<tracymar55[at]netscape.net> wrote:

- quote -

That's correct; since you expensed them, you already
deducted their cost from your income, and thereby reduced
their tax basis to $0.

- quote -

That's correct. If you hadn't expensed the items before,
you'd have paid self-employment on their cost (because it
wouldn't have reduced your after-tax income) then; instead,
you're paying it now.

Consider a trivial example:

(Last year)
Income $50K
You bought $10K of stuff and expensed it
Taxable income $40K, subject to self-employment tax
(This year)
Income $50K
You sold the stuff for $5K
Taxable income $55K, subject to self-employment tax

Or, if you didn't expense it
(Last year)
Income $50K, subject to self-employment tax
(This year)
Income $50K
You sold the stuff for $5K, a net loss of $5K
Taxable income $45K, subject to self-employment tax

Notice how the totals are the same. If you got to deduct
the cost of the items (again), you'd be benefiting double
from the expenditure.

Seth

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For some reason I missed all your responses to my question
back in July -- and thank you now - quite belatedly. However
I did mislead everyone by making a typo in my original
explanation when I said that I take in at Ebay $1000 a year
and profit $4000 a year. What I meant to say is that I take
in $1000 a MONTH and profit $4000 a year. However since half
of the items I sold were previously EXPENSED on my tax
returns, I didn't consider the original costs of
them......which means I calculate profit primarily on the
basis of what I make after paying all fees.

What is most confusing me now...after reading all the posts
in response to my question ... is that I am indeed paying
social security self-employment tax on the "profits" here as
well as well as my regular taxes. Should be paying both
taxes here without even being able to deduct the original
costs of the items.......since they were already expensed
out as a business expense?

I don't know if anyone will see this at this point.....but I
thought I'd ask anyway. Your responses are much appreciated
and this time I will locate the group and check on responses
very soon.

Tracy

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"Seth Breidbart" <sethb[at]panix.com> wrote:
- quote -

A confusion of terms here. Inventory is things you purchase
to resell. An asset is something you held to make money,
then possible sell at a profit or loss later. Even if you
have a lot of a particular business asset, even if you sell
it off in small units, it is a sale of an asset.

- quote -

If someone else on eBay bought all of the books, and sold
them off one by one, then the same sale of the same books
would be a sale of inventory to the new seller. For tax
purposes, it is all the perspective of the seller.

- quote -

It doesn't matter WHO the books are sold to, only what the
status of the books was in the hands of that particular
seller.

Bryan

--
-------- Bryan Kellar, EA
Oregon Tax Help, Inc. Portland, Oregon
www.oregontaxhelp.com
www.canadatax.org

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Seth Breidbart wrote:

- quote -

The fact that he is "holding them for resale in the ordinary
course of business." Normally, when a business liquidates
its assets, it does so in a "casual or isolated sale." The
distinction between the two approaches is a question of
"facts and circumstances."

MTW

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MTW <mtwingcpa[at]yahoo.com> wrote:
- quote -

What converts them into inventory?

If someone gets out of a business and sells off his books,
he might well find that listing them individually on eBay
gets him much more money than carting a couple of cartons to
a used book store. I'd agree that if he starts _buying
more_ in order to sell them at a profit, they're clearly
inventory; but if they're a sell-off of the business's
assets, I don't see that.

Seth

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- quote -

Would you say the same thing if it was an ultra special set
of shakers commemorating something like say the Beatles from
40 years ago? What if there were a market for certain types
of shakers? I wouldn't rely solely on what an IRS pub says
(or doesn't say). Someone might consider the sale shakers
to be a work of art.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

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Sassy Baskets, EA wrote:

- quote -

Actually, the controlling IRC provision is, by reference,
Section 402(m) (collectibles prohibited from being held in
an IRA), without considering the exception found at
402(m)(3). So that means, essentially, the list at Section
402(m)(2) which provides a collectible is:

"(2) Collectible defined.

For purposes of this subsection, the term "collectible" means:

(A) any work of art,
(B) any rug or antique,
(C) any metal or gem,
(D) any stamp or coin,
(E) any alcoholic beverage, or
(F) any other tangible personal property specified by
the Secretary for purposes of this subsection."

If the salt shakers in question are antiques, then they
would arguably be a collectible. As well, should the IRS
ever issue binding guidance that made salt shakers as a
general rule into collectibles for these purposes, they
would become collectibles <grin> .

Also, given the guidance found in Section V of Notice 87-16,
I would suggest that if the salt shakers in question are
made of metal or contain gems that they would become a
collectible.

The IRS held that the exception at 402(m)(3) that said
certain coins weren't considered collectibles in IRAs would
*NOT* apply if the coin was converted into jewelry. Now
402(m)(3) doesn't apply for this purpose anyway, but it
tells us that jewelry can be a collectible even though
jewelry, per se, isn't one of the listed items.

