Britbike forum Forums General discussion The Rod and Tappet The hobbyist and the tax man

Yes
That is the way to do it.
Down here if you show substantial losses on a side hussle after "X" years the tax department declairs that it is a hobby and the inome is non taxable
Down here they changed the rules for private car hire around 2010
So the number of wedding car hire companies went from 800ish to over 4000 as people who restored cars and were PAYE taxpayers suddenly became wedding car hire companies and proceeded to acrue massive losses on the cars they bought as wrecks, pretended that they were actually using them for weddings ( requires a "friendly inspection agen " then defraed all of the restoration costs against their taxiable income.
A significant number of Motor Cycle Escourt companies are somewhat similar .

I vend at Mid-Ohio. I would declare my profits and losses on my tax returns. By the time you added up the cost of mileage, motels, food, and site fees, besides the costs of whatever I was vending, it was usually although not always a nice loss that I could apply towards my taxes. My records were not always the best, but I wasn't audited, so it wasn't a problem. One thing about records, a lot of folks seem to think that if you don't have a complete paper trail, you cannot take the deduction or credit. That is not so. If you have an expense permitted by the IRS, you can apply it, whether or not you have a record. The record becomes important if you get audited to prove your loss, but even there, the IRS may permit an expense that does not have a record if it is clear that the expense was in fact incurred. What you are not permitted to do, obviously, is to make up expenses. If you are audited and the IRS decides that additional tax is due, you will have to pay the tax plus interest, but it is doubtful that you will have to pay penalties unless the IRS decides that you deliberately were trying to defraud the government.
When Trump raised the individual deduction on income taxes, it was no longer worth it to me to go through the process, so I stopped.

Ed from NJ

MIGHTA!!!!

The 13 years I restored/rebuilt bikes as my primary income, I never bothered to calculate "business use of home" (for the office portion). Just the power bill that fed the shop directly. No hotel room expense on road trips to pick up and deliver bikes, no meals (have to eat whether you're home or away); mainly because I'd usually bring the wyfe & baby/kid and we'd "see the sights".

Same for when I was racing, I'd declare the gas expense only if I had a legit pickup or delivery. It helped if I found anything for sale at the track, that would be an addition to working inventory.

Not crossing any lines, and enjoyed it with no worry that Uncle Sam to stick it to me later.

By the way, government expense for power & transportation infrastructure comes from utility and gas taxes, not personal income tax.

Wastes & abuse (and graft and grease) DEFINTELY comes from income tax, the most sickening of all taxes ever levied. The founding fathers would be trashing the halls of congress in ultimate anger.

It has long been abundantly clear that our country’s tax code is structured to serve only those who have the most money... just like the Founding Fathers™ intended,

I did do something. I quit selling on ebay and I will also stop trying to sell any useable stuff I no longer want, including vehicles. I don't want to turn any of that into a business and have to deal with the tax reporting and record keeping and everything else that brings with it.
If you do get audited, I'm betting it will be a problem. No receipt, no expense deduction. And additional funding for the IRS has been passed in congress which will increase the number of audits. That's what the funding is for. This is the sort of thing they are going to tighten up on. It's certainly not worth the risk to me for a few hundred or even a few thousand dollars a year. I have had some interactions with the IRS in the past. No audits, but they are still a pain to deal with.
It used to be similar in the US. I believe it was 3 years, but I could be wrong. I'm not sure of the income, but the expenses were disallowed if there was never a profit. You can not continually operate a 'business' at a loss to offset other income. But since they are now requiring you to report all sales as income, it's not clear what the rules for expense deductions will be. I don't know, but it isn't something I want to have anything to do with.
I don't believe the fact that you can write the income down to zero through expense deductions exempts you from going through the process of declaring the income and then filing the paperwork.

I spoke to the friend who I mentioned in the original post yesterday. He had bought a project motorcycle several years ago off Ebay, did nothing with it, and sold it last year. He sold it on Ebay for $5500. He did indeed receive a 1099-K form for $5500. He did not sell any other trash on Ebay, so this 1099-K is for the sale of one motorcycle only. Luckily, he printed a copy of the original Ebay auction and so has proof of the original cost. He could not go back today and extract that data from Ebay.

