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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15730
Experience:  15years with H & R Block. Divisional leader, Instructor
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In 2014 I sold several bikes and bike parts I have been

Customer Question

in 2014 I sold several bikes and bike parts I have been collecting over the last 2 decades on ebay. Total gross sales in Paypal for the year was about $40K (including shipping, ebay/paypal fees, etc). I did not realize Paypal issued a 1099K to the IRS and received a letter from the IRS the other day claiming I owe $14000 in back taxes and penalties.
Now I sold most all of these bikes at a significant loss over what I paid for them originally over the years. But, of course, I don't have receipts on any of those original transactions as some are 20 years ago. I don't consider what I got back on the bikes as income (rather it was truly a loss) but the IRS does.
Do I have any options or am I screwed here?
Submitted: 1 year ago.
Category: Tax
Expert:  Robin D. replied 1 year ago.
HelloPaypal sent you the 1099K based on the amount for sales and the number of sales you had. Their requirement to issue is when gross payments exceed $20,000, AND there are more than 200 such transactions.With that amount in sales the IRS sees it as a business of selling.You are going to either need to show your cost in those to reduce the income or pay the tax on the full amount unfortunately.If you have any proof that you held these items for year (pictures, any correspondence...) then you may be allowed to use that.You can at least reduce by the costs to sell, (shipping, postage , cost of internet....).
Customer: replied 1 year ago.
I know the rules of PayPal and I understand what they report is gross income and I have to handle defections for fees, shipping, materials etc etc.My question is how can I prove that this was a collection sold at a loss if I have no record of original purchase?
I do have pictures of all the bikes and a handwritten log book with date of purchase and purchase price, but no receipts, bills of sale or correspondences....I had some of these bikes for 20 years and sold them at a fraction of what I originally paid
Expert:  Robin D. replied 1 year ago.
If you have the log that is a written account of the purchases. They may accept that. That is no guarantee because it depends on the actual agent. If this log is a current entry (not kept over time) then they would most likely not accept without other items to substantiate.Had you filed eh Schedule C initially then the IRS would have been more inclined to accept your filing. Now that you left it off and they contacted you, a closer look is required by an agent.I sincerely ***** ***** could tell you differently but, there is just no guarantee at this point.
Customer: replied 1 year ago.
I didn't report the income on my tax return because I considered it a loss (not income), but for the same lack of records, did not claim it as a loss.
Sems now the IRS is basically suspicious of me.The log book is old and arcane. Essentially just a college ruled composition notebook with my writing records in it. How would I even submit that…photocopies and annotated line items for the items sold?
In it is the following information: make, model, year, size, serial number, date of purchase, serial number, amount paid and notes.I do have a picture of every bike I've ever had as well, so photos could be linked to the notebook line items.How would you recommend proceeding? The IRS notification requires reply by May 25. I intend to dispute, but not sure what to submit beyond the obvious adjustments for the portions that are not gross income (fees, shipping, etc) which I can easily prove with paypal and ebay records. How do I organize all that information, in a spreadsheet?
Expert:  Robin D. replied 1 year ago.
You need to mark that you disagree with the reassessment. That is on the notice they sent you.Prepare a 1040X with the Schedule C attached.Include the income and the amounts you have recorded as costs.Do not send the log. If the IRS accepts your amendment then all is fine. If they need to see proof they will contact and then you send a COPY of the log not the original.
Customer: replied 1 year ago.
Ok, that is helpful.So I enclose the 1040X and Sched C along withe the form they sent when I return it as a "disagreement"? And no supporting documents at that time (account history from ebay, paypal for fee and shipping deductions).
Do I write a cover letter describing what I've told you..this was a collection etc sold at a loss?This is going to balance out as a significant net loss, as the initial purchase cost is always greater than the sale amount. How do I handle that and how will they view that?
Expert:  Robin D. replied 1 year ago.
No cover letter is required. The 1040X would be your explanation.The Schedule C will show the loss as business. That is how this is seen based on the activity level. Prepare the 1040X with the Schedule C and then wait.
Customer: replied 1 year ago.
I'm not a business. What do I call myself on the Schedule C?Is there any information sources you can recommend to help me with placing the proper expenses from ebay/paypal in the proper places on the ached c? For example "ebay listing fees". Is that considered "advertising" (line 8 on ached C) or "other". Same question for "shipping" and "fees paid on shipping".Lastly, I assume "cost of goods" is the total original purchase price that I calculate from my log?
Expert:  Robin D. replied 1 year ago.
You were selling so the IRS sees you as more than just a garage sale once or twice a year.The listing fee is more of a commission.Shipping is postage costs.Inventory is all you had to sale. If you make or buy goods to sell, you can deduct the cost of goods sold from your gross receipts on Schedule C. However, to determine these costs, you must value your inventory at the beginning and end of each tax year.Please remember to rate my service once you have all the information you need. If you have any other questions, please ask me – I’ll be happy to respond. Thank you!