--
Ed Zollars, CPA
Phoenix, Arizona

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D. Stussy wrote:

- quote -

If these books are being sold in a small handful of large
lots, I would agree. However, if they are being sold one at
a time, they would sure sound like "inventory" to me.

MTW

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TracyM wrote:

- quote -

Income tax: Yes. FICA Tax: No. Since they weren't
INVENTORY, their sale goes on form 4797, which in no way
feeds to Schedule SE. However, the net profit (gross sales
less cost of sale, since adjusted basis should be zero) is
considered business income for Section 179 and "home office"
purposes.

- quote -

My state, California, defines it as more than three casual
sales within a 12 month period with respect to SALES TAX
being required to be imposed on items not considered
"consumed" (i.e. used) by the seller. Income tax applies
regardless.

- quote -

If she thinks that you should be paying FICA (or
"self-employment") taxes on these things, you may want to
consider that she has "burnt out."

- quote -

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"David Woods, EA" wrote:

- quote -

He previously expensed them.
So it's all profit when he sells them now.

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- quote -

Profit from the sale of salt shakers would not be taxed at
collectibles rate. The IRS (in pub 550) defines a
collectible as "a work of art, rug, antique, metal (such as
gold, silver, and platinum bullion), gem, stamp, coin, or
alcoholic beverage held more than 1 year."

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"David Woods, EA" <dwoods[at]woods-financial.com> wrote:
- quote -

I answered my own question when I noticed that the poster
says the books have already been expensed.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

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TracyM wrote:

- quote -

I resent having to pay taxes on the fees I charge to prepare
clients' tax returns. It sounds like double taxation, don't
you think?

MTW

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Arthur Kamlet wrote:
- quote -

That reminds me of a merchant in a small South Georgia town
once, who when asked the secret of his success replied, " I
buy widgets for 4.75 and resell them for 3.75."

Duh... replied the questionnair. The how do you make a profit?

DUH... replied the merchant: I make it up on VOLUME!

Cheer$,
Harlan Lunsford, EA n LA

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Arthur Kamlet <ArtKamlet[at]aol.REMOVE.com> wrote:

- quote -

I think there's a misunderstanding here. I take it as the student

1. sells old household items, no longer wanted, on eBay at a loss (at
least usually, based on undepreciated cost)

2. buys stuff at flea markets, sells it on eBay at a profit

Seth

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tracymar55[at]netscape.net (TracyM) writes:

- quote -

On YOUR sales of books. You have no basis left, assuming
you expensed your costs as a business expense. Unless you
had the books rebound, or had other expense in upgrading the
product (for which no business expense was taken) your
entire sale is a taxable gain (less any costs of selling).

Your students would likely have no reportable gain since is
unlikely that their sales produce a gain in excess of basis
(what they paid for the item/s). However, if they are
actually in business, with the intent of making a profit,
there are a number of factors to consider. Do they carry
an inventory??? Are their sales subject to sales tax in
their home state?? Does their local government subject them
to license or zoning issues??? Are they operating as a
hobby rather than as a business???

Business income/expense is reported on Schedule C (Form
1040) "Profit or Loss from Business". Hobby income is
reported on Line 21 of Form 1040 and expenses are deductible
on Schedule A (Form 1040) as an itemized deduction. Hobby
expenses are deductible only to the extent of hobby income
and is subject to other limitations. There is no benefit,
using these expenses) unless one can exceed the standard
deduction allowed for ones filing status. When Schedule C
(business net profit) exceeds $433, Self Employment taxes
must be calculated using Schedule SE (Form 1040). These
references (Forms & Schedules) may be downloaded form
http://www.irs.gov

Although all details may not be addressed, I hope this
contribution helps 'n' Good Luck!!=

"Jack" - John H. Fisher - TaxService[at]aol.com
Philadelphia, Pa - Atlantic City, NJ - West Wildwood, NJ
My Newsgroups & Boards at: http://members.aol.com/TaxService/index.html

Where Ignorance is bliss, 'tis folly to be wise!=

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tracymar55[at]netscape.net (TracyM) wrote:

- quote -

There is a good discussion about these topics at:

http://www.taxes.com/eBay.htm

We frequently hear from eBay sellers asking us various
questions concerning reporting of taxes. Here is a sampling
of the questions and answers.

Anonymous asked this question:
I heard somewhere but I can't remember where. That after
$5000.00 of sales on ebay they are required to submit a W2
form to the user and also to the IRS. is this true?

Taxes.com gave this response:
Under no circumstance will eBay be issuing a 1099, at least
not at this point. eBay is only a faciliator and has NO part
in the transaction (with the exception of Billpoint, which
is owned by eBay, being involved), other than as
facilitator. One of the primary reasons that eBay should not
have to issue 1099's is that they have NO way of knowing
what if anything has actually been paid. They can only
report on the auction itself and nothing more. If someone
wants to propose that PayPal or Billpoint has to issue
1099's, no problem. I can say categorically that if there is
any move to make this a reality, the IRS will be hearing it
louder than they ever have before.