The 1099-K is a new form. It appears to be for income generated from a 'business'. But they also discuss income reported from the sale of 'personal' items. This is from the IRS website under "Understanding your form 1099-K":

The American Rescue Plan of 2021 changed the reporting threshold for third-party settlement organizations, including payment apps and online third-party settlement organizations. The new threshold requires reporting of transactions in excess of $600 per year; changed from the previous threshold of an excess of 200 transactions per year and an excess of $20,000. TPSOs are required to report payments for goods and services.

If you receive a Form 1099-K for a personal item sold at a loss, report the information on Form 1040, Schedule 1, Additional Income and Adjustments to Income with offsetting transactions. For example, if you receive a Form 1099-K for selling your couch online for $700 you will report:

Part I – Line 8z – Other Income – Form 1099-K Personal Item Sold at a Loss $700
Part II – Line 24z – Other Adjustments - Form 1099-K Personal Item Sold at a Loss $700
The net effect of these two adjustments on adjusted gross income would be $0.

If you sold an item you owned for personal use, such as a car, refrigerator, furniture, stereo, jewelry, or silverware, etc., at a gain, your gain is taxable as a capital gain. Report your gain as explained in the Instructions for Schedule D (Form 1040).

NOTE: On Dec. 23, 2022, the IRS announced that calendar year 2022 will be treated as a transition year for the reduced reporting threshold of $600. For calendar year 2022, third-party settlement organizations who issue Forms 1099-K are only required to report transactions where gross payments exceed $20,000 and there are more than 200 transactions.

Note that the example shows that the sale of a 'personal' item for a loss does not allow the loss to offset other income. It may be that a capital loss from the sale of 'personal' property may be used to offset other capital gains. I don't know. Apparently Ebay is going ahead with the new reporting threshold for 2022 even though they weren't required to.

And also from the IRS web site:

The tax rate on most net capital gain is no higher than 15% for most individuals. Some or all net capital gain may be taxed at 0% if your taxable income is less than or equal to $41,675 for single and married filing separately, $83,350 for married filing jointly or qualifying surviving spouse or $55,800 for head of household.

So if your income is low enough, you don't have to pay tax on the gain from the sale of your 'personal' items. But you still get the pleasure of filling out all the forms.

So because these parts came from my 'personal' motorcycles, it looks like I will be able to claim all of my transactions as sales of 'personal' items and just claim it all as capital gains with a zero cost basis. I actually only had 4 transactions, even though Ebay reported income from 6. It appears that the 2 cancelled transactions should not have been reported as income by Ebay. But I don't want to waste a lot of frustrating time trying to get them to send me a corrected 1099-K form.

All of this brings up several questions in my mind. Funds collected from third party payers generate an automatic reporting of income. But from the IRS website:
If you sold an item you owned for personal use, such as a car, refrigerator, furniture, stereo, jewelry, or silverware, etc., at a gain, your gain is taxable as a capital gain. Report your gain as explained in the Instructions for Schedule D (Form 1040).


1) Tax laws don't specify what form you received your payment in. If it's income when paid through a third-party settlement organization, then it's income if you sold anything and received your payment in cash, check, money order, or traded for two cows. So aren't you still required to report the payment as income on your tax form, even if you don't receive a 1099 form?

2) You go to a dealer and buy a new car. You trade your old car in. Aren't you required to declare the amount you receive for your old car as income on your tax form? How do you then determine what the gain or loss is? Will the dealer send you a 1099 form?

Good times!

GRRRRRRRRR...

Look on the bright side, GP, when Texas finally secedes you won't have to pay US taxes any more!

My take on all of this is:

We are currently well into the transition to a cashless society. And not only will the majority of the public allow it to happen, they will support it. And it will be completed soon. Very soon.

