posted on March 31, 2001 08:25:06 AM
I would like to know the validity of a rumor that someone told me. They said that the IRS is tracking E-Bay and that everything you sell is being watched. That means that if you sell some of your own stuff,etc. The IRS wants a piece of it. Also does that mean that we have to collect tax from every state. This is really true. Do we need to have documents stating how much we purchased an item for wholesale, then how much we collected retail, profits, shipping, tax. Sheesh. Is there a program out there that can help with this.
Thanks.
Deb
posted on March 31, 2001 08:34:46 AM
Hi,
I'd like a good program myself. Auction Amigo lets you put in your cost then figures out your profit after ebay fees. But it still doesn't account for relisting costs, onlinw payment costs, gallery costs well you get the idea, and there's nothing about sales tax. Luckily I've only sold one item in my own state.
posted on March 31, 2001 08:55:23 AM
eBay has said that they cooperate with gonverment investigations, and their privacy policy allows eBay to give all your sales info to IRS investigators if requested. Exactly what's been requested is anyone's guess--- but if I were running the IRS, and had become aware of the huge amount of sales taking place at online auctions, I'd sure have someone take a look at the top 5% or so of the sellers to see whether their eBay sales were in the ballpark with their reported sales on their Schedule C (or whether they completed a Schedule C at all).
I think it's a safe bet that the IRS has done something like this, and will take a closer look depending on how an initial review of a small sample comes out.
As to whether occasional sellers who sell their own items need to report this as income-- you should contact a tax professional for advice. My (lay) understanding is that if you make an occasional sale of personal items, you're likely selling at a loss due to depreciation, so there is no net income to report.
Sales tax is another matter-- most states have sales or use tax requirements. If you're in one of these states, you're supposed to collect sales tax on your in-state sales, and remit this to the state taxing authority. On your out-of-state sales, your buyer is supposed to report and pay a use tax to his state taxing authority (few do this in practice).
Another separate issue is internet access taxes. The Internet Tax Freedom Act (commonly called a moratorium) is due to expire in October. But it has nothing to do with sales or use taxes. It prohibited states and local authorities from imposing taxes on internet access; it also grandfathered in the ten states that were already charging such taxes when the law was passed.
Last year, the House passed the Internet Non-Discrimination Act, designed to extend the ITFA for another 5 years. The bill had widespread support. It went to the Senate, where it was modified to become a permanent extension on the moratorium, but the bill stalled in committee. It wasn't acted on in the last session, although it also has widespread support (in large part because the politicians can't figure out what to do, so extending a moritorium seems safe!).
Bottom line- check with your tax guy/gal to make sure you're OK!
posted on March 31, 2001 09:47:46 AMinnovativealternatives
Since it sounds like you've asked a business question, then the answer is run your auctions like a business...
That includes reporting for taxes...
Personally, I use MYOB on my Mac to run the business end of my machine shop...great double-entry accounting program with payroll and inventory control...preparing quarterly reports and reports for tax preparation is a snap.
I believe Quicken makes a product called QuickBooks for the Wintel platform to augment Quicken...my wife does her accounting for her salon in Quicken with no problems and it imports directly to Turbo Tax...
If you are purchasing for the intent to resell, you are running a business, whether it be at flea markets or over the internet.....if you're buying stuff for your own use and using it and then selling it later (I don't mean a week later *G*), then don't worry about the IRS...
Consult your tax advisor for ways to use your internet auction business to your advantage...there are many tax advantages to having a business and a professional can best explain them to you. One thing my advisor strongly advises is to report all your income....my business collegues echo that advice as well...
My understanding is that there is no statute of limitations on fraud and that the IRS considers intentional under-reporting of income to be such....
