eBay Sales for Friends

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.”

Ask TaxMama 

 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.

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