Paying Taxes on Ebay Lego Sales

[Rich B]

Hey everyone, I tend to build and hoard Lego more than I sell it. This past year is probably the most I've ever sold Lego on Ebay, probably around $1,000 in total sales, which may not seem like much to some of you, but again I am an AFOL that loves to build and collect, and I don't get around to selling much. That being said I've never paid taxes on Lego sales, but in previous years I've sold around a couple hundred dollars in Lego at most. I feel I need to pay taxes this year though. How do I go about it? Do most people out there pay a sales tax on Lego sales? And roughly how much does it cut into profits? Anyone out there have info and experience with this?

[Veegs]

I'm probably supposed to pay taxes on any ebay sales, but thus far I haven't done so. I heard (not sure of the veracity) that one could make $500 or less on ebay without claiming it as income. While this may or may not be true, I think it would be difficult for the taxman to track and it relies largely on the 'honor system'. Is it that much different than selling on craigslist or kijiji or at a garage sale in your yard? Should those earnings be taxed? Does anyone know a) the legal rule and how it works in practice? These are good questions...

[Talon]

In the U.S. you are either doing a business or a hobby. The IRS test is if you are trying to make a profit then it is a business. In general, there are actually better deductions if it is a business but the self-employment taxes are much higher usually canceling out the deduction benefits. The Motley Fool - fool.com has a good, irreverant (why I like them!) write up on the basics under "Is Your Hobby A Business?".

[Ed Mack]

EBAY(PayPal) reports your sales to the IRS under these standards:

Sunday, August 10, 2008

Paypal Has To Report To IRS (eBay Sellers)

The new Housing and Economic Recovery Act signed into law requires Paypal and others to report to the IRS. This law will take affect in 2011 and will be reported in 2012 for the 2011 tax year.

You are excluded from having your info reported if:

1. If you receive less than $20,000 a year in payments; and

2. If you have less than 200 payments.

You will have to make sure you keep good records. For more information visit the official Paypal Blog for more information.

Anything less than this, the IRS will not have any information on you sales. That being said, if you make money off of EBAY sales, by law, you need to claim it as income. But it gets very complicated. You have to take in consideration what you paid for the sets, any commissions paid, other costs of your business, depreciation, etc...It can get quite messy for a few LEGO sets.

I get the feeling most EBAY sellers don't pay tax on their sales and while I'm not giving financial advice, from what I've read, the IRS is not looking to audit you over a few sales on EBAY. They have bigger fish to fry. Just my 2 cents...

[Rich B]

Thanks Ed, this is good to know. I guess I don't have much to worry about as I will never sell $20,000 in Lego sets in a single year. I would need a separate 3 level home to store and sell 20g's in Lego a year, but now that I think about it that would be quite the life ;)

[Brickarmor]

This is very good and necessary information. Ed, when this site first launched, wasn't there a very detailed thread related to this? I am almost certain I recall reading it here. "The Taxman Cometh" would make a great article.

[Ed Mack]

This is very good and necessary information. Ed, when this site first launched, wasn't there a very detailed thread related to this? I am almost certain I recall reading it here. "The Taxman Cometh" would make a great article.

That would be a great article. I have to start pumping them out again. We have been very busy with a major update for the site and there are a few surprises that will be coming in the very near future, but I'll leave it at that. Jeff and I have been running on 5 hours of sleep a night working on this, but a tax article would be a very useful one. Any accountants out there? LOL

[stackables]

EBAY(PayPal) reports your sales to the IRS under these standards:

Sunday, August 10, 2008

Paypal Has To Report To IRS (eBay Sellers)

The new Housing and Economic Recovery Act signed into law requires Paypal and others to report to the IRS. This law will take affect in 2011 and will be reported in 2012 for the 2011 tax year.

You are excluded from having your info reported if:

1. If you receive less than $20,000 a year in payments; and

2. If you have less than 200 payments.

You will have to make sure you keep good records. For more information visit the official Paypal Blog for more information.

Anything less than this, the IRS will not have any information on you sales. That being said, if you make money off of EBAY sales, by law, you need to claim it as income. But it gets very complicated. You have to take in consideration what you paid for the sets, any commissions paid, other costs of your business, depreciation, etc...It can get quite messy for a few LEGO sets.

I get the feeling most EBAY sellers don't pay tax on their sales and while I'm not giving financial advice, from what I've read, the IRS is not looking to audit you over a few sales on EBAY. They have bigger fish to fry. Just my 2 cents...

Yeah, like Pamela Anderson :)

[TheOrcKing]

Jeff and I have been running on 5 hours of sleep a night working on this

I have so been there. Heck, I think I just did that, heh. It's funny how long one can stay awake for (with or without coffee) when you have become so focused on a project, and yet be put to sleep from mind-numbing TV (or youtube). One time I've even been awake for a little more than a full 48 hours! My eyes were so bloodshot it's not funny. ....Well, maybe just was a little.

I wonder if they give awards for insomnia? Heh.

Yeah, like Pamela Anderson

Ha! Nice one.

[sroster]

I feel the need to dig this thread up as I am sweating the tax man next year.