Having said that, the stuff I've sold on eBay has come from closet cleaning and the combining of two households after getting married so I don't worry about it....it's not a business to me...I have enough responsibilities with the one I have...*G*
posted on March 31, 2001 03:30:39 PM
Wow! It sounds like stuff I bought at the flea for resale I will keep books on. The crap from closets and shelves is just stuff I don't want or need. Boy, books have to include Auction watch fees, e-bay fees, relist fees, final sale fees, gasoline for car, postage due, etc. This is still a book keeping nightmare. I will have to stick to my day job and just sell stuff in dribs and drabs. thanks for the info.
deb
I hope it didn't sound fatalistic, but the curse (and to some, the beauty) of the internet and electronic venues is exactly the ability to track transactions and users...
In the real world, if you buy stuff at garage sales and flea markets and sell it at a garage sale and everyone pays cash, tracking it is kinda tough compared to eBay.....
What we've discussed above is what your employer (day job *G*) has to go through to keep you on the payroll and the doors open.....it's just a part of life in our capitalistic economy and with our current form of government.
Yous gots to pays to plays...*G*
One way or another...
posted on March 31, 2001 05:06:48 PMI would like to know the validity of a rumor that someone told me. They said that the IRS is tracking E-Bay and that everything you sell is being watched. That means that if you sell some of your own stuff,etc. The IRS wants a piece of it.
Rumor is the key word here. The fact is the IRS doesn't have enough people to perform this type of audit. Audits overall are way down.
Fewer than one-half of 1 percent of individual tax returns were audited in fiscal year 2000. In 1995, the level was over three times as much, at 1.67 percent of returns.
The drop, driven by staff cutbacks and laws passed by Congress, has raised concern about potential revenue loss and greater tax avoidance as Americans head into the final weeks of this year's tax filing season.
That said, if you're running a business --or selling household stuff at a profit-- keep good records (I use Quicken Home & Business) and report the income.
posted on March 31, 2001 05:20:27 PM
It is true that IRS staffing is way down. But this is a potentially lucrative area for the IRS to investigate. Remember all these records are computerized so it's much easier for them to go through them in an automated way.
They only catch is finding the Social Security Number for each an Ebay user. They can trace on your name, but many are registered on Ebay with a Business name, but I suspect they could back trace through the credit card number. Just in case the IRS is watching, I do report ALL of my Ebay sales on a schedule C as a business using that same business name. I am getting prepared to write a check for over $10,000 to the IRS for this years taxes. I didn't pay sufficiant estimated taxes quarterly, and I haven't hired a schrewd tax lawyer, but should.
My guess is that within a year Ebay will be requiring SSN's, and report your sales to the IRS on a 1099.
[ edited by unknown on Mar 31, 2001 05:22 PM ]
posted on April 1, 2001 05:04:16 PM
OK, question on an earlier comment:"If you are purchasing for the intent to resell, you are running a business, whether it be at flea markets or over the internet.....if you're buying stuff for your own use and using it and then selling it later (I don't mean a week later *G*), then don't worry about the IRS... "
I don't keep my personal receipts forever,if I combine both, how do I prove to the IRS (should it ever come to that) which is which?
I've gotten some great prices on stuff from my closet, looks like a big profit, but it's far less than I paid for the items.
posted on April 1, 2001 05:20:31 PM
"If you are purchasing for the intent to resell, you are running a business, whether it be at flea markets or over the internet.....if you're buying stuff for your own use and using it and then selling it later (I don't mean a week later *G*), then don't worry about the IRS... "
A comment on the above..I think, according to my understanding of tax law, that this is a bit misleading. "Buying for your own use and reselling it later" isn't really the right criteria for deciding to "not worry about the IRS", but rather whether you make any money from such sales. Whether you do or don't buy it for your personal use, and do or don't keep it for a week (or a decade), isn't as important as whether you made money from it. If you make money from selling household stuff, I believe you still report it as a capital gain. The reason people (including myself) in general tell people not to worry about these kinds of sales is that you generally (but not always) lose money on such sales, when comparing sale price to original purchase price. But, if you are selling toys you bought years earlier and now have become collectibles, you may still have to report the sale and pay taxes.
And remember, even if you buy for resale, you don't actually have a "business" unless you make money in 3 out of 5 years, or some such criteria. If you magically lose money every year, by deducting all kinds of expenses, they are likely to declare you to be a "hobbiest" and throw out your "business" losses.
