what is the impact of selling with new tax law?

[sikoniko]

This isn't a political post. this is purely.. the law is there, what does it mean to me?

I used to buy and sell, but now that the law has been passed that I will have to show on my taxes income from sales, what does that actually mean? The new law has made me not want to sell anything, even if I think I might want to sell to move up into a more expensive guitar.

Can someone help me understand? Do the taxes come out of the money I get for the product I sell or am I supposed to charge sales tax on top of my asking price and keep that money aside to give the government come tax time? Do I have to be conscious of capital gains if I can sell the guitar for more than I bought it for if I bought the guitar in the last two years?

How does this work? I'm a private citizen that it seems I now have to act like a business and report all this stuff... help?

 

[charliechitlins]

You don't charge sales tax unless you are a registered business with a Tax ID number.
When selling, it's more likely you will lose money.
If you ever get audited, the IRS will want to see records/receipts.
If you don't have "official" ones, it is perfectly acceptable to write them up yourself.
Read that last sentence again.
This was told to my father, by an IRS agent during an audit, who said, flat out, "I'm now going to tell you how to avoid this problem in the future."
Dad was a salesman and didn't always have receipts/records for sales and expenses.

 

[sikoniko]

You don't charge sales tax unless you are a registered business with a Tax ID number.
When selling, it's more likely you will lose money.
If you ever get audited, the IRS will want to see records/receipts.
If you don't have "official" ones, it is perfectly acceptable to write them up yourself.
Read that last sentence again.
This was told to my father, by an IRS agent during an audit, who said, flat out, "I'm now going to tell you how to avoid this problem in the future."
Dad was a salesman and didn't always have receipts/records for sales and expenses.

thanks for the reply. I've been reading this morning and it looks like you have always been supposed to pay capital gains on used items where you profit, but so much of the time when we sell, there is a loss so no taxes on a loss.

what is different is that the banks now report all income over $600 in your bank account (used to be $10k), so you have to be able to account for that transaction on your taxes, even if its a loss. I think Reverb and ebay will provide this documentation but if you sell it through a forum, like this one, you have to have your own documentation.

hand-written receitps sound nice... but I guess I would need to get a file-folder and keep them, in the event of an audit, as a best practice. i guess where I'm concerned, I didn't keep that practice on guitars I bought before this year, so how do I guess I would hand-write a receipt on the honor system?

 

[jb_abides]

The $600 reporting is via digital apps, for now. And they should supply the form to you.

Be careful of your marketing and record-keeping approach, to differentiate between IRS view on Business versus Hobby disposal of property.

Cost basis can be price at acquisition, per receipt, or estimate. Fair Market Value assessed at time of sale can be referenced via sources, but there's also a take on what 2 informed market participants view as the value.

If Business, then there's depreciation at work.

If Business + Hobby, there's partial treatment at play. Do you get paid for gigs using what you've acquired? Do you post your output hoping to get 'hired' or royalties from streaming?

Also, be mindful of something that's viewed by IRS as Personal Property, versus something that's Collectible. High value, coupled with any sort collector's market status (groups of afficiandos acting like a collectors market) pushes you into Collectible treatment.

 

[Pat Boyack]

what is different is that the banks now report all income over $600 in your bank account (used to be $10k),

Not true. Where are you getting your info? It's still $10,000. A proposal was made for $600 but it was quickly discounted. Plus, no new laws hsve been passed. All this info is available with a fast Google search. Believe me, the IRS could care less about someone selling a guitar. It wants to use tools to help fight large scale money laundering. You know, like the mob.

 

[Tollywood]

I sold a guitar a few weeks ago for $2000 on Reverb. They notified me that they are sending me a 10-99 form showing $2000 as income.

 

[Pat Boyack]

I sold a guitar a few weeks ago for $2000 on Reverb. They notified me that they are sending me a 10-99 form showing $2000 as income.

Reverb starting doing that to cover it's own ass.

 

[Tollywood]

I have the info from when I bought it for $2000. So, at tax time I can offset the income because I have the original record of the purchase with PayPal.

 

[gakees]

Not true. Where are you getting your info? It's still $10,000. A proposal was made for $600 but it was quickly discounted. Plus, no new laws hsve been passed. All this info is available with a fast Google search. Believe me, the IRS could care less about someone selling a guitar. It wants to use tools to help fight large scale money laundering. You know, like the mob.

This.