 

I didn't intend to sell as much as I did but things kind of went crazy the last month and recently paypal shut down my account to get my social security number, which of course I provided.  I assume that is because they will be reporting me to the IRS?

 

I have saved a lot of receipts but I certainly haven't saved all of them.  My record keeping definitely needs some work, especially at the beginning and the last month when things got crazy.

 

My main question here is, what if you don't have a receipt for a set you purchased and sold?

 

Say, for argument's sake, I spent $100 on a Mil Falcon and sold it for $200.  So I should pay tax on the $100 profit (minus all fees, shipping, etc) so most likely more like I would pay tax on $60?  And say I don't have the receipt for that $100 purchase.  Does that mean I have to pay tax on $160?  Or can you point to the MSRP and say there, that is what I paid?  Seems like having no receipt shouldn't mean they assume you paid zero for it.

 

This tax business is stressing me out a bit, any advice/experience/soothing words would be greatly appreciated.

[Britsnap]

Well...tell us how much you sold.

Paper trail is always desired In the event you need to provide it...bank accounts for purchases at a bare minimum.

[imirish11]

They will look at your cc and bank statements before asking for receipts.

[SnowmanOlaf]

I feel the need to dig this thread up as I am sweating the tax man next year.

 

I didn't intend to sell as much as I did but things kind of went crazy the last month and recently paypal shut down my account to get my social security number, which of course I provided.  I assume that is because they will be reporting me to the IRS?

 

I have saved a lot of receipts but I certainly haven't saved all of them.  My record keeping definitely needs some work, especially at the beginning and the last month when things got crazy.

 

My main question here is, what if you don't have a receipt for a set you purchased and sold?

 

Say, for argument's sake, I spent $100 on a Mil Falcon and sold it for $200.  So I should pay tax on the $100 profit (minus all fees, shipping, etc) so most likely more like I would pay tax on $60?  And say I don't have the receipt for that $100 purchase.  Does that mean I have to pay tax on $160?  Or can you point to the MSRP and say there, that is what I paid?  Seems like having no receipt shouldn't mean they assume you paid zero for it.

 

This tax business is stressing me out a bit, any advice/experience/soothing words would be greatly appreciated.

 

You will receive a 1099 if your sales exceeded $20,000 and 200 transactions.  Take note of the "and" in that statement, because the follow up question is always "well what if I did more than 20k and less than 200 transactions(or vice versa)?".  The answer is 20k+ & 200+ transactions.  Although you are supposed to report whether or not you get a 1099, that's none of my business.

You will file a Schedule C, refer to http://www.irs.gov/uac/Schedule-C-%28Form-1040%29,-Profit-or-Loss-From-Business for more details.

COGS is one aspect, gross sales is another aspect, selling fees & shipping is another aspect.  You also can deduct items such as office supplies, shipping boxes, tape, nearly anything that cost you money in the pursuit of profit.  You also can deduct $0.56/mile driven for business.  You need a log for that or at the very least, some type of evidence.  There is many more things

Records are extremely important.  Salvage any receipts that you can.  Pour through every transaction on your bank/cc statements. Figure out your expenses, because every little bit reduces your taxable profit.  That is your #1 priority right now.  Find every single transaction where you spent money on inventory or supplies.

I was in your shoes last year on gross sales of 360K, completely and utterly daunted by tax time(although I actually saved all of my receipts for everything.)  Ultimately, it turned out to be pretty damn easy with TurboTax(provided you have records of everything....seriously, get on that ASAP).  Once you get all of your expenses straightened out, you'll be fine.

yadda yadda yadda, not an accountant.

 

Edited December 23, 2014 by SnowmanOlaf

[terrymc4677]

I don't have any advice, just an observation. I find it interesting that this thread has gone two years between posts. I guess that shows how much people like to discuss this topic...lol. Perhaps if it just gets ignored it won't be an issue?

[iahawks550]

This topic is never an issue..... Until it's an issue. Then it's usually way too late.

[sroster]

Heh, I definitely wanted to bury my head in the sand and forget about it.  Well I'm no where near 20k in sales.  I did about 8k in the last 60 days but the rest of the year I didn't do much.  It is possible I might be flirting with the 10k level but definitely not the 20k.

 

So, paypal asking for my social doesn't mean they necessarily are reporting me for tax reasons?  Maybe they extrapolated how much I did in that time frame and figured I might be a 20k candidate.

 

I will approach 2015 with the expectation I will hit 20k so I am prepared for the worst.

[justafrog]

I feel the need to dig this thread up as I am sweating the tax man next year.

 

I didn't intend to sell as much as I did but things kind of went crazy the last month and recently paypal shut down my account to get my social security number, which of course I provided.  I assume that is because they will be reporting me to the IRS?

 

I have saved a lot of receipts but I certainly haven't saved all of them.  My record keeping definitely needs some work, especially at the beginning and the last month when things got crazy.

 

My main question here is, what if you don't have a receipt for a set you purchased and sold?

