Selling on eBay? Keep Eye on Gains By CHARLES DELAFUENTE EBAY and other Web sites have transformed the neighborhood garage sale into a never-ending global auction, vastly expanding the number of potential buyers. The market for a Mickey Mantle rookie baseball card is no longer limited to the kids on the block — nor is the price determined by what those kids are able to pay. Enlarge This Image Tony Cenicola/The New York Times The taxable amount on an item sold online is generally the difference between its original cost - its "basis" - and its sale price. Higher prices and greater profits, in turn, mean increased income tax liability for sellers, at least in theory. In practice, though, the I.R.S. is interested in enforcing the rules for high-volume sellers, not for people who occasionally sell personal items of limited value. The tax code is explicit enough, however: anyone who sells anything for a profit owes income tax on that profit. The I.R.S. issued a fact sheet in September, noting, “All income from auctions, traditional or online, and consignment sales is generally taxable.” It added that “a person must report a gain from a sale whether he or she operates a business or not,” although it makes an exception for “income resulting from auctions akin to an occasional garage sale or yard sale.” Robert Marvin, a spokesman for the I.R.S., said that better tax compliance by online sellers is a goal of the agency. How to accomplish that is up for debate. One suggestion has been to require intermediaries like eBay to file information with the I.R.S. about people who engage in 100 or more sales a year, totaling $5,000 or more. EBay calls such a plan unfair. Kim Rubey, an eBay spokeswoman, said that online auction sites “provide just one type of venue that small businesses use to connect with customers,” and that “applying a type of reporting to one but not all is quite problematic.” On its Web site, eBay maintains that “there is no evidence that underreporting income is more prevalent in Internet auction sites” than elsewhere. “We believe,” the company says, “that any I.R.S. proposal to target underreported income should apply to either all online and offline commercial intermediaries or all Internet commerce — not merely online auction sites.” Tom Ochsenschlager, vice president for taxation at the American Institute of Certified Public Accountants, said he suspected that any serious effort to collect tax from casual sellers would probably be “dead on arrival.” It’s one thing to capture a business that’s underreporting, Mr. Ochsenschlager said. It’s another thing when someone has made one casual sale, maybe a $3,000 painting. “Going after those isolated sales like that is very burdensome for the I.R.S.,” he said. For those who voluntarily report such sales, the taxable amount of an online transaction is not necessarily the total amount. It is generally the difference between what an item originally cost — its “basis” — and what it brings online, according to Barbara Weltman, a lawyer who wrote “The Complete Idiot’s Guide to Starting an eBay Business” (Alpha Books). That surprises many people. There is “no question people have a misconception that there’s a threshold you have to cross” before a sale is taxable, she said. The income tax issue is separate from another on Internet transactions: sales tax, which affects buyers, not sellers. Not all retailers collect taxes for online transactions. New York state, for example, asks taxpayers to pay the sales tax on items they bought online if the seller did not collect it. There is a line on the state tax form for adding those amounts to the income tax due. Determining an antique’s or heirloom’s basis may require some tax-law savvy. The simplest situation is the one in which the seller bought the item. Consider that Mickey Mantle card. Its original basis may be a penny — one of five cards in a 5-cent pack. (We’ll ignore the value of the bubble gum.) Perhaps the seller bought it at a card show 30 years ago for $50. In either event, the purchase price is known, and the computation of basis is easy. Ms. Weltman said the basis of inherited items is trickier. The tax law says that someone who inherits something gets a stepped-up basis — which is not the staircase to the I.R.S. office but the item’s value when the giver died. For that Mickey Mantle card, if a fan bought it for a penny and then left it to a granddaughter last year, when it was worth $160,000, the granddaughter’s basis is $160,000. If she sells it quickly, for the basis value, she owes no tax, explained Julian Block, a tax lawyer in Larchmont, N.Y. If she holds it for another decade, then sells it for $170,000, her basis is still $160,000 and her taxable gain is $10,000. Someone who inherits potentially valuable property that does not have an easily determinable value and who does not plan to sell it quickly should probably invest in an appraisal, Mr. Block said, to pin down the basis at the time of acquisition. After all, he said, “yesterday’s tchotchke may become tomorrow’s heirloom.” (If the giver’s executor had to file an estate tax return, the value might be listed on it, he added.) Without a good evaluation, Ms. Weltman said, “everything you get from the sale could be taxable,” because the burden is on the seller, not the I.R.S., to prove the item’s value. The tax treatment of items received as gifts is another matter. For example, if a woman gives her daughter a diamond-and-platinum ring, the daughter’s basis is not the ring’s value on the day it was received, but rather the mother’s basis — whether that was established by a purchase, gift or inheritance. Occasional sellers who turn to eBay to sell an expensive but no-longer-wanted item that has declined in value — say, a diamond bought a few years ago — cannot claim a loss if they do not recover what they paid, Mr. Block said. Only people who are in the business of buying and selling goods or those selling something used in a business can claim losses when they sell items for less than they paid. If you have to pay income tax on an item sold at an online auction, Mr. Block noted, there is a silver lining: the current tax rates on capital gains — no more than 15 percent — are at historic lows. More Articles in Business »
Posted on: Fri, 20 Sep 2013 10:58:51 +0000
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