If this is the case then all of us hobbyists are thinking too much about the changes. It’s not right though if we have to pay taxes on everything if our actual profit is much less, if any at all.
I know, but if this guy that you mentioned, has been selling stuff like this, and the IRS hasn't caught on, that just proves the IRS doesn't know anything about Paypal, unless there is a 1099-k. I wonder how many people out there sell stuff as "friends and family." I"m sure Paypal will close that loophole somehow.
I haven’t had any interest in this subject until this year. It’s my understanding that Schedule C is only for profit or loss from a business activity. If I am a hobbyist……doesn’t apply. Meaning I don’t engage in the activity for income or profit ….and I don’t engage in the activity continually or regularly. Therefore, if I want to use Schedule C which will allow certain deductions to offset tax liability, then I have to declare that I am in it to make a profit. Among other things….including the fact that I actually have to make a profit more often than not and I have to keep complete records of the type and significance the tax authority deems necessary. And if I’m not really confident that I understand the ins and outs , I need to pay a tax advisor to help me avoid running afoul of any rules that would trigger an audit or at least disallow any deductions. Too much of a cluster for me to make the leap from hobbyist to businessman. My intent was never for profit or income.
Again, I’ve already done this, on advice of my CPA. I’m not a business, I’m a hobbyist. I attached a Schedule C to demonstrate that my taxable profit was only about $500 on more than $7k in hobby income. If you don’t want to pay taxes on the full amount, you need to account for profit/loss.
Gabe, obviously I’m not an accountant and I’d like you to walk me through this based on your understanding of the situation. Patience as I come from a background of details. Are you not in essence declaring that you are a business? Or is there some other resource I should be looking at which says you can be a hobbyist and still use Schedule C? I understood that in 2018 the Tax Cuts and Jobs Act eliminated deductions for hobbyists until 2025. The only way I understood you could take deductions is for you to show a profit motive. As per this: Earning side income: Is it a hobby or a business? | Internal Revenue Service If you refer to the following IRS bullet points on Schedule C … here’s a link About Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship) | Internal Revenue Service It says Use Schedule C (Form 1040) to report income or loss from a business you operated or a profession you practiced as a sole proprietor. An activity qualifies as a business if: Your primary purpose for engaging in the activity is for income or profit. You are involved in the activity with continuity and regularity. I have to admit, I find it clear as mud. I’m not picking bones with your CPA, he should know. But I read that the IRS in particular has gone after “hobbyists” on a case by case basis. They win some and they lose some.
You don’t get to deduct losses from a hobby the way you deduct losses from a business. But if your hobby yields a profit, you pay taxes on the profit. If you don’t use a Schedule C to show the IRS that your profit is less than your revenue, then you’ll be paying taxes on the revenue, which is much worse. It doesn’t matter that the Schedule C says it’s for businesses. Use it anyway.
You and I have a different understanding of the basic use of Schedule C. I appreciate you taking the time to explain your perspective as a hobbyist.
If you are continuing selling and logging your sales info, remember to back up your spreadsheet at least monthly on another drive and another computer. You don't want to have to deal with redoing that in Nov. after a computer glitch.
Ah probably has 1) an amazing reputation and 2) repeat customers. It can be a different world at that level.
I think what he might be saying is, "pretend" you are a business and use Schedule C I'm sure you know but...each persons tax situation is going to be different and although I can't say why his CPA said to do what he said to do, having been in that profession myself (mostly in companies though), CPAs can set things up so that that taxpayer can get away with certain things but it really depends on 1) the CPA and 2) the taxpayers situation and how much that situation can help the CPA set things up accordingly. So far, in Canada we have been sparred all this nonsense but I fear it's coming soon enough.
Well there’s always going to your local record store and selling or trading. Now many will balk at only getting 25-30% of the true value of their media, but if you really want to divest in the simplest manner, this is always an option, at least for more common items. While I’m a salaried employee paying all my taxes weekly, and who is issued a W-2 each year, I also receive a daily rental fee for my computer graphics workstation and peripherals needed to do the job. My employer does not provide any if this gear so I must be compensated for it. When I begin a job I furnish the employer with a list of what they’re renting and the total value. This income is reported to the IRS on a 1099, and in my tax filing the accountant includes a Schedule-C to show all of my expenses that year against the rental income. I’m not running an equipment rental business, but that doesn’t matter, the Schedule-C provides the IRS with the facts needed to figure any taxes owed. It’s the same for selling your records, CDs or any collectibles, don’t fear the Schedule-C! But do make sure you do it correctly. For the first couple of filings after the 2018 tax law went into effect the IRS was not reading it correctly and wanted me to pay self employment tax. This resulted in my CPA having to write them and get them to see their error which he fortunately did. This resulted in long delays in receiving my tax refund. Happily last year’s filing went smoothly, fingers crossed for 2021’s.
