Got the letter from Reverb....

[juks]

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..... Yeah like that's going to happen.

If IRS is looking these sales as sales by self employed persons, then that is absolutely how it will work. If you can prove what you paid and what you sold it with then a loss is deductible. As should be any cost of repairing the item. Luthier fees etc. I don't know if you could also charge your own time spend on repairing an item, but if you are considered a business, then you should be able to do that as well.

How does that all need to be reported is an interesting question. But is IRS looks you as a self employed business then I don't see how they could deny deductions that all other self employd businesses do.

For sure the tax prepares will get more business if whole lot of hobbyists start behaving as businesses.

 

[juks]

Here's an idea. Buy a $40 guitar from goodwill auction and $20 shipping cost. Fix it and use 4 hours of your time let's say at $60 per hour (you are a professional ) and $20 in parts. Then sell it to GC when they have their used gear buy in day at $30.

You have now incurred a loss of $290 for the transaction that is deductible from your over all annual income. If you tax rate is 30%, you have just deducted the over all taxable income by $290 which saves you $87 in taxes you have to pay.

And of course the next guitar is a challenge that takes 10 hours to fix .

I believe this was exactly why hobby expenses were not allowed as deductions. But if they now consider your hobby as a business, how could they deny normal business deductions?

My tax guy will get some questions in February .

 

[englishman]

I think a lot of us just won't want to deal with the headache of it all.

 

[guitarfarm]

I believe this was exactly why hobby expenses were not allowed as deductions. But if they now consider your hobby as a business, how could they deny normal business deductions?

My tax guy will get some questions in February .

This is an excellent point and one which I do not think the IRS envisioned. If they wish to treat what has, up until now, been considered a hobby as a business, they will have to allow for deductions.

 

[AZBrahma]

About 20 years ago they floated this idea: If your house is paid off, they wanted to tax you on the amount of rent your house could bring according to the IRS chart. Say $1,500 a month. Since you live there rent free, the amount of rent you don't pay would be considered income and subject to income tax. HB4848 I think was the number on the proposed bill.

They are still trying, or at least floating the idea of trying. The latest round was considering trying to tax people on, get this, 'unrealized capital gains'. In other words if your house went up 100k last year - and many did or more - then you would owe capital gains on the increased amount even though you didn't sell the house. Of course they would still tax you when and if you sold it too. If that were to pass, anyone with an kind of valuable assets on which they might have unrealized capital gains tax, would send every dime overseas, overnight. The amount of money in the country's economy would shrink dramatically. I don't think they thought about that happening, they are just trying to find ways to pay for things that are "100% paid for".

 

[AZBrahma]

Part of the problem is the inequitable and regressive system for taxing housing. Homeowners and landlords get tax deductions for mortgage interest and property taxes. Renters get no tax benefits except in certain situations, usually low income. One group gets subsidized housing, another doesn't. Arguably inequitable.

Homeowners tend to be wealthier than renters. So not only inequitable, but regressively so.

And when there are deductions for renters, the value is usually less as they pay rates at a lower marginal rate.

As much as I love and benefit heavily from my SALT deductions in Taxifornia, they aren't good policy imo.

A lot of these types of tax codes were well-intended for social engineering purposes. I don't think anyone should be incentivized or punished for the lifestyle they choose, like rent or own, and kids or no kids, but I feel like that toothpaste can't be put back in the tube at this point.

 

[Johnny Alien]

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?

If they pay by cash or check in person you are fine. If they pay by paypal then it will get a 1099. Paypal and Venmo will also be reporting these transactions. Even if you choose "Friends and Family". It will be reported and you will be responsible for proving it was not a sale. This is not just Reverb or Ebay its pretty much any online way of paying someone else. That means buying and selling through a forum like this will also be subject to this rule unless you are paying via cash, check or MO.

 

[loudnlousy]

I know that a lot of people are buying and selling stuff as their main income. I think that this action aims at these people who didn`t pay a penny taxes on their income through all the years. A seller with thousands of transactions is not a private seller.
Another footnote: You do not pay taxes on your transactions but on the money you made with it.

 

[AZBrahma]

I think a lot of us just won't want to deal with the headache of it all.

This is the crux of it all for many people. The US tax code is so complex as to be ridiculous, and they keep piling the filing and accountability regulations on the head of the average everyday taxpayer - and now, increasing the burden on businesses of all sizes. It just seems unsustainable.

