit. Since this is the first year of reporting it, do you have advice there?


 


I also have as a business, real estate sales, must this be reported as a separate line item or do they get conglomerated?


 


Charlie


 


 

Tax Professional: Anne, Master Tax Preparer replied 5 years ago
Hi again Charlie

On the other hand, since I have been doing this for several years without reporting any of it, I'd like not to revisit prior years with IRS. The issuance of the PAYPAL 1099 is what turned it, since I now have to report that income.


I see no reason for you to go back and amend the prior year returns unless the IRS asks you to.

I can probably make the 'hobby/business' show a loss or a small profit. Since this is the first year of reporting it, do you have advice there?



I'm assuming that the collectibles you purchase for resale (inventory) are ones you have receipts for, or the price you paid for them (if they were fairly recent) should be easier to calculate. (Please save all of your receipts from now on of course)

You should never be afraid to show a loss on a business in the first few years. (IRS wants you to have a profit 3 out of 5 years) but as long as you report the things you have back up for, then the bottom line is what it is. Its not unusual for new businesses to have a loss the first few years.

I also have as a business, real estate sales, must this be reported as a separate line item or do they get conglomerated?


You may only group "like kind" business. Your ebay business would not be eligible to be grouped with real estate sales, etc.
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