The ability to see and tax all financial transactions is just a small piece of the overall purpose of eliminating cash. Those who control government and wish to tighten their grip on the control of society will tell you that cashless transactions will make it more convenient for you, the consumer. The real reason is more control. When all money is digital, those who wish to control society can control individuals as well. The latest measure of your societal worth has become the ESG(Environmental Social Governance) score. Right now this score is being applied to businesses. But it can, and will be, applied to individuals eventually. This is already taking place in China. And there are those in the elite class in western nations who admire China’s form of governance because of the ability to control society. And members of the elite class, both elected and unelected, are who control governments.

Your ESG score may affect whether you qualify for a car loan, a home loan, or a business loan. It can determine if you are acceptable when you are applying for other things, like a job. It could be used to determine how much you pay for goods, or even if you are allowed to purchase them. Did you utter wrongspeak in a public forum? Did you buy a gun or ammunition, or give to a particular political party candidate? Do you purchase and eat too much meat? What kind of car do you drive, and how often do you drive it? How much electrical power and water did you use over a given time? This will all have an impact on your freedom in the new world that is unfolding.

All of this is an erosion of personal liberty. A few years ago, I would have said these things won’t happen during my years walking the earth. I have since changed my mind. It is happening much faster than I ever imagined. These are things that make me glad I’m old and no longer need to earn a living. There is nothing else good about getting old. Senior discounts don’t make up for that.

Good times on planet earth!

Yes, why wait for 1984 when you can have it now.
But the g.d. gummint via it's regulatory role is actually an impediment to the real driver, good old monopoly capitalism.
The banks want a piece of every single transaction.
Plus your spending habits data.

Good book from an insider:
https://www.amazon.com/Cloudmoney-Cash-Cards-Crypto-Wallets/dp/006293631X

I clicked "like" because I like your post, NOT what is happening.

"Good" times?

No.

I was planning on selling excess stuff in my eBay store. I have very few records of what I paid for them so I’m closing the store.
I thought I could just post individual items on eBay as a hobby but it seems to maters not the IRS wants to go after the hobbyist. 8700 new agents and they are after people earning less then $400,000.
Inflation is stinging us in the USA and just read Great Britain inflation is at 10.2%

The fool in charge has racked up such a huge debt he wants to put his burden on all of us. Looks like swap meets, Craigs list and forum classifieds listings the only out let. Cash only…

Could you give me a source for those numbers?
I heard it was 870,000 new agents and $40,000.

Hugh,
You got your zeros mixed up. It’s 8,700 agents $400,000
FOX News

"> Inflation is stinging us in the USA and just read Great Britain inflation is at 10.2% ,"

Food inflation in the UK is at 18% for the year to Feb 2023, the highest for 45 years. Mostly avoidable if our glorious leaders were competent; cheap, reliable energy being the starting point, followed by competent politicos from all countries achieving a general outbreak of peace.

I suspect under-utilized "sarcasm" emojis, since that was discussed before ....!

Of course it was.

I just completed my federal tax return. My reported income from ebay sales was $720 and was reported to me on a 1099-K form. Income must be classified as from business sales or personal use property sales. As a hobbyist, my income is obviously from sales of personal use property.

From the IRS website:
There are no changes to what counts as income or how your tax is calculated, including income from the sale of personal assets. You must report all your income on your tax return unless it’s excluded by law.

There you have it. The sale of ALL property has been and will continue to be reportable as income. You should be reporting ANY sale you make as income. If you don’t you’re cheating on your taxes! Got it?

There can either be a gain or a loss realized by the sale of personal assets. And, yes, gains and losses are treated differently on the tax return.

From the IRS website:
If you receive a Form 1099-K for a personal item sold at a loss, report the information on Form 1040, Schedule 1, Additional Income and Adjustments to Income with offsetting transactions.

If you declare you sold the property for a loss the amount of the loss is irrelevant; it just means you can exclude the sales price as income. On your 1040 form, you report the funds as income on line 8, and then two lines below subtract it back out of income. Brilliant!

From the IRS website:
If you sold an item you owned for personal use, such as a car, refrigerator, furniture, stereo, jewelry, or silverware, etc., at a gain, your gain is taxable as a capital gain. Report your gain as you would report any other capital gain on Form 8949 and Schedule D.

