Sellers will be sent a 1099 (taxable income) if they sell $600 + starting 2022

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Re: Sellers will be sent a 1099 (taxable income) if they sell $600 + starting 2022

Sat Jul 17, 2021 8:31 pm

maverick10126 wrote:
Fri Jul 16, 2021 8:40 pm
I think ebay fees are something like 12% right? Looking at the capital gains tax calculator you posted I'm looking at 24.3% in capital gains taxes. So combine that with the 12% ebay fees and we are looking at 36% taxed on your sale price. For the sake of simplicity let's just guess shipping is $40. I'm seeing a break even of ~$726 on this thing....hmmm.

I might have to try to sell locally or reconsider my second purchase.
This isn’t correct. You’re taxed on the net profit only. So it’s not as bad as you make out. Or maybe it’s worse? Let’s do the math:

Purchase galactus for $400 plus tax = $430 in most states.

You have an eBay sale price of $X as breakeven, let’s solve for X

X * .87 is your take home after eBay fees of about 13%

You have to pay shipping, you think $40 will cover it, I think it will be more but let’s say $40.

Your net profit is X* 0.87 - $40

You will pay capital gains tax only on this net profit. It’s likely less depending on your tax bracket but let’s say 24%.

So your federal tax owed is (X * 0.87 - 40) *0.24

That means your take home after federal tax is (X*0.87 - 40) * 0.76, which is just saying 76% of your net profit after eBay fees and shipping.

Breakeven is where this equals $430 which is what you paid for the galactus after tax.

Solve for X:

(x*0.87 - 40) * .76 = 430

x*0.87 - 40 = 566

X* 0.87 = 606

X= $697

Now keep in mind the buyer has to pay sales tax too, even though you already paid sales tax. So their final price is closer to $760. People forget this, that the total price plus sales tax is what the buyer will pay.

So doesn’t matter if your break even point is listing the auction at ~$700, the buyer has to pay $760.

We’re also assuming no state income tax, so that’s about another 5% for most folks. Since the 1099 doesn’t just impact federal tax but state.

So yeah, the $400 galactus becomes $760 as the cost to the buyer on eBay just for the seller to break even.

And what most sellers don’t consider is potential for fraud or theft. So if you sell 100 galactus on eBay, maybe 1 buyer will file a fraudulent “item not as described” claim and ship you back a box of rocks.

Now you’re out the $430 you paid for the galactus plus the $40 you spent to ship it. And the risk of this has to be factored into your breakeven price.

So maybe a ballpark break even is the buyer has to pay $800 after tax on eBay for the seller to just break even.

And we’re ignoring the fact that the seller had an opportunity cost of the $430 for the year that it took for hasbro to make it. Could have put that in the stock market, maybe make $40 on that. And there’s a non-zero chance hasbro doesn’t make good on these and you’re out the $430 completely. Your credit card only covers you for a few months. If 10 months goes by and hasbro goes out of business, you’re out the whole $430.

Maybe only a 1 in 10k chance of that happening but it’s a risk that needs to be factored in.

And there’s time associated with packing the galactus for shipping, and going to the post office or UPS/FedEx is more likely since they have better rates for large packages.

So assuming you compensated for risks, opportunity cost of what you could have done with the money otherwise for the year. And paid yourself minimum wage for time involved, the break even point to the buyer is closer to $850 total price off eBay after sales tax.

So as the seller you say you want to make at least a reasonable amount for your effort. Let’s say $100 profit. Now the final price becomes $1k to the buyer since to make $100 profit, you have to raise the price by much more than $100 to account for the 13% eBay fees, 24% to 29% state plus federal tax, and increased sales tax the buyer has to pay on this amount.

So if the buyer pays $1k out of pocket for a galactus next year, then the seller makes $100 profit. Inspite of it being a nearly $600 up charge from retail.

Where does the $500 go? To eBay and to the federal government and to the state government and to UPS/fedex.

So you keep $100 out of the $600 price increase. But you assume 100% of the risk. If the buyer files a fraud claim, then UPS and Uncle Sam and eBay aren’t chipping in anything on your behalf.

So why even bother? Seems like a terrible deal to enrich other people, taking in massive risk to yourself in the process. Since you’re likely to only do this for one or two units, and if a fraud claim occurs to you, it doesn’t matter that it only happens 1 out of 100 or 1 out of 500 times, it happened to 100% of your single transaction.

And you’re out $470 because the galactus cost $430 and you had a $40 opportunity cost of not putting it in the stock market.

This of course, all assumes there’s a market for these at $1k on eBay. Perhaps the market will only bear $700 and you take a $150 loss.

You take 100% of the risk for 18% of the gain. But logistics companies, online marketplace platforms, and government entities take 82% of the gain.

