Today TaxMama® hears from Judecat in the TaxQuips Forum who is helping a sick friend. Without going into detail – “Judecat is selling his personal treasures on eBay because he is too ill and doesn’t have access to the Internet. She wants to know the tax implications.”
Hi Folks,
I want to address this issue, because it happens quite a bit. Please take note. When you engage in financial transactions for other people – regardless of your good and loving intentions – there are consequences.
When you make deposits to any of your accounts – checking, savings, PayPal, merchant account, etc. on behalf of other people, IRS first looks at the money as if it is your income. To avoid paying taxes on it, you need to have a very clear audit trail to prove you have sent the money to someone else.
First you will have to report the income from such sales as either a business or a hobby. Then you will have to document how much you paid the real seller for his/her products. And you might have to provide reports to IRS, in some cases.
The good news is, there is no need to issue a 1099-MISC for purchases of merchandise. The bad news is, if you don’t have a solid paper trial – and the seller doesn’t also report the money you pay him/her…you might find yourself with some surprise taxable income.
So I urge you, before doing innocent financial favors for people, find out what you need to do to avoid ever having a problem if you are audited. And do remember – PayPal and merchant accounts (Banks, etc.) must now send you a 1099-K if you have $20,000 and 200 transactions going through your account – regardless of whose items you’re selling.
And remember, you can find answers to all kinds of questions about consignment sales and other tax issues, free. Where? Where else? At www.TaxMama.com.
[Note: If you were subscribed to the e-mailed version of TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]Please post all Comments and Replies in the new TaxQuips Forum .
