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I quit my 6 figure job in November to spend more time with…

I quit my 6 figure...
I quit my 6 figure job in November to spend more time with kids and to divest so to speak. I have sold off, and plan to sell off some extra vehicles, and personal items and collections via eBay in 2018.
I'm looking for advice on how to prepare for my 2018 tax filling. Obviously there will be some red flags since I've left 6 figure income, and now have no income. I'm not married, but My domestic partner pays the majority of the reoccurring monthly bills, so it's sustainable for me to not work, outside of selling some items via eBay/craigslist for extra cash. I have two kids, but I only claim one of them as a dependant, as my ex wife claims the other.
So with my new situation, and my existing credits and deductions that I still have, what sort of filling would benefit me the most? Lot of info there! Any advice is appreciated!
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Answered in 16 minutes by:
3/8/2018
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 33,142
Experience: Taxes, Immigration, Labor Relations
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Hi and welcome to our site!

If you are selling lots or items - you might receive a form 1099K to report your selling proceeds.

You need to classify that activity as either business or not business.

If that is not your business - you will report these selling transactions on form 8949 - but will not be able to use any losses as a deduction as these are personal items.

If you realize any gain - that gain will be taxable as capital gain.

If you classify that selling activity as a business - all sales will be reported on schedule C - in this case all losses are use to offset gains - but net business income is subject to both - self-employment and income taxes.

On your 2017 tax return - you will report your wages (up till you quit) - so you should have W2 form for that year.

For 2018 - your tax situation will be different.

Please elaborate if needed.

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Customer reply replied 4 months ago
Probably tough for you to tell, but in general do you think it would benefit me to classify as a business? Am I still eligible for credits such as child care or earned income credits if I don't claim the income as a business? I have already received my 2017 tax return so that will be taxable I believe.
I'm not sure how to word my question very well. But if selling $5k worth of personal items as a "business" costs me significantly in net profit taxes, id rather classify then as personal items, correct? Or Does making a little bit of money benefit me more via my tax credits and my home interest deductions? Ex: if I make $5k in profit classifying as a business in 2018 but have all the same deductions I did when I made $100k, will I end up not owing anything or potentially still getting a refund?

First of all - that might be not a choice but a matter of determination.

The term trade or business generally includes any activity carried on for the production of income from selling goods or performing services.

A trade or business is generally an activity carried on for a livelihood or in good faith to make a profit.

The facts and circumstances of each case determine whether or not an activity is a trade or business.

The regularity of activities and transactions and the production of income are important elements.

You do not need to actually make a profit to be in a trade or business as long as you have a profit motive.

You do need, however, to make ongoing efforts to further the interests of your business.

.

How that will affect your tax situation might be different and largely depends on all other facts and circumstances.

For instance - if your other income is ~$100k - that additional business income will result more tax liability

But in 2018 when your other income will essentially be very small - additional business income - which is classified as EARNED income may generate EIC - earned income credit and additional child tax credit - and could boost your refund.

.

In additional - you may claim both your children for EIC purposes as long as they both are living with you - and may release dependency deduction to another parent at the same time.

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Customer reply replied 4 months ago
I just don't want to leave anything on the table as far as credits or deductions if I don't work at all. So if that means selling items for profit to net income, than I'll stay doing that. If it doesn't benefit me anymore to not net income, then I won't. I know these are extremely vague questions (and more life strategy advice than tax), I appreciate your advice. But for tax benefits, if I don't HAVE to work or sell off things to survive, Is there any reasons for me to seek out income?

Generally - as long as you have a profit motive - the IRS will likely classify your activity as a business.

Whether you need this income to survive - that is not relevant.

If - for instance - you start selling not just your personal items - but also items you specifically purchase to re-sell to customers - your profit motive will be certainly justified.

Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 33,142
Experience: Taxes, Immigration, Labor Relations
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