Today TaxMama hears from Robert in the TaxQuips Forum with this inquiry. “I read in a Washington Post article that eBay will now start sending sellers with more than 200 transactions a 1099-K form so that they have to pay taxes on their eBay selling. I have over 200 transactions. Because I buy most of stuff from yard sales, and then resell it on eBay, I do not have receipts for how much the products cost me. All I do is keep a simple Excel sheet listing the selling price, cost of the product for me, eBay fees, Paypal fees, and shipping fees. What will the IRS do to me if I do not have receipts for the stuff I bought to prove what my real cost is? This is assuming that they audit me.”
When you go to yard sales, from now on, do one of three things to get a record of your spending:
1) If they allow you to pay by check – use a check so you have a record of the purchase costs.
2) Carry a receipt book with you. Fill in the address of the place you bought the merchandise, the list of items you bought (if there is room), and when you pay, the name of the owner. Have them sign the receipt.
3) If you must use only cash, pull out the money you will need for the day, or weekend, from the bank or ATM. Attach/link a copy of that withdrawal receipt to your spreadsheet.
Now all that does is give you a total of your purchases at any location. You still need to break down, or allocate the total price you paid among the items you bought. The spreadsheet will be perfect for that.
In fact, that spreadsheet you are already keeping is a big brownie point in your favor. IRS will look upon that as a good business practice, and will see that you are running this like a business.
Sounds to me like you’re doing a good job, though!
And remember, you can find answers to all kinds of questions about selling on eBay, and other tax issues, free. Where? Where else? At www.TaxMama.com.[Note: If you were subscribed to the e-mailed 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!]
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