posted on July 18, 2001 05:04:13 PM new
How do I "account" for items that I'm selling on eBay that have been around my home for a long time...you know, the sort of stuff (old dishes, old toys, old books, old 'stuff') that you might sell in a yard sale, if you were having one. Some of it was purchased for, and outgrown by, my son. Some has been around for years.
I know for tax accounting purposes, I have to put some "value" on this stuff, don't I? But this isn't stuff with a 'receipt'. This is just 'stuff'.
Let's take a concrete example. Let's suppose that I'm selling a jigsaw puzzle that we've had for years. I have no receipt, have no idea what it cost originally, it may have been a direct purchase or it may have been a gift. All I know is that we've had it a long time, and we don't want it anymore, so it ended up in my eBay 'pile of stuff to sell'. So, let's say that I put it up on eBay with an opening bid of 99¢, and it ends up going for $3.00. I KNOW that my "income" on the transaction is $3.00. But what is my "cost of goods sold"? Is it 99¢? What is the right way to value (and account for) this puzzle?
I'm trying to go straight, pay my taxes, do it right. But, I need some help here, and this is the biggie question I have right now. Please advise.
posted on July 18, 2001 06:52:58 PM new
I saw this program that is fairly new that has all the tax tables for the USA. It allows you to accept taxes in every single state and makes convenient forms for sending in payment.
I have a feeling eventually, we all will have to accept ALL taxes and pay them for the customers.
posted on July 18, 2001 06:58:36 PM new
I believe that "Sale of personal Property" is differant that business sales. Like if you were having a yard sale or such. I could be wrong. There may also be a limit you can sell, under this.
posted on July 18, 2001 07:01:26 PM new
Don't forget your listing fee and final value fee, not to mention any photo hosting fee you may have incurred.
I am possiblyy wrong, but I'm under the impression there is no tax due on your small personal items... as it is assumed you probably paid more than you received when sold... that if anything, it would be a lose, which is deductable only up to the amount of profit.
When you check into this, remember to look for a beginning amount when you must declare sales, anyway. Seems at one time, you may have been allowed up to $600 in a year without worrying about anything federal.
Far as state, if you have made sales which have shipped within your state, they may be looking for a portion of the pie. But, thats a whole nother matter.
posted on July 18, 2001 07:30:31 PM new
Hello. Let me just throw up a couple of basic income tax themes. Of course, at some point it would be wise to consult a real tax advisor.
First off, the total amount you receive in an auction is considered your revenue, not your income. Second, the amount it cost you to acquire the object is considered your cost, or your "basis" if it's considered a capital asset. If you go to the capital gains info the IRS puts out, you'll see a discussion about "collectibles". Long-term gains on these are taxed at 28%, instead of the 20% applicable to stocks, bonds, etc. To determine your income, you subtract your cost and other expenses (fees, etc.) to arrive at your income total.
For folks who are in business -- that is, buying objects with the intent of reselling them -- income is "ordinary income". For capital assets, income is taxed as capital gains.
Getting back to your original point: try to think about how much each item originally cost. It doesn't matter how long ago it was or what inflation might have been in the meantime; just think about the actual $ amount on the receipt. If your "income" from the sale of the object is a loss, then you don't need to do anything income tax-wise. The IRS only cares about your gains; it won't allow you to deduct your losses. If your "income" is a positive number, then report that amount on Schedule C (if it's not a capital asset) or Schedule D (if it is).
In general (and the last time I checked), the IRS doesn't require receipts for items under $75, so that's not critical.
However, you generally need to have a reasonable basis for whatever you do without receipts to back it up. No idea what would be required if an agent showed up to audit you, though, which is one of the best reasons to hire a professional.
posted on July 18, 2001 07:30:32 PM new
Get Quickbooks. At the end of the year, print out the relevant reports from Quickbooks and bring them to your accountant, and he'll do the rest for you. Quickbooks will pay for itself in the time and accountant fees it will save you.
*Some* auction management services allow you to download your auction information directly to Quickbooks, thus eliminating the need to enter the info manually. perty kewl
Or, you can hire someone like me to do it all for you (in the real world I'm a financial consultant for small businesses, ebay is a hobby business), but I don't work cheap
posted on July 18, 2001 07:32:12 PM new
I'm doing okay with understanding how to account for all of my expenses, including eBay fees (listing, FVF, etc.), shipping supplies, postage, phone/internet, office supplies, software, equipment investment, etc.
Doing fine except for how to assign a value to "inventory" (a "cost of goods sold," which is directly deducted from the gross income) when the "goods sold" are stuff that's been hanging around my house for years.
I have all of my sales separated by whether or not they were "in-state" and therefore, have collectible/payable taxes assigned to them.
I'm sorry, but I don't really want to engage a CPA, and I sure don't want to call on the IRS. I was thinking that I might not be the first person who ever tried to clear their junk on eBay, but as a business (registered, tax-paying) rather than as an online yard sale?
