tax reporting - sale of collectables - 1099k

[joesxm3]

I see that places like EBAY and some of the Internet auction sites are now sending a 1099-k to sellers who sell more than $600 in one year.

From some discussion on other forums, it seems that those receiving the 1099-k have become a de-facto small business and need to file Schedule C where they would report gross receipts and subtract off costs.

Antiques and other collectables are considered to be investments and I was under the impression that these would be reported along with stock transactions as long term capital gains, but with the collectables status indicated to be subject to the 28% rate.

Does receiving the 1099-k cause a conflict with reporting the sale of the collectable as a long term capital gain rather than as business income?

For the sake of this question, please assume that I am a collector who would occasionally sell several duplicate items that are now redundant after a better example having been acquired rather than one of the tag sale types that buys hundreds of items and sells them on EBAY. I suppose the question would also apply to the case of wanting to liquidate the entire collection near the end of my life span, although in my case I will probably just gift the collection to my younger collector friends.

Thanks.

 

[cathy63]

I know there is some disagreement about this, but I am of the opinion that you did not start running a business just because someone else issued you a 1099-K, therefore a Schedule C is not necessary. Tax law and IRS publications still say that you should report the sale of collectibles on an 8949 and Schedule D as long- or short-term capital gains.

This is not to say that the IRS won't send you a letter saying "hey, you got a 1099-K so we think you should have a Schedule SE, please send us one". (I have only seen this type of letter about 1099-NEC, but I wouldn't rule out the possibility of them sending one for a 1099-K.) If you want to try to head them off, you could include "on 1099-K" in the description of each item on your 8949. Or if you do get a letter, you can always respond with a letter stating that this activity does not meet the criteria for a business, and here's an itemized list of sales and another copy of the 8949 and 1099-K showing that everything matches up. If the January and December numbers don't quite match, you may have to explain that some sales were reported on the previous or subsequent year due to when you received the funds.

 

[freedomatlast]

First off, thanks, cathy63 for your advice in the reply above. You always hit the ball out of the park on the tax questions. I've certainly learned a lot reading your answers to others' tax questions.

However, I recently removed most of the items I had for sale on ebay. There's no way I can establish an accurate cost basis on things I bought 30 years ago and for which I no longer have the original receipt.

Furthermore, there seems to be a wide range of opinions on how to report such activity to the IRS and what the IRS defines as a collectible, and what's defined as a business. It's not the tax due that's the problem for me. It's how to establish the profits without original paperwork and how to report it to the IRS that's the problem. Looks like it's back to Craigslist, FB Marketplace and any other site that doesn't involve a third party in the middle of the transaction.

 

[cathy63]

First off, thanks, cathy63 for your advice in the reply above. You always hit the ball out of the park on the tax questions. I've certainly learned a lot reading your answers to others' tax questions.

However, I recently removed most of the items I had for sale on ebay. There's no way I can establish an accurate cost basis on things I bought 30 years ago and for which I no longer have the original receipt.

Furthermore, there seems to be a wide range of opinions on how to report such activity to the IRS and what the IRS defines as a collectible, and what's defined as a business. It's not the tax due that's the problem for me. It's how to establish the profits without original paperwork and how to report it to the IRS that's the problem. Looks like it's back to Craigslist, FB Marketplace and any other site that doesn't involve a third party in the middle of the transaction.

Thank you for the kind words.

You're supposed to report income from sales on FB or Craigslist too though. You report it exactly the same way that you report transactions from a K-1, so legally you do have to figure out whether you're in business or not and whether you're selling collectibles or not and what their cost basis is. This is nothing new. The only thing the K-1 reporting changes is that it's harder for people to evade the taxes on some transactions.