 

[charliechitlins]

Not true. Where are you getting your info? It's still $10,000. A proposal was made for $600 but it was quickly discounted. Plus, no new laws hsve been passed. All this info is available with a fast Google search. Believe me, the IRS could care less about someone selling a guitar. It wants to use tools to help fight large scale money laundering. You know, like the mob.

I have seen the IRS, like many government agencies, go after the low-hanging fruit.
The little guy is an easier target.

 

[corpse]

I get ripped off on everything I end up selling- if ya follow...

 

[J.D.]

This was already discussed in another thread.

Major payment houses will be issuing 1099K forms for payments received over $600 per calendar year. It's not a "CYA"; it is law.

You will need to work with your accountant for annual tax filing disposition. This generally entails providing a cost basis against the payment total.

 

[Nifty]

This isn't a political post. this is purely.. the law is there, what does it mean to me?

I used to buy and sell, but now that the law has been passed that I will have to show on my taxes income from sales, what does that actually mean? The new law has made me not want to sell anything, even if I think I might want to sell to move up into a more expensive guitar.

Can someone help me understand? Do the taxes come out of the money I get for the product I sell or am I supposed to charge sales tax on top of my asking price and keep that money aside to give the government come tax time? Do I have to be conscious of capital gains if I can sell the guitar for more than I bought it for if I bought the guitar in the last two years?

How does this work? I'm a private citizen that it seems I now have to act like a business and report all this stuff... help?

This might add to the clarification

https://www.forbes.com/advisor/taxes/cash-apps-to-report-payments-of-600-or-more/

Feb 19, 2022
Forbes

Venmo, Cash App And Other Payment Apps To Report Payments Of $600 Or More​

If you receive $600 or more payments for goods and services through a third-party payment network, such as Venmo, or CashApp, these payments will now be reported to the IRS.


Beginning Jan. 1, 2022, third-party payment network providers will be required to send users a Form 1099-K, Payment Card, and Third Party Network Transactions for transactions made during the 2022 tax year by mail or electronically. The new tax reporting requirement will impact 2022 tax returns filed in 2023.


The new rule is a result of the American Rescue Plan. The $1.9 trillion stimulus package was signed into law in March by President Joe Biden, which changed tax reporting requirements for third-party payment networks.


And while this rule applies to most third-party payment networks, Zelle said it’s not subject to this law.


The law says that only third-party payment companies that handle the settlement of funds (a process of transferring funds from a buyer to a seller in a transaction) are required to send 1099K forms to users.


Early Warning Services, LLC, the network operator of Zelle, said in an email statement that Zelle doesn’t settle funds but rather provides messaging between a financial institution and people making the payments.


Before implementing the law, the IRS required reporting if payments exceeded $20,000 or more and more than 200 completed during the year.


Here’s how the new tax reporting will work........

 

[J.D.]

https://www.irs.gov/pub/irs-pdf/i1099k.pdf

 

[corpse]

But gifts to friends are ok

 

[Pat Boyack]

I have seen the IRS, like many government agencies, go after the low-hanging fruit.
The little guy is an easier target.

No. In general the IRS does not. The IRS relies heavily on the banks reporting income and transactions at $10,000 and above. Right now the agency is severely understaffed. Actually at 1980s levels. If you think the IRS is going to come after a guy who sells a few guitars you are listening to the wrong people.

 

[Pat Boyack]

This was already discussed in another thread.

Major payment houses will be issuing 1099K forms for payments received over $600 per calendar year. It's not a "CYA"; it is law.

You will need to work with your accountant for annual tax filing disposition. This generally entails providing a cost basis against the payment total.

I wonder where the taxes folks are paying for Reverb purchases is going?

 

[J.D.]

I fundamentally disagree with sales tax being collected on resold used, personal items, as the sales tax was already paid when the item sold new. But alas I don't make the laws.

 

[jb_abides]

Reverb does report to IRS as they are a 'digital payment processor' and they send 1099-K to sellers who meet federal & state thresholds.

 

[jb_abides]

I wonder where the taxes folks are paying for Reverb purchases is going?

Since the major SCOTUS ruling in 2018, states and localities have been alternatively forging agreements with or suing online entities. Most e-commerce software platforms complied and provide payment interfaces which connect to a designated S&L transfer account.

Some states have sued for back taxes. For example, Texas accepted a guarantee of $200+ Million in new physical distribution centers and 2,500 jobs from Amazon in lieu of restitution for a period of ~10 years missing collection.

Per above comments about IRS 'not going after little guys, so don't be troubled'... Respectfully, please be very careful giving advice to willfully violate tax law using your real name and place of business. Trust me.