I guess I'm just feeling like this is my own "gray area" but I'm hoping that someone else out there has colored in that page?
posted on July 18, 2001 11:29:55 PM new
FERNCREEK, I suspect you're concerned about the expense of using a CPA. Don't forget that you don't have to hire this person to do your complete taxes in perpetuity...you can "buy" an hour or two of his/her time to answer your questions and that's all you need to spend. Or consider using an Enrolled Agent (licensed specifically for dealing with the IRS and your taxes). They are generally less expensive per hour, and are frequently more knowledgeable about income taxes as that is ALL they do.
I've had this same discussion with my EA, and the general answer is that if you make a profit, you need to declare it. Almost anything that is just "stuff" (i.e., your example of an old jigsaw puzzle) will sell for less than you paid for it years ago, so you will be actually taking a loss on those items.
Do your best to establish a reasonable cost or beginning value for such items. It would be impossible to come up with receipts for used household goods, and the IRS doesn't expect you to do so. But you have to establish some reasonable figure...maybe $3 for that old jigsaw puzzle, when you bought it ten years ago?
The IRS publishes a list of values for used clothing and other items for donation purposes, and this is a good starting point for such calculations. You should visit their site and check out the various publications that go into the sort of detail you'll need to do the bookkeeping right. You can reac them at www.irs.gov.
posted on July 19, 2001 12:34:05 AM new
ferncreek,
You say you're selling "as a business", so can we assume you have a sales tax resale certificate from your state sales taxing authority, collect and turn in sales tax for sales within your state, and file a Schedule C (profit or loss statement) for your sales on your yearly federal income taxes?
Another seller I know INHERITED all her inventory from her mother, who had been an antiques dealer 25 years ago and had been storing the stuff in her garage and attic for years. This seller also needed to know the "cost basis" for each item she sold, since she hadn't actually PAID anything for them, and her tax accountant told her to put her cost at 50% of the retail price (meaning she "doubled her money" on everything she sold undiscounted---minus all her other expenses, of course, like mall commission, rent, supplies, vehicle mileage, etc.).
If you sell a real antique that you previously owned (and have no idea what it cost you, or you inherited it), you can do the same (ask your accountant if you're unsure). If you sell something you bought for your own use 10 or 20 years ago, you can ESTIMATE your original cost (including sales tax), but I wouldn't try to show a LOSS, since you've had USE of it in the intervening years (even if you never actually used it). Only items bought specifically for resale should show a loss. Your personal property will probably come out "breaking even", but it's a good idea to include it in your 'inventory sold' for the year, since eBay records are available to the IRS should you ever be audited (Heaven forbid!). Forget all that about "capital gains" mentioned above---that's for real estate, stocks, and a few other specific sales.
When you do your taxes, it's not a good idea to claim expenses for a home office, even if your "business" takes up half your house, because the 'home office deduction' raises a red flag with the IRS.
posted on July 19, 2001 06:29:02 AM new
Put a nominal value on the stuff as it really doesn't matter unless it is real expensive. Let's say it's a shirt that you paid anywhere between $20-50, I'd probably mark it out as a $1.00 which is about all it's worth at a garage sale unless it still has the tags and might be $5.00.
What would it go for at a thrift shop or garage sale where things are still priced cheap and you were buying it for resale on eBay? This is not science, but should make it simpler.
posted on July 19, 2001 06:36:58 AM new
GRANEE, I understood that you get a stepped-up basis for inherited items (I'm thinking of real estate specifically, but I believe it applies to anything else). So if your friend inherited a storage locker full of antiques, her basis in them would be the value as of the day she inherited them. Then she figures her profit or loss based on what she gets when she sells them.
I'd like to respectfully disagree about the home office deduction. You should take any and all deductions to which you are entitled. There are many "red flags" for the IRS, and they rarely (if ever) make a determination to audit based on only one of them. If your taxes are otherwise honest and properly prepared, you have nothing to fear from a red flag or even an audit.
For almost ten years, my husband and I took not one, but TWO legitimate home office deductions. We supplied all the required proofs and information, had our taxes prepared by an EA, and have never been audited. Even if we were, we had all the backup documentation we needed to prove our point.
My EA recommends sending supporting documentation with the original return, and I think he's right. This seems to forestall problems and IRS questions by answering them up front. If your friend had included a letter with her tax return to the effect that she inherited antiques with a stepped-up basis of X dollars (determined by an appraisal), she would not have felt it necessary to create an arbitrary 100% profit on each item she sold. Even the cost of the appraisal is deductible as a business expense!
I'll close by repeating the excellent advice to ASK A PRO about anything this complex. The best anybody here can do is make an educated guess as to the answers to these questions.
posted on July 19, 2001 07:47:13 AM new
I don't know if the IRS would go for this, but I'm thinking that the value on something you've had for awhile is what you sell it for - especially in an auction forum.
Most things depreciate, so if you donate clothes, etc. to Goodwill, you usually take about 10% of retail as your deduction.