Screw that.
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Re: Sellers will be sent a 1099 (taxable income) if they sell $600 + starting 2022

Sat Jul 17, 2021 9:32 pm

Yeah…I purchased a second one…I’m debating on keeping that order or not. Now I could sit on it for a few years and then the roi might be worth it, but more and more im reconsidering investing in that second one. The sentinel made more sense as the lower initial purchase price point AND selling before the 1099’s get sent out made it a more profitable item. Yes I realize im supposed to be paying taxes on eBay profits as is but I haven’t been tracking all my sales so….yeah not going to start until they make me. The two sentinels I sold so far netted me about $250-300. Paying capitol gains wipes out that margin considerably.

This reminds me of investing in lego. The modular buildings used to be where the money was at but now it’s smarter to invest in smaller $50 sets. 8 of those end up being more profitable than one $400 set.
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Re: Sellers will be sent a 1099 (taxable income) if they sell $600 + starting 2022

Sat Jul 17, 2021 10:12 pm

Time to look into how "OfferUp" works if you live in a large enough metro area?
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Re: Sellers will be sent a 1099 (taxable income) if they sell $600 + starting 2022

Mon Jul 19, 2021 2:59 am

Will ebay report my total earnings which include the ebay fees and taxes paid by buyers or my net earnings which is what they are sending me?
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christianpyro
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Re: Sellers will be sent a 1099 (taxable income) if they sell $600 + starting 2022

Mon Jul 19, 2021 3:34 am

Threash wrote:
Mon Jul 19, 2021 2:59 am
Will ebay report my total earnings which include the ebay fees and taxes paid by buyers or my net earnings which is what they are sending me?
They are sending both you, and the government, a 1099K with your total sales. It will be one number that includes everything that was paid by all your buyers (item cost, the shipping they paid, and the state taxes Ebay collected on your behalf).

You will then have to deduct fees, the state taxes paid on your behalf, the cost of returns, shipping, cost of packing materials/boxes, and the cost of the item originally. Most of those are easy enough to prove, and you can download a report off Ebay with all of that info. Keep your receipts for packing materials and boxes.

Deducting the original item cost may be tricky, as you may not have the original receipt anymore. But a few folks have gone through this process already and successfully deducted those costs without a receipt. I plan to add a column to the spreadsheet Ebay provides with that information. If I purchased the item online, I may still have the original receipt, so I will collect those as well, just in case of an audit, and I hopefully can use those to prove most my numbers are consistent. I don't know if they will accept that in an audit though.

If you sell through Facebook or Paypal you may have to do the same through them (if you sell over $600 through them).

Here is how to get the report off Ebay (I copied and pasted this from a previous reply I made some months ago):
It's found in My Ebay > Seller Hub > Payments > Reports. You will want to run a Transaction report for the whole year. It downloads as a CSV file, which you can open in excel or Google Sheets.

There are no pictures, but you can see all other relevant data, including the name of the listing, how much taxes Ebay collected on your behalf, how much fees were paid. Depending on the report you run you can also see how much you paid in returns and shipping labels.
With that report there is a net column that will show you how much you earned for each transaction (minus taxes collected by ebay, and their fees). Shipping cost and returns are separate transactions, but display on that column as negative numbers, so if you add that column up, it should be pretty accurate.
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Re: Sellers will be sent a 1099 (taxable income) if they sell $600 + starting 2022

Mon Jul 19, 2021 6:52 am

christianpyro wrote:
Mon Jul 19, 2021 3:34 am
Threash wrote:
Mon Jul 19, 2021 2:59 am
Will ebay report my total earnings which include the ebay fees and taxes paid by buyers or my net earnings which is what they are sending me?
Deducting the original item cost may be tricky, as you may not have the original receipt anymore. But a few folks have gone through this process already and successfully deducted those costs without a receipt.
There’s nothing tricky about the process. You fill out your tax return and you can hand write in what your “cost of goods sold” (COGS) is, and you can literally write anything in there that you want. All the government knows is what your gross payments received were.

If you sell $2000 on eBay and get a 1099 that says $2000 sold, you can tell the IRS your COGS is $2,000 and thus owe nothing in taxes because you broke even.

The IRS has absolutely know way to know, in advance if you filing taxes, how much you paid for the stuff you sold on eBay.

The only way the IRS will ever know, is if they audit you and demand you show receipts or proof of what your COGS was. And if you sell under 2k on eBay, I highly doubt the IRS is going to audit you and demand to look through your receipts.

They audit less than 0.5% of the population.

And just because you don’t have the original receipt, doesn’t mean the audit will fail. If you can reasonably convince the auditor your reported COGS is correct, they’ll approve it in the audit. Maybe you have credit card statements showing $x to BBTS 3 years ago, and no original receipt, but can then show that figure came out in the same month as the transaction.

How hard is the auditor going to want to review your supporting documentation to try to squeeze a few hundred dollars in taxes out if you?

The place you get screwed is if eBay sends a 1099 to the IRS for $2k, you do not make any tax filing about it, the IRS will assume the COGS to be $0 and send you a tax bill for the entire $2k as income. Because absent you claiming any deductions for the income, it’s all taxable income. So fill out the tax form, say that cogs was equal to or slightly less than the total sale price.