I really enjoyed the Costa Rica approach - everything you buy has a consumption tax added. I think it was about 16 or 17 percent. Everyone pays it, there is no weird bracketing and deduction structures, and it funds the needful. Income tax when added as required is very simple. I wish the US would do something like this. It would put all the accountants out of a job, but I honestly think it would be worth it. Unfortunately I think legislators see benefit in the confusion and obfuscation of the current tax code and use it to their advantage.

 

[Gretschtim1]

If IRS is looking these sales as sales by self employed persons, then that is absolutely how it will work. If you can prove what you paid and what you sold it with then a loss is deductible. As should be any cost of repairing the item. Luthier fees etc. I don't know if you could also charge your own time spend on repairing an item, but if you are considered a business, then you should be able to do that as well.

How does that all need to be reported is an interesting question. But is IRS looks you as a self employed business then I don't see how they could deny deductions that all other self employd businesses do.

For sure the tax prepares will get more business if whole lot of hobbyists start behaving as businesses.

Well I've been doing this since the 70s and yes the tax laws have changed a lot since then. At one point if you took a loss for more than 3 years in a row they considered it a hobby. Well as a life long musician it was never a freaking hobby to me it has been my life. I spent thousands of hours in dirty bars, clubs, concert halls and kept taking the money I made to put back into my career with no help from the freaking government at all - not like today when you can wander into the country and get all kinds of handouts to build a business - most musicians couldn't get anything like that no matter how legit they were. I didn't want any handouts anyway I just wanted the government to stay out of my way and let me build a life and career. If I bought a guitar for $500 and then turned around and sold it for $200 I took the loss. Anytime you get involved with the government and the taxman you wound up getting screwed in the long run. It just becomes another expense that on the average musician's budget you can't afford. It's the only job that I know of that hasn't seen a raise in 50 years.... I'm not talking just me I'm talking about the regular everyday gigging musician playing the club scene. In 1975 my band was playing 4-5 nights a week mostly 5 night stands at the same bar and making $500 a night. Fast forward 47 years later and most local bands here don't make any more than that and lots of them make way less.
Lucky for me I started a sound rental and recording business to keep things afloat.
So when you hear that the government is planning to hire up to 87,000 new IRS agents with thousands of them set to monitor small businesses you can kiss the club scene along with a lot of other music oriented small businesses goodbye.
At some point you decide it just isn't worth it.
After 2 years of Covid lock-downs my business is nearly destroyed.
I only had a fraction of my normal jobs this year and none last year.
So I guess you can say I'm not too hopeful for things getting any better over the next few years and I'm getting to the age where it ain't worth the worry.

 

[Runamok]

I know that a lot of people are buying and selling stuff as their main income. I think that this action aims at these people who didn`t pay a penny taxes on their income through all the years. A seller with thousands of transactions is not a private seller.
Another footnote: You do not pay taxes on your transactions but on the money you made with it.

Indeed. Tax cheats abound.
These are people off the books, avoiding the structure set up for people who do this as a living. They ought have their own tax number, etc.

Providing the information to the go-between does not
protect one’s individual identity & personal information for the one-off sale.

A guy running a business as an electrician or builder or plumber, maybe a professional flea marketer has a traditional relationship. If they get caught cheating on their tax liability, its different in consequence.

 

[Frank_NH]

So I looked this issue up online and PayPal has an excellent summary of the situation.

https://newsroom.paypal-corp.com/20...eporting-Requirements-Your-Questions-Answered

The main points:

(1) This new threshold for reporting sale income was passed by Congress this year and has been signed into law.
(2) It affects ALL online transactions, not just Reverb.com (e.g. Venmo, PayPal…).
(3) It officially is in force starting January 1, 2022 and presumably would be in effect for the 2022 tax year.
(4) For reference, the old threshold was $20,000, which is why 99% of sellers haven’t received a 1099K until now. Presumably, this is NOT in force for the 2021 tax year unless it’s retroactive (hopefully not).

So…bottom line is to get your selling done before New Years Eve…

 

[Johnny Alien]

Also this is cumulative. It doesn't apply to single sales $600 or over. If you sell a bunch of small stuff that equals $600 or more you will get a 1099 and it will be up to you to prove it's not income. I am going to start saving every receipt from purchases but more than that I don't plan to sell anything major after this year. It's a good thing as it will make me concentrate more on getting what I want vs just saying "well I can flip it if I don't like it" Honestly I needed this in my life.