There are things that appreciate however. You buy a puzzle for $20. Smart person that you are, 5 years later, all puzzle collectors want it. You sell it for $40. Now, should you use COGS=$20 (the original cost) or should you depreciate the puzzle down to COGS=zero (figuring the puzzle has a 5 year life)?
I'd think the $20 would be fair basis in that example, but again, I don't know about the IRS, I'm just throwing out some creative accounting.
posted on July 19, 2001 08:27:47 AM new
there isn't any need for any creative accounting in the example you've given.
If you sell the puzzle for $40, that is the "value"...to be used as the amount of income to show on your tax return.
In the case of clothes donated to goodwill, you get a deduction of 10% of retail as the 'value' of the deduction since that is, presumably, what you *could* sell them for if you bothered. And that's why you get to take a deduction of that amount, since you've chosen to forgo selling them and keeping the money, you've donated them to a charity who (presumably) could choose to sell them and use the money to fund their charitable activities.
Now on the cost side, you would show a cost of $20 for the puzzle, since that is what you paid for it, so that becomes your cost basis. The only way you would show a value of zero (depreciated value) would be if you had been using the puzzle as part of a business (maybe a demo puzzle for your toy selling business) and you had already taken 5 years of $4 annual depreciation on the puzzle. In this case, if you sell the puzzle for $40, you have a net profit of $40 that you have to pay taxes on.
Assuming you didn't use the puzzle in a business and already write it off, you have a net profit of $20 ($40 income minus $20 cost). (minus, of course, selling expenses, etc).
This is why yard sales (and casual ebayers using ebay like a yard sale) don't have to declare any income - the cost basis of most common household items is much more than they can be sold for (esp. after selling expenses), that the person has a net loss and the IRS won't let these "hobby" losses to be used to reduce taxes. Just like you don't have to declare as income an insurance payment when you have an insurance claim for lost/stolen/damaged/destroyed household goods - all you've done is to convert items from one form to another at no profit to you.
[ edited by captainkirk on Jul 19, 2001 08:37 AM ]
posted on July 19, 2001 08:50:47 AM new
On a side subject, what's a good business accounting software for a beginning/small business with no payroll? Someone mentioned Quickbooks? What about Peachtree? Is Quicken Home & Small Business good?
posted on July 19, 2001 09:19:39 AM new
Peachtree is an excellent program as well. The reason I recommend Quickbooks to the people here is that Peachtree is a program made for accountants, Quickbooks is a program made for the ordinary (non-accountant) types. If you can learn Quicken, you can learn Quickbooks. If you want to learn Peachtree, realize that there's a steeper learning curve.
Quicken Home & Business is good too, but you'll find more support for Quickbooks. The two are similar enough, and if you're using Quicken already you may just want to upgrade to H&B. However, if you want to do things like download your auctions directly into your accounting software, use Quickbooks.
I'm surprised that nobody picked up on my mention of being able to directly download your auctions into your accounting software. Does everyone enjoy manually entering this info? or just not enter it at all? How would you prepare all this info for your tax return otherwise? How many auction management services offer a feature to download your auction directly to Quickbooks. I know of one.
posted on July 19, 2001 12:12:50 PM new
Clarisys offers a great freeware program that handles GL/AR/AP functions just fine (I believe pay-for-use program includes Payroll and some other higher functions).
I maintain my auction information in an Excel spreadsheet and run reports at the end of each month to determine my revenues, COGS, and split the revenues between cash and a/r (for payments pending items).
I maintain Microsoft Money to balance my bank accounts, and produce reports to calculate Paypal fees, Billpoint fees, etc through that program.
I keep a book of Ledger paper by the computer and record purchases of supplies and inventories in that book as such purchases are made. I add the entries from the Excel and MS Money programs to my book and manually input the JE's into Clarisys each month and viola! Complete financial reports and GL tracking. I've found it to be a pretty easy system to use (of course I'm an accountant so its REALLY easy to process 2 whole pages of JEs once a month to handle the financials. *smile*)
posted on July 19, 2001 12:15:19 PM new
I use QuickBooks and love it for ease of accounting - but manually enter everything -- would love to know about the auto download end of things!
posted on July 21, 2001 06:20:36 AM new
Well, you guys gave me some excellent advice! And I took it--went to see an accountant yesterday, asked my questions, and got some interesting answers that definitely work for me! I also got some advice and insight into business deductions that I hadn't been aware of, some general rules of thumb around equipment purchases and depreciation, etc.
I would also like to know more, PeterTDavis, regarding the ability to download auction information directly into Quickbooks? Could you say more about that?
posted on July 21, 2001 08:43:07 AM new
Hi Ferncreek, I'd be happy to discuss with you different services that integrate with Quickbooks. However, making specific recomendations may violate AW's 'no promotional posts' rule. Out of respect to them, let's take this discussion to private e-mail. Send me a note to [email protected] if you want to pursue this further.