 

CC statements, bank statements - not as good as receipts, but arguable. If you paid cash and have no receipt, document your best recollection as to where you bought it, the date, and price -- you may lose that one in case of an audit, but obviously you got the MF you sold from SOMEWHERE so it's reasonable to try and IF they disallow it they probably won't decide you're also committing tax fraud, so it's safe enough to give it a shot and risk the penalties/interest.

 

For you and everyone: get organized. Go sit down with your tax accountant (get one if you don't have one) asap -- they will be getting very busy right at the first of the year, and it only gets worse by April 15, so go early so that they can send you home with a list of what to put together for them to do your taxes.

[ravenb99]

Heh, I definitely wanted to bury my head in the sand and forget about it.  Well I'm no where near 20k in sales.  I did about 8k in the last 60 days but the rest of the year I didn't do much.  It is possible I might be flirting with the 10k level but definitely not the 20k.

 

So, paypal asking for my social doesn't mean they necessarily are reporting me for tax reasons?  Maybe they extrapolated how much I did in that time frame and figured I might be a 20k candidate.

 

I will approach 2015 with the expectation I will hit 20k so I am prepared for the worst.

Paypal / ebay just recently did a sweep of accounts and were making sure all account names / business names matched.  You're billing agreement with ebay is what they were looking at.  They want your name, SSN , on your paypal / ebay accounts to match for IRS purposes.  Some companies use an ebay account and have another billing agreement account on there.  If those did not match or if you were missing some vital information like Taxpayer ID number or if individual then your SSN.  You had until Dec 9th to square them away or they would limit your account which is what sounds like happened to you.

 

Larger companies will sometimes use multiple paypal accounts on there accounts depending on where the funds were to go for the item being sold.  The main one though needs to match the account holders name or business records and be the one used in the billing agreement with ebay.  You can still use another paypal account as long as the main billing agreement one matches.

[justafrog]

Heh, I definitely wanted to bury my head in the sand and forget about it.  Well I'm no where near 20k in sales.  I did about 8k in the last 60 days but the rest of the year I didn't do much.  It is possible I might be flirting with the 10k level but definitely not the 20k.

 

So, paypal asking for my social doesn't mean they necessarily are reporting me for tax reasons?  Maybe they extrapolated how much I did in that time frame and figured I might be a 20k candidate.

 

I will approach 2015 with the expectation I will hit 20k so I am prepared for the worst.

 

Report REGARDLESS of whether you hit the 20K and they report. Don't mess with the IRS. They are the only bill collector who can knock your door down and take your stuff WITHOUT going to court first. They are the only bill collector who can put you in jail.

 

PayPal's reporting requirement has nothing to do with your reporting requirement.

[sroster]

Report REGARDLESS of whether you hit the 20K and they report. Don't mess with the IRS. They are the only bill collector who can knock your door down and take your stuff WITHOUT going to court first. They are the only bill collector who can put you in jail.

 

PayPal's reporting requirement has nothing to do with your reporting requirement.

 

Good advice.  I will do that.  I mostly dread all the time it will take to figure all that out.  It gets very confusing since a lot of things I bought using cardpool GCs to save more $ etc etc.  Makes my head hurt just thinking about it.

[iahawks550]

Brickfolio is a great tool for recording buy-in prices.

[exciter1]

Good advice.  I will do that.  I mostly dread all the time it will take to figure all that out.  It gets very confusing since a lot of things I bought using cardpool GCs to save more $ etc etc.  Makes my head hurt just thinking about it.

 

If you document each purchase and each sale, along with fees, shipping, etc. It's not too hard to just total it for the 12 month period and apply it to Schedule C.  Just make sure to document the discounts as part of the purchase price.

[sroster]

Brickfolio is a great tool for recording buy-in prices.

 

I use the brickfolio but I have averaged all costs, so say I bought 10 arctic batmans at $20 and 10 at $10 I have in there 20 of them bought at $15.  So can I just put that I paid $15 for any I sold basically until the end of time or if push came to shove would have to pull out a receipt that shows oh here I bought it at $19.94 from toys r us in 2013 and actually used a 10% off gift card etc etc etc.....?

 

Think I might just be stressing too much about the details I dunno.  I hate taxes.

[Guest TabbyBoy]

In the UK... If you sell even a single brick with the intent of making a profit, you have to declare it as income. Everything over and above what you earn from work is taxable if above the current tax exempt threshold, it's as simple as that. UK members... you have until 31JAN to file an online tax return for 2013/14 tax year. It's not if you're caught, it's when. This is why I'm not losing sleep selling buyer's remorse sets at a loss as I can offset this against tax. There is a loophole where you can say that you're selling a personal collection but, the same sets being sold regularly means you're probably trading. eBay and even your competitors can tip off HMRC if they feel like it. One warning sign is when eBay asks you if you wish to change to a business account.

Keep all receipts for at least 6 years as HMRC may "decide" what your purchase price was which is often low (or even zero), wiping out profits.

People also talk and some are jealous so declare cash sales also.

Spend

[Guest TabbyBoy]

In the UK, Brickfolio values are not accepted as only original receipts will do. Also, if you sell a lot, you may need to register for VAT also which can be a huge headache. My problem is not the tax I pay (about