 

[Henry]

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?

Yes for fess but not taxes. Your tax obligations don't depend on how you sell it.

 

[Back in Black]

Members,

Not knowing the business interests of our members, I'm assuming ''most'' are selling used personal property, ''complete items/parts''

When you originally purchased these items new, applicable taxes/duties/exchange/brokerage, etc., was paid!

You owe no further taxes selling your own personal used items!

If you are set up as a retailer, then that is a different story, as now we are talking wholesale/retail, and taxes are owing on anything over ''cost''.

As a private individual, selling your own ''used'' possessions you are not a retailer, especially when you sell an item that originally cost $1000. and you're selling it for $500.

For me, buying outside of Canada, and using Reverb, I'm paying brokerage fees twice, once to Reverb, and a second time to the shipper to get the package from point to origin to destination. Why anyone would want to pay twice is beyond me. As I stated in an earlier post, be your own broker, do your own hunting...everything you want is out there, and can be found with a little looking.

I stand to be corrected, but I believe Reverb charges 5% of the asking price. that's an additional $200. on a $4000. guitar...no thank you!

BIB.

 

[Gretschtim1]

Indeed. Tax cheats abound.
These are people off the books, avoiding the structure set up for people who do this as a living. They ought have their own tax number, etc.

Providing the information to the go-between does not
protect one’s individual identity & personal information for the one-off sale.

A guy running a business as an electrician or builder or plumber, maybe a professional flea marketer has a traditional relationship. If they get caught cheating on their tax liability, its different in consequence.

Well I've been paying taxes on my music career since the 70s. But anything I was paid under the table I was not going to report that. If I did I would have been out of the music business in the 80s. For those of us who spent dozens of years on the road in shitty clubs and hotels it was bad enough without reporting the peanuts we made to the government. Good paying jobs no problem. But when you get paid $50 a night paid for gas, food, strings, tubes, etc. you'd be a real stupid person to report the under the table money to the IRS. Most years I lost money on live gigs but kept doing it in the hopes of getting to the point where I could make a decent living off of music. After a few years of filing losses the IRS declared it a hobby and you couldn't file a loss for the next 5 years I think it was. That was a joke.
The government don't care what your situation is they just want to squeeze as much money out of you as they can. So at some point you start looking out for yourself and start looking for loop holes like the millionaires do.

 

[juks]

If they pay by cash or check in person you are fine. If they pay by paypal then it will get a 1099. Paypal and Venmo will also be reporting these transactions. Even if you choose "Friends and Family". It will be reported and you will be responsible for proving it was not a sale. This is not just Reverb or Ebay its pretty much any online way of paying someone else. That means buying and selling through a forum like this will also be subject to this rule unless you are paying via cash, check or MO.

How about bank transfers? Will banks be issuing 1099s too?

 

[juks]

This is the crux of it all for many people. The US tax code is so complex as to be ridiculous, and they keep piling the filing and accountability regulations on the head of the average everyday taxpayer - and now, increasing the burden on businesses of all sizes. It just seems unsustainable.

I really enjoyed the Costa Rica approach - everything you buy has a consumption tax added. I think it was about 16 or 17 percent. Everyone pays it, there is no weird bracketing and deduction structures, and it funds the needful. Income tax when added as required is very simple. I wish the US would do something like this. It would put all the accountants out of a job, but I honestly think it would be worth it. Unfortunately I think legislators see benefit in the confusion and obfuscation of the current tax code and use it to their advantage.

We have a sales tax in most states, which the same as consumption tax. If would replace sales tax with this new one, I'd be all for it .

 

[englishman]

How about bank transfers? Will banks be issuing 1099s too?

The 'report anything over $600' law is stuck in limbo with the rest of the mega spending bill. I saw reports they were going to up the amount but we'll all have to wait and see. As far as I know, it wasn't for 1099s, it's just so they could keep track of how much money you have.

 

[Johnny Alien]

It's actually not stuck in limbo and is not tied to the spending bill at all. It is part of the American Rescue Plan Act of 2021 that passed earlier this year and was signed into law. These changes are taking affect Jan 1 2022.