Capital gains are taxed at a lower rate than other income, and if your income is low enough, capital gains can be untaxed.

From the IRS website:
Some or all net capital gain may be taxed at 0% if your taxable income is less than or equal to $41,675 for single and married filing separately, $83,350 for married filing jointly or qualifying surviving spouse or $55,800 for head of household.

So if you’re income is low enough, the obvious choice is to declare the sale as a capital gain with the whole sales price being all profit, and pay no tax on it. No documentation needed! Still gotta fill out the form though!

A few years ago I got a letter from the IRS saying that I owed $9,000 in tax for undeclared capital gains on sales of assets. The tax was calculated on the full sales price as income. It was obviously an error because when I reviewed my return, I saw that I had correctly reported the gains and deducted the cost basis from the gains. But at that point it didn’t matter, they were demanding proof of the deductions. This was for sales of stocks so I spent 10 hours searching brokerage statements and printing 30 pages of documents to send to them. They gave me 30 days to provide proof and kindly explained how I could set up a payment plan. Some time after I mailed them the documentation, I received a letter saying the issue had been resolved.

That incident told me that the biggest problem with all of this is record keeping. If you declare a loss or if you reduce your gain with cost basis and expense deductions, it would behoove you to have proof.

From the IRS website:
You need to know your basis to figure any gain or loss on the sale or other disposition of the property. You must keep accurate records that show the basis and, if applicable, adjusted basis of your property.

Will the IRS demand proof of a loss for income of $720? Probably not. But what if it was $5000? Or $10,000 or $25000? At some point the numbers will become large enough to draw their attention. Then you just might get a letter demanding proof! The same applies for deductions on capital gains.

So keep receipts for everything you ever buy and don’t forget to declare the income from that yard sale last year!

Any money I spend on bikes (or anything else for that matter) has already been taxed.
So in my book any sales of bikes or parts thereof are to do with me and not Uncle Sam.
So I will deal on CL, on here and at swap meets, always in cash and to hell with anybody who gets in my way!

The gigantic, overweening number of laws in this country results in me being a federal felon about 3 times a week and not even knowing it.

If they want the money I got trading for firewood, selling an old tractor or playing with motorcycles, they'll have to come get it.

I already lost all my guns in a boating accident (silly of me, I know) so there's nothing to see there. I don't buy ANYTHING on-line, so no need to hunt for sales taxes.

Almost finished with my taxes this year, but they want to know where my Railroad Retirement income statement is. Closest I ever got to working on a railroad was singing "Wreck of the Ol' 97" once, and I didn't even have a hat for the money.....

Lannis

It will only be the IRS in your way!

I have had a couple of people here on the forum unable or maybe unwilling to pay with a personal check. I got one bank check and a money order. I found that interesting.

I have recently closed my paypal account and I use cash for everything but online purchases and gas. I like the anonymity of cash. I do online banking for payment of a couple of monthly recurring bills. Other bills are paid by personal check in the mail. But I seem to be an exception.

I have noticed some changes in Craigslist recently. I posted a few things for sale. When I searched with this, using the exact title, they didn't show up. I didn't get any response on any of them. I just quit posting on there. There doesn't seem to be as much on there anymore. Maybe it's just the search software.

Search all of craigslist

try this

https://www.searchtempest.com/

ive had good luck a time or two with this source

It is easy to construct a picture of an underground conspiracy.
The IRS tightens up on taxing ones side enterprises which pushes everyone to use cash rather than on line credit cards etc.
While in parallel the US Treasury cuts down on the amount of cash in circulation --- citing the trend towards a "cashless" society.
When I put the above together with the scamming prevalent in on line transactions It makes me move back towards the old way of doing things---get a bill in the mail and write a check and mail it or go to the local office and pay in cash.
All because the politicians want more of our money to waste on their pet projects.
And the side effect is to stifle enterprise and initiative which the country needs as much if not more now than it ever did.
Just my two cents worth of course!