Anonymous asked this follow-up question:
Thanks for the good answer. I have another question because
you mentioned PAYPAL. What did you mean by in your comments
about paypal. Sorry for my ignorance but do you mean that
they will send out 1099's? Please explain. I have a paypal
account and have not been claiming the taxes on it so I am
concerned.

Taxes.com gave this response:
PayPal actually collects and pays over funds to you so they
may be required to report all payments made to the IRS. They
have all the information in their files to do so. Remember,
that you are required to report ALL of your taxable income.
If you are selling used household products for less than
what you purchased them for, there is no taxable event. If
you are engaged in selling products at a profit, you must
report every penny. Good luck.

Anonymous asked this question:
Is it true that any income (or profits?) recieved from
Ebay.com is tax free? Let's just say that I want to buy
items on a continuous basis and sell them for a profit and
my gains exceed the taxable amount. I also want to know what
kind of income is this considered? Any information will be
helpful in determining if I would need to file taxes or not.
, Is it true that any income (or profits?) recieved from
Ebay.com is tax free? Let's just say that I want to buy
items on a continuous basis and sell them for a profit and
my gains exceed the taxable amount. I also want to know what
kind of income is this considered? Any information will be
helpful in determining if I would need to file taxes or not.

Taxes.com gave this response on:
You mentioned the word "continuous" which tells me that this
would be conducted as a business. In this case, yes, you
must file a Schedule C as a business. In addition, your net
income would also be subject to Self-Employment tax.

Anonymous asked this question:
Can you tell me the easiest way to keep books on what you
can deduct and what my tax liability is, if selling on eBay
and using Paypal accepting credit cards etc. Thanks

Taxes.com gave this response:
Well, income is income. Every penny of sales receipts you
have online should be listed as income, if you are buying
and selling items at a profit. That would go on a Schedule
C.

You can deduct all of your business expenses. This is
primarily going to be the cost of the items (talk to your
accountant if you don't know what they cost and have no way
of finding out--you may have to count it as zero), but also
things like eBay fees, the cost of postage, the cost of
envelopes and packaging materials, etc. If your computer is
used exclusively for eBay you might be able to write off the
expense of the computer over a few years.

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TracyM wrote:

- quote -

He's right. You already had a tax benefit from deducting
100% of costs of the books, so now any profit is taxable.

- quote -

Personal items sold below cost give no rise to taxable
income. But purhcases and sales of like items , i.e. the
flea market items, is taxable, so they should keep separate
records on these sales for tax reporting purposes. And
since the flea market items are a regular thing, then self
employmen taxes do attach.

- quote -

So far looks like she's right on target. Assuming the
students' questions were not something you asked her of
course.

Cheer$,
Harlan Lunsford, EA n LA
also a 32 year man, albeit not with H&RB

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TracyM <tracymar55[at]netscape.net> wrote:

- quote -

Now that's really, really impressive!

What's your secret?

- quote -

If I can rephrase what you told me, you have fuly
depreciated business property and later you sold fully
depreciated property.

So your taxable income is your sales price.

- quote -

When you deducted the cost of those books, did you also ask
if you should pay back the social security tax you didn't
have to pay when you reduced business income? So now
that you have income on sale of the fully depreciated
property, it's just delayed payback time.

- quote -

Well, if they consistently lose money, maybe it's really not
a business

But if you make money fairly consistently, then regardless
of intent, it probably looks and feels and smells like a
business, so it probably is a business.

- quote -

If their business is buying stuff and hopefully selling it
at a profit, then I don't see why the venue, the location,
the use of the internet, should require separate businesses
here. I'd probably treat both flea markets and e-bay sales
as a single business, unless you have a good arguement for
not doing so. And I continue to to track cost of goods sold
and inventory value.

- quote -

It might not be necessary to track the individual profit on
each item sold -- I wouldn't want to do this other than to
know whether to buy more of those thingies later on -- but
the cost of goods sold and the total sales price, and other
related expenses, all have proper places to go on the
Schedule C.

- quote -

Wrong newsgroup, sorry. Try posting to misc.taxes-are-unfair

__
Art Kamlet ArtKamlet [at] AOL.com Columbus OH K2PZH

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"TracyM" <tracymar55[at]netscape.net> wrote:

- quote -

I would question how it is you have $4,000 in profit if you
claim that you're selling them for less than you paid for
them. That makes absolutely no sense to me. If you paid
more for them than you sold them for, it's a either a
deductible business loss if a business or a non-deductible
personal loss if not a business. Something doesn't add up
here.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

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