Maria, while it isn't guaranteed, generally if you develop a "sales log" showing original price paid, (your best estimate), and when/where bought, and then of course when sold and for how much, that should be enough to satisfy the IRS. They aren't out to try and tax you on that $20 toaster oven you sold for $3 ten years later.
Of course, you can keep a fairly precise log on new stuff bought for resale, so if you get audited, hopefully your good records on those items will keep them happy.
posted on April 1, 2001 10:59:28 PM
Jeff Bezos must have the biggest hobby I've ever seen, considering Amazon supposedly has lost money since its inception...I guess all those losses have paid for high priced tax representation to convince the IRS that he really is in business to make a profit...
Mountains from molehills....
I personally have never met anyone who reports income they make on selling their personal possessions (things, not investments), even business owners.....and as a point of personal philosophy, I believe the further taxing of income that has already been taxed at the time it is earned is onerous and a sign of government not representing the best interests of its citizens.
Just because something is written down somewhere as a rule doesn't make it right....I believe many of our ancestors came to this country because of similar concerns in their native lands...I know for a fact that mine did.
As an unincorporated business who does business with corporations, said corporations are supposed to submit a Form 1099 Misc every year to me as well as the IRS for non-employee compensation...I've often questioned my customers why I don't receive these "required" documents....the common answer I receive is that the company's tax advisor has told them the IRS doesn't audit such compliance and the business can avoid the costs of preparing and mailing these documents without penalty.....fascinating stuff...in the case of a close business collegue, his company saves nearly 10K a year by not mailing this document out to vendors like myself...so much for rules..
I still report the income because I feel it's the right thing to do...
If I sell my mom's old Hamilton watch for couple hundred bucks after she's dead, do you really think I'm going to pay income tax on that sale...? Forget it...
posted on April 2, 2001 06:52:10 AM
I wouldn't be surprised if amazon hasn't paid a cent in federal income taxes, assuming they haven't made profit since inception. The IRS can't force a company to make money (sure wish they did have a magic wand to make that happen...), so they can't force anyone to pay taxes. But, they CAN prevent people from using "business" losses to offset other profits (i.e., their daytime job), which isn't an issue with corporations like amazon.
I doubt not paying tax on a hundred buck sale of a watch is going to cause many problems, but how about selling off a $50K collection of rare collectibles (that were purchased at retail way back when). The IRS might be a bit more interested in that, don't you think?
posted on April 2, 2001 08:48:04 AM
As someone who made a large capital investment (machinery) in the early years of business and showed a loss (for tax purposes) for a number of years back when the IRS was a lot more strict about those rules, I know from personal experience that they were interested that my intentions were to make a profit, just like you noted for Amazon.
The fact that I showed a loss for 4 years straight wasn't pertinent...I had entered the business world with the intention of being profitable and have been ever since that time and have never been contacted by the IRS except one time I mistakenly overpaid (back in the days when I did taxes manually and depreciation was entered on ledger sheets *G*)
I believe the original poster was concerned about the IRS tracking eBay sales... I believe it is much easier to do in that venue than in the real world where greenbacks are the currency of choice and there are seldom receipts......
I prefer to run my business in accordance with generally acceptable accounting principles and tax reporting guidelines but have come to understand that there is a huge part of our population who disagrees with me....I hold no grudges against them; they have to do what they feel is right.
However, if, for example, I was to receive valuables from my parents estate (liquidated through trust) and later sold them for a profit (any money received would be a profit, yes?), the IRS would have to take me to court to get a nickel since I firmly believe our personal stuff is none of their business.
If I bought those same items and stored them with the intention to resell in the future for an inflated price? Sure, that's business...and it's taxable income...