Exactly. It should be a lot easier to not claim "self-employment" when you have a w-2 from a (other) full-time employer. If music selling is your only income then it gets a little more complicated to say that it is just a side hustle I would expect.
Someone from the UK said that their "IRS", knowns as Her Majesty’s Revenue and Customs office (HMRC), already asked eBay for a list of UK sellers. They want to see who was selling for profit, to make them pay their taxes, plus penalties and interests. So yeah, it could be coming soon....
Getting back to what eBay will report on a 1099 - I think it would have to be net because if it was gross how would they deal with the 12% fee they get on shipping charges?
The 1099k will cover every cent that a person was paid into the Paypal account. It is up to the seller to use a schedule C (attachment to Fed 1040) to show all fees and expenses paid, to be deducted from that gross sales income shown in the 1099. Shipping fees and other fees are "expenses." (edit) Oh, if we are talking about ebay, and their new payment processing system. The 1099 might not include fees that the seller never got to deposit. Only funds that went into their bank account.
My hobby is umpiring baseball (high school, summer leagues, etc.) and I get a 1099 from the association that schedules us. So yeah, Schedule C all the way...report the payments I got, deduct the expenses (mileage to/from the fields, equipment, insurance and so forth). It's a hobby, but I make a little extra spending money from it. I would see buying/selling gear the same thing if you do it a lot. Keep track of what you pay for stuff so that if you sell it you've got documentation of your "expenses" or termed more accurately your cost of sales. Use Turbo Tax or HR Block's Tax Cut when you file, makes things easy and creates good documentation. The other alternative is to buy/sell only locally and for cash. Technically should you be reporting that? Meh, seems like if you only do it occasionally that's not really a business and not really done with the intent to create income so I probably wouldn't. But the fact that the 1099 is getting triggered forces your hand on this. I have been told that filing a Schedule C does increase your chances of an audit. Be accurate in your documentation. For me I keep a list in a Google Sheet of every game I do and the mileage to/from my house. I also save a google map showing the driving route from my house with the miles on it, once for each field I go to. The goal is to just be able to hand over documented justification for my mileage deduction, which is my biggest cost of doing games. Note: I am an accountant (or was anyway) but never did income taxes as a practice.
Perhaps, at the very end of the year, someone on here can post a John Doe type of Schedule C, so anyone who's interested in seeing how it's supposed to be filled out could have a look at a decent example.
OK, so can one simply just guess what they paid for the original album taking into account inflation and years of storage? In other words if I bought an album for $10 in 1980 and held onto it for several years. And adjusted for inflation, let's just say it's worth $20 now. Can I just claim that I paid $20 for it? At what point does the IRS need absolute proof of these things?
I wish I knew. That's why I'm hoping that when next year's returns start to be filled out, someone who's consulted with a pro can shed some light on this stuff.
My understanding is that there is a difference between Gross Receipts vs Gross Income. Receipts is a self explanatory term while Gross Income is Receipts minus Cost Of Goods Sold. This allows you to subtract the purchase price of the item sold along with any DIRECT costs such as eBay fees, shipping, etc. It’s the indirect expenses such as trade publications and travel to FedEx that you might not be able to deduct as a hobbyist. Confirm this with your CPA, but if correct you should sleep a bit better at night.
You don't get to factor in inflation. You can claim the $10 you paid for it. If you don't know how much you paid for it, you can estimate, e.g. I might say that I spent an estimated $5 for any records I bought from 1979-1989, when I was buying mostly used vinyl. That's reasonable enough that the IRS isn't going to demand 40-year-old receipts. If you have some rare collectible and you want to claim that you paid $100 for it in 1980, then you probably need to document that somehow, either with an original receipt or some kind of price guide that would indicate a reasonable "market price" for that item in 1980 (e.g. an old issue of Goldmine).