The only place is gets “tricky: is if you get a $2k 1099 from eBay, and tell the IRS your COGS was $2500, and you have a loss of $500 and attempt to claim a loss of the $500 against your other taxable income like W2 job income, Then, you’ll have to show the IRS you’re running a bonifide business, with 3 of the last 5 years being profitable. And show a business plan, maybe a website, etc. show a modified business plan that you did once you realized you were losing money like a real business would do.

The IRS heavily frowns on “hobby businesses” which would be if you are a computer programmer and you lose $500 a year on eBay selling action figures and try to deduct that $500 against your computer programming income.

I’m not an accountant. I’m not your accountant. Do your own research.
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Re: Sellers will be sent a 1099 (taxable income) if they sell $600 + starting 2022

Mon Jul 19, 2021 9:17 am

:D I wouldn't read too much into that. I meant tricky, as in its not as straight forward as the rest of it.

I wrote about the location of a document that will get you most of what you need, except the original price you paid for those items. That will take work if you want to deduct it. You certainly don't have to, but my plan was to list out everything in a document in case I am audited. Simply add a column to the Ebay document with this info. Having at least some receipts will help convince an auditor of its accuracy.

Honestly, I don't think most have to really worry about an audit. We are mostly small fish, but I like to be prepared. It'll only take a couple hours.
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Re: Sellers will be sent a 1099 (taxable income) if they sell $600 + starting 2022

Mon Jul 19, 2021 3:19 pm

Yeah, as if selling on ebay was not bad enough already, this way overcomplicates things and makes the margins basically non-existent.
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Re: Sellers will be sent a 1099 (taxable income) if they sell $600 + starting 2022

Thu Jul 22, 2021 5:44 pm

I suspect an estimation on cost of goods sold that is reasonable won't raise any red flags - so if you are selling ToyBiz ML figures and assume a cost of say $10 a figure (which was about the MSRP) I can't see that being an issue - or for Hasbro ML figures you can probably say $20 (also about the MSRP). Even without receipts if I can point to the MSRP of similar items they will be hard pressed to dispute that.

As noted, I think that trying to post a loss or even a net zero cost might get more attention however, especially if you had a lot of revenue. If you sell $1,000 and claim it cost you $750 I would be stunned if they cared and the tax on the $250 is not a huge deal. If you sell $25,000 and claim it cost $24,750 they might be more suspicious.

Just my opinion, not actual legal advice of course...
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Re: Sellers will be sent a 1099 (taxable income) if they sell $600 + starting 2022

Thu Jul 22, 2021 9:53 pm

PG-Superfan wrote:
Fri Jul 16, 2021 8:56 pm
As noted before, the $600 figure is an artifact from the 1950s tax code. The new law is just reporting what was always required without updating the $600 for inflation, which SHOULD have pushed that $600 north of $5000 if anyone bothered to update that part of the tax code for inflation.
Yes; the $600 mirrors what the income threshold has been for issuing a contract laborer a 1099. That’s been in place for some time and likely should be updated. Establishing a different rate for online sales would likely need a different set of laws and fitting online sales into existing labor laws likely much easier; hence the $600 threshold.

Since eBay collects shipping separately unclear if it would include that amount on the 1099. So that part may not be deductible. Cost of goods and fees eBay and PayPal certainly would. I’d imagine big chunks of all our sales are at a loss since they are BAF pieces or characters without BAF pieces we don’t want.
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Re: Sellers will be sent a 1099 (taxable income) if they sell $600 + starting 2022

Thu Aug 05, 2021 3:51 pm

Quick question for any members who live and ship from NJ.

Has eBay sent you a 1099 in previous years? I know NJ is rather progressive in many policies especially with taxation so I'd like to know if I'd receive a 1099 this year if I started selling prior to the 2022 federal mandate.

Any information would be greatly appreciated.
Thank you.
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Re: Sellers will be sent a 1099 (taxable income) if they sell $600 + starting 2022

Wed Oct 20, 2021 6:59 pm

If you are so inclined to speak to your congressmen and women -> https://www.ebaymainstreet.com/campaign ... ntent=link
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Re: Sellers will be sent a 1099 (taxable income) if they sell $600 + starting 2022

Thu Oct 21, 2021 4:53 pm

Is "Ebay Main Street" a legit part of Ebay or is that a place disguised that would now have all our info if we write?
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Re: Sellers will be sent a 1099 (taxable income) if they sell $600 + starting 2022

Thu Oct 21, 2021 5:16 pm

It is legit. It’s where they post their influencing stuff around legislation that impact small business and their platform in general. That link was sent to sellers via the eBay platform. Original sender was -> [email protected]
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Re: Sellers will be sent a 1099 (taxable income) if they sell $600 + starting 2022

Thu Oct 21, 2021 6:43 pm

Ah, thanks for that info! Normally I would be against supporting the lobbying efforts of a massive corporation but this tax is absolute ---------------.

Weird, though, I didn't get this email from Ebay, and I sell. Thanks for sharing it!

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