My experience has been the people talk one way about taxes in public and act a completely different way in private...I don't consider myself a member of the club and have been a critic of our tax system since being a young man (my father was a CPA ). I think these types of debates are excellent incubators of new ideas and possibilites...I hope the current administration is listening...
posted on April 2, 2001 09:37:34 AM
pat,
my initial concern was that the irs may be tracking e-bay and my closet clean out treasures would be income. I will however be keeping books on any purchases intended for resale. If an item is purchased for resale, and I have receipts for it and turn a profit, i would expect to pay taxes on those items. The stuff that I have sitting around collecting dust for me, may be someones treasure. I think that worries me most. Little sales attacks while the multi-millionare individuals skate. we pay for everyone. Never seems fair. I just hope that my accounting is good enough for an audit should the IRS com knocking. Thanks
deb
posted on April 2, 2001 10:00:17 AM
As long as its clear to the original poster that it is your opinion that taxes "shouldn't" be applied against sale of personal property, that's fine with me. We can let them decide whether to apply the law "as written" or as you think it should be written.
Pragmatically, I agree with you, in that its probably a rarity when someone reports a gain on sale of truly personal property, since most people proably wouldn't even know that they might be supposed to pay taxes on it, let alone what they originally paid for it, etc.
I just forwarded this thread to my accountant, and this is what he said:
Generally speaking, selling personal items on ebay would only be taxable if you sold the item for more that your "adjusted basis". Adjusted basis is your cost in the item, plus improvements, less depreciation allowed or allowable (for business use). There is no deduction allowed for personal losses. This is why you can sell your car and not have to report it as income. However, if you purchase items for resale, then you have a business and need to keep records relating to inventory costs, expenses, income, etc. In relation to hobbies (antiques, etc., someone's mention about Amazon.com), losses from hobbies are not deductible. IRS determines a hobby to be a venture that doesn't have a profit motive. This is the basis for the commonly known rule of thumb that your "side business" should only show a loss for no more than three years, even though there is no rule like this. Too many losses will make it look like there is no profit motive and call it a hobby. For hobbies, income is taxable, expenses can be deducted only up to the amount of income and is an itemized deduction to boot. Motive is the key there. But for those of you cleaning out the basement or closets, there really is no need to worry from an income tax standpoint, unless you sell the item for more than you paid for it. Sales tax is a different story, but that can vary from state to state. Regarding records, obviously, the more detail the better. And the more organized you are if you are called down, the better it will look. They are more likely to take your word for your inventory costs if you have detailed logs, records, spreadsheets, etc., than if you bring down a shoebox of receipts. I don't believe there would be any truth to the fact that the IRS is watching ebay auctions. To do so may be a violation of privacy and require a court order (although I am not positive). In any event, they're usually not secretive about that kind of stuff unless they're looking for criminal fraud, which shouldn't be an issue with most ebay'ers, even the small ebay businesses. Now someone bringing in 6 figures off ebay without reporting it, is probably asking for trouble eventually.
I hope this helps everyone, I'm back to cleaning out my closets
posted on April 2, 2001 10:50:35 AM
eBay's Privacy Policy offers NO protection to users in this regard. eBay makes clear that they cooperate with government requests for your information-- so it's best to assume that the IRS can have your full sales info for the asking.
From the eBay "Privacy" policy:
*******
Due to the existing regulatory environment, we cannot ensure that all of your private communications and other personally identifiable information will never be disclosed in ways not otherwise described in this Privacy Policy. By way of example (without limiting the foregoing), we may be forced to disclose information to the government or third parties under certain circumstances, third parties may unlawfully intercept or access transmissions or private communications, or users may abuse or misuse your information that they collect from our Site. Therefore, although we use industry standard practices to protect your privacy, we do not promise, and you should not expect, that your personally identifiable information or private communications will always remain private.
We can (and you authorize us to) disclose any information about you to law enforcement or other government officials as we, in our sole discretion, believe necessary or appropriate, in connection with an investigation of fraud, intellectual property infringements, or other activity that is illegal or may expose us or you to legal liability.
**********************
Tax evasion being fraud- eBay can give up any of your information (and it's all available with the push of a button) upon request by the IRS. I'd be amazed if the IRS hasn't already requested, and received, the sales records for the top producing eBay sellers.
Here's an interesting table that shows what information about you eBay reveals, and to whom:
thanks for the info.
