Got the letter from Reverb....

Discussion in 'Fred's Barcalounge' started by englishman, Dec 2, 2021.

  1. juks

    juks Country Gent

    Nov 26, 2020
    Fremont, California
    $600 comes from the general income reporting requirement. Any income earned $600 or more requires 1099 to be issued.

    They've decided to consider even private sellers on these sites as self employed people and hence the general 1099 requirement is applied.

    I don't think it's right. If somebody is earning significant part of their income buying and selling on these sites, then probably they should pay income tax on the profit. But if it's just a hobbyist selling something once in a blue moon and it's clearly not professional and significant, then it's not right.

    IMO there should be two fold annual threshold. If x% of you annual income comes from these sales and if it's more than y$ in a year, if either threshold is met, then you have to pay income tax. If either falls below, then not.
     
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  2. wabash slim

    wabash slim I Bleed Orange

    Age:
    72
    Feb 10, 2010
    lafayette in
    Pay the taxes.
    Elon needs it.
     
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  3. englishman

    englishman Gretschified

    Age:
    64
    Apr 5, 2014
    Detroit
    It's one thing to pay what you owe.

    It's quite another to trust all these places with your SS# to be stored with your profile.

    I guarantee there's a couple of guys in Russia that can't wait for this.
     
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  4. Johnny Alien

    Johnny Alien Gretschie

    117
    Apr 29, 2014
    Harrisburg, PA
    Its the payment processing companies that are reporting it. Reverb makes you pay through their checkout system (even if you use paypal) so they need to issue the 1099. Even if you sell something here Paypal and Venmo will also be issuing 1099 for sales. And it doesn't matter how you send it (F&F or sale)...if you get $600 or more Paypal will issue a 1099 and the onus is on you to prove it wasn't income.
     
  5. gretscher09

    gretscher09 Electromatic

    73
    Apr 18, 2009
    USA
    If you get a 1099K and you don't report the income the IRS computers will flag it and send you nasty letters about how much income tax you owe on the full amount. I know from first hand experience. They assume the amount on the 1099K is all income. The problem is there is no where on a tax return other than a Schedule C to account for what you paid for the stuff you sold. So you have to say you are in business and then deduct your costs and expenses on the Schedule C. There used to be a way to offset hobby expenses from hobby income but they did away with that option. So this is the current scenario. You buy a guitar and pay state sales tax. Then you sell the guitar thru Reverb or PayPal. The buyer then pays sales tax again on the guitar. If your sale(s) was above $600 (or the state threshold) you will get a 1099K. The IRS will consider the whole amount as income and expect you to pay income tax at 20-30%, whatever your bracket is - even if you sold it for less than you paid for it. So it is essentially a federal sales tax of 20-30%. The only option is to file a business Schedule C where you can show your costs and expenses to offset the 1099K income. Ask an accountant and write your Congress person about how absurd this is.
     
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  6. MotorCentaur

    MotorCentaur Synchromatic

    573
    May 11, 2016
    Seattle
    What absolute bonkers bollocks policy
     
  7. Frank_NH

    Frank_NH Synchromatic

    847
    Mar 25, 2013
    Lebanon, NH
    So let me get this straight. If I sell a $600 guitar on Reverb.com I have to pay their fees AND federal income tax - but if I sell it on Craig’s List, I don’t pay any fees or tax?
     
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  8. juks

    juks Country Gent

    Nov 26, 2020
    Fremont, California
    Yeah, CL or any other private to private sales means. The tax man knows nothing, and does not have any way of knowing about those. At least if it's a cash transaction. I did not know that PayPal would be reporting as well. That sound odd.
     
  9. JCW513

    JCW513 Gretschie

    192
    Sep 21, 2017
    Boston
    i'll say this..."they" got rid of the mafia and took over where they left off!!
     
  10. Highroller

    Highroller Country Gent

    Jun 11, 2015
    Portland, OR
    Excellent description of the way it's set up, although I think the majority of Amercians probably fall in the lower portions of that 20-30% tax bracket. If you're married, filing jointly and make below 81K a year, you might be paying as low as 12%. I think the national average is about 15-18% iirc.

    The end result of all this is that it's gonna drive a lot of individual sellers off places like Reverb and Etsy, and that's a shame. It makes Reverb a lot more like Amazon and a lot less like Craigslist.

    The crazy thing is that it's not really that hard to set up a home business. A lot of people would probably benefit from doing just that, especially those of us that like to flip gear. It'll also provide you with a federal tax ID number, which would be what you'd provide to Reverb, thus (somewhat) protecting your SS Number.

    Just my opinion, YMMV, etc etc.
     
    Last edited: Dec 4, 2021
  11. Gretschtim1

    Gretschtim1 Country Gent

    Dec 4, 2012
    Dundalk, Md
    Shhhh don't give the Feds anymore ideas.
     
    Frank_NH likes this.
  12. knavel

    knavel Country Gent

    Dec 26, 2009
    London, England
    That isn't correct. There is also Schedule D, Capital Gains and Losses. No one has talked about capital gain in this thread.

