Tax Guru's... Advice Needed... (1 Viewer)

[skycriesmary]

I received a bill today from the IRS for about $7,400 based on sales of comic books on eBay in 2014. This is not an ongoing business, but assets I sold while I was unable to work due to a back injury. I did not know I had to declare the earnings since they were bought from my post-tax dollars. Paypal sent a 1099k to the IRS, and did not send me a copy (or else I would have known to report it). Most of the assets were bought 15-25 years ago, although a small amount of them were bought and sold in 2014. 

I’m assuming I need to file a form 8949, and a schedule D. There are  223 transactions mentioned on the 1099K, and only room for a handful of items on the Form 8949 to show sales and cost basis.I do not have receipts for any of the items I didn’t buy in 2014. My understanding is you only have to keep receipts for seven years for tax purposes. 

So, my questions are:

1) Are Forms 8949 and Schedule D the correct forms to report this with?

2) How detailed of receipts do I have to provide, e.g. can I have one line item with item totalls I don’t have receipts for (with an estimated cost of goods sold/sales price) representing the majority of transactions? I’m assuming they aren’t going to make me type out all 223 transactions with a cost basis and sales price.

3) If I complete the needed forms, and approximate the cost basis, are they going to nitpick each transaction? 

4) I’m looking to clear this up ASAP to avoid any further tax penalty and interest, any other suggestions? 

TIA, much appreciated. This is a headache I don't need to be dealing with right now... 

 

[Shula-holic]

I received a bill today from the IRS for about $7,400 based on sales of comic books on eBay in 2014. This is not an ongoing business, but assets I sold while I was unable to work due to a back injury. I did not know I had to declare the earnings since they were bought from my post-tax dollars. Paypal sent a 1099k to the IRS, and did not send me a copy (or else I would have known to report it). Most of the assets were bought 15-25 years ago, although a small amount of them were bought and sold in 2014. 

I’m assuming I need to file a form 8949, and a schedule D. There are  223 transactions mentioned on the 1099K, and only room for a handful of items on the Form 8949 to show sales and cost basis.I do not have receipts for any of the items I didn’t buy in 2014. My understanding is you only have to keep receipts for seven years for tax purposes. 

So, my questions are:

1) Are Forms 8949 and Schedule D the correct forms to report this with?

2) How detailed of receipts do I have to provide, e.g. can I have one line item with item totalls I don’t have receipts for (with an estimated cost of goods sold/sales price) representing the majority of transactions? I’m assuming they aren’t going to make me type out all 223 transactions with a cost basis and sales price.

3) If I complete the needed forms, and approximate the cost basis, are they going to nitpick each transaction? 

4) I’m looking to clear this up ASAP to avoid any further tax penalty and interest, any other suggestions? 

TIA, much appreciated. This is a headache I don't need to be dealing with right now... 

A lot to digest but first off it was Schedule C you needed to file (business), not D (cap gains).  The problem you could potentially have is proving your cost basis in these.  You likely were billed for the revenue, but you have a right to deduct the cost of goods sold.  The 7 years rule, is for items related to that return.  If you are reporting a sale of an asset for instance, you'd be required to maintain records 7 years from that date.  

Without seeing the letter or knowing the specifics I can't specifically tell you about how detailed you need to be.  The fact they've caught it and billed you leaves you open to them deciding they could take a harder look at this if given reason to do so.  If I were you I'd estimate my cost, average cost of X for 223 items is a total of $XXX.  I'd try and document somewhere online what the cost would have been at the time of purchase.  You need to have something to reference back to just in case.

Honestly I think if you make a good faith effort here they aren't going to nitpick you by transaction.  The cost of their time in looking at them all wouldn't pay for any revenue they would generate.  Just try and put together an accurate schedule C with valid cost of goods sold estimates and go from there.  Sorry if this was a little disjointed but doing this while I watch the basketball game.  

 

[skycriesmary]

Hey Shula,

Thanks for the feedback, much appreciated. I assumed it was a schedule D, as this wasn't a business, just an asset sale. It's hard to document online the comparable costs  as every sale was different, with a different cost basis, and time of purchase. The true can of worms comes if they want a written P/L based on each piece sold. I admittedly have to estimate, as these comics were bought many years ago, and I did not keep notes on individual purchase price. Curious how they can call BS, or say, oh sorry, no receipts, you can't declare any costs (as these are all purchases way past the 7 year mark).

 

[skycriesmary]

Hmm, it looks like we were both right:

"If you were selling your own collectibles you do not have to report as business. You would show the sales on Schedule D (form 8949) if this was your collection.When you sale your own items that you did not buy to resale then they are capital and not shown on Schedule C.If you did buy other comics just to resale then you would be a business and just use Schedule C to report your sales."

 

[Shula-holic]

Hmm, it looks like we were both right:

"If you were selling your own collectibles you do not have to report as business. You would show the sales on Schedule D (form 8949) if this was your collection.When you sale your own items that you did not buy to resale then they are capital and not shown on Schedule C.If you did buy other comics just to resale then you would be a business and just use Schedule C to report your sales."

Interesting.  I've sold on ebay for years but always just did it via schedule C, but then again many of my sales were business related not just hobby.  Schedule D may actually give you a favorable rate.  I've never really thought about using D for those purposes.  I'm a CPA but admittedly I have been more in financial analysis for most of my time and I never was a tax specialist.  Either way I think you'll be fine if you make a good faith effort here.  It doesn't sound like they feel that you are trying to evade.

 

[skycriesmary]

Yeah, I found that on the ebay forums. My understanding now is if it's business related than a schedule C is in order. I'm going to give my best faith estimate and hope they don't want all the details. Having to file an amended 1040 is not going to be fun, but we'll see what happens. Thanks again!

 

[Steve Tasker]

Schedule D will almost certainly give you a better rate.  If you file on a Schedule C I can't see how you wouldn't be subject to SE tax.  The capital gains rates on collectibles is 28%, IIRC, but it's probably better than your personal marginal rate + 15.3% SE tax.

My gut says that if you're not in the business of selling, you should be reporting them on Schedule D and not Schedule C.  Shula is correct that IRS likely isn't giving you credit for your basis in the assets. 

I am not an expert in collectibles sales and won't pretend to be.  I would strongly recommend that you do not get tax advice from eBay forums though.  Pay a local CPA to do it right, IMO.

 

[skycriesmary]

Schedule D will almost certainly give you a better rate.  If you file on a Schedule C I can't see how you wouldn't be subject to SE tax.  The capital gains rates on collectibles is 28%, IIRC, but it's probably better than your personal marginal rate + 15.3% SE tax.

My gut says that if you're not in the business of selling, you should be reporting them on Schedule D and not Schedule C.  Shula is correct that IRS likely isn't giving you credit for your basis in the assets. 

I am not an expert in collectibles sales and won't pretend to be.  I would strongly recommend that you do not get tax advice from eBay forums though.  Pay a local CPA to do it right, IMO.

Yeah, the ebay forums answer was actually someone else in a very similar situation, and was answered by one of the mods which happened to have 20 years experience as a CPA. 

There's no way the IRS was giving me cost basis credit, as they were just pulling the revenue from the 1099K from Paypal.

Thank for your input Steve...