    Let's say I sell my 50s Strat that I bought in the 1980s on Reverb in 2022. If I paid $1000 for it in 1985 and sell it for $20,000 in 2022, that's a capital gain of $19,000 and this is taxable as such.

    What rate a capital gain is taxed at depends on how much income one makes and whether it is a long or short term capital gain. It means that if audited, in my example I could be called on to prove how much I paid for that 50s Strat.

    A retail seller will be concerned with business expenses and Schedule C, but I would expect most business sellers already report because that's their business. It's the capital gains side that the IRS is interested in as much as hobby estate and garage sale flippers.
     
  13. gretscher09

    gretscher09 Electromatic

    73
    Apr 18, 2009
    USA
    Schedule D is an option that might work. But my accountant discouraged it, recommending using Schedule C. And the letter I got from the IRS referred to using Schedules C, E or F to account for the 1099K income. Either way it is now extra work and expense to report all this on your income tax return just for selling personal stuff you previously paid for. If you are a collector of rarities and can make a nice profit the rules make sense. But for a lot of people who buy, try and sell musical equipment (like me) are not making a lot of money. In fact, the irony is that by using Schedule C or D many people will wind up showing a loss, which is deductible and that means paying less taxes - which is the opposite of what the IRS was intending. Even if you sell a guitar on Reverb for exactly what you paid for it, there are the Reverb fees and shipping expenses that mean you probably took a loss.

    For another insult, the 1099K you get from Reverb is not accurate. It is not the net amount of the sale (after Reverb fees, shipping, etc.) that is deposited to your bank account. Their 1099K amount is the total amount of the sale, including any shipping fee you required the buyer to pay plus any sales tax the buyer had to pay.

    Btw, the 1099K reporting threshold (as low as $600) is for total sales. So if you sell a $400 guitar and a $400 amp on Reverb you will likely get a 1099K. Good luck. I am still trying to clear this mess up from a 1999 tax return.
     
  14. Frank_NH

    Frank_NH Synchromatic

    847
    Mar 25, 2013
    Lebanon, NH
    As gretscher09 mentioned above, during my time as a seller on Reverb.com I was mainly doing “buy, try, and flip,” particularly with pedals. In most cases, I sold the item for less than I originally paid for it (this excludes fees, shipping), deeming the loss as a “rental fee” for the item. I suppose you could keep track of these flips by recording the original price and flipped price. It all does seem pretty complicated for the average person.

    In any case, the bottom line for sellers now is to either (a) take the tax as another hit on your earnings from a sale, or (b) sell the item for more in order to cover the tax loss. Overall, this will have a chilling effect on private selling - and, unfortunately, there’s not much Reverb.com can do except perhaps to reduce their fees (which is not going to happen).
     
  15. pmac11

    pmac11 Country Gent

    Mar 4, 2018
    Toronto, Ontario
    Apparently it's easier to collect tax on $600 from a million people than it is to collect tax on a million dollars from 600 people.
     
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  16. guitarfarm

    guitarfarm Country Gent

    My dentist just last month gave me the option of saving $150 on a crown if I paid her in cash. I thought about it and said, "I can be back in 40 minutes with the cash". And I was.

    Which reminds me of a funny story. Roughly thirty years ago, I was still working in McLean and seeing a dentist in Tyson's Corner. He was a pretty cool guy and my wife and I had run into him one evening having drinks with Steve Gouterman of Gouterman and Sheffey at Charlie's Place on 123 in McLean. Conversation turned to money and what to do with it so I quickly learned that my dentist was no rube. Several months or perhaps a year went by and I needed to have a couple molars with old fillings crowned and be done with it. I had good insurance but, even still, my portion was still in the neighborhood of $900. He told me this and excused himself for a minute. When he came back I had laid two 1 oz. Maple Leafs on my chest. He looked at them and looked at me for a long minute. Then a smile spread across his face and he excused himself again. I could hear him speaking with the lady at the front desk but couldn't make it out. Then he returned, smiled, and told me that everything had been taken care of and that I was all paid up.

    Cash may be King, but metal trumps even cash. :)
     
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  17. Gretschtim1

    Gretschtim1 Country Gent

    Dec 4, 2012
    Dundalk, Md
    In that case I think it would be fair when I sold something and took a loss (like is what happens most of the time when we sell musical equipment) we should get a tax refund....:D. Yeah like that's going to happen.
     
  18. Now why would a middleman want your SSN?

    You don’t work for Reverb.
    From what I read—a lot of people have had issues with them. If that’s the case, why provide your private information? If you need this just to get a log-on…

    You’ve just given me a good reason never to sell a guitar.
     
    Last edited: Dec 5, 2021
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  19. juks

    juks Country Gent

    Nov 26, 2020
    Fremont, California
    Because that's the ID they report to IRS and IRS uses that to match what middle men reported to them to what you reported to IRS. If what middle men reported to IRS can not be found in your tax declaration, you may have a problem.
     
  20. I won’t. I’m not touching Reverb.
     
    wabash slim likes this.
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