[dirwood]

So I was thinking about this today and trying to find an answer but my search skills must be lacking.


With the new law in place for paypal, venmo, zelle etc of the $600 + to be recorded as earned income. For someone like me(non business), if I bought something expensive several years ago, new, and sell it for more than 600, isn't that being taxed twice on the same object? If I pay tax when I buy it, why should it be considered earned income when I sell it? Or say, you sell your camera gear after several years of collecting..Increasing your earned income will affect any return, if any, or place you in another tax bracket if your already close. Or am I looking at it all wrong?


Camera gear is expensive and people change gear quite a bit. I assume this may effect people here so I figured it would be a decent place to ask.

[wadge22]

You will be able to subtract the cost basis (what you paid for the item), as well as expenses (packaging, postage, home office expenses, etc) from the amount you received when selling any item/s. Paypal does not know this info, so it's not on the 1099 they send you. It will be up to you to maintain records.
It has always been thus, it's only parts of the reporting requirements that have changed.

That is my understanding. IANAL. OAA (or an accountant).

I always make sure and lose lots of money on everything I do, so this won't change anything for me...

[dirwood]

Well that will be a pain... I hate keeping receipts for more than several years.

[bertwert]

or place you in another tax bracket if your already close.

I'm not sure on the intricacies of the US tax system, or the over $600 in private sales as income bit, but I do know a lot of people misunderstand tax brackets. Earning a bit more and putting you into the next tax bracket will never give you less money at the end of the day - now I'm not saying you're thinking this, but the amount of people out there who don't know is astonishing.

Say there's a system where the tax rate is 10% up to $10,000; 15% up to $20,000; and 20% over that.

Now let's say there is an annual income of $30,000 - now some look and say, okay that's in the 20% tax bracket, so 20% tax will be taken off - giving a net income of $24,000 (80% x $30,000). This is not the case.

What happens is the first $10,000 is charged at the 10% rate, the next $10,000 is charged at the 15% rate, and the final $10,000 at the 20% rate. Giving a net income of $25,500 (90% x $10,000 + 85% x $10,000 + 80% x $10,000).

Anyways, in short, if you end up having to pay tax on income from a private sale, and this brings your total income into the next tax bracket, it can suck to pay tax on this extra income but you're not paying more tax on the rest of your income due to the next tax bracket. This is probably the most misunderstood fundamental concept about taxes in Canada and the United States.

[StiffLegged]

I’d say a much more misunderstood concept relates to profits. A person or a company might make $10,000 in a year but have not a single cent extra in cash to hand. Profit is not cash, as a lecturer years ago banged on at us. But I digress.

[dirwood]

What happens is the first $10,000 is charged at the 10% rate, the next $10,000 is charged at the 15% rate, and the final $10,000 at the 20% rate. Giving a net income of $25,500 (90% x $10,000 + 85% x $10,000 + 80% x $10,000).

This makes sense. Its not my first time seeing this type of system used.

I will have to look a bit further into what the law says but what all the news stations seem to be putting out there is that once you sold more than 600 in a given year (via paypal, venmo etc), everything gets reported to the IRS and those companies are required to send out the 1099 forms. Maybe I am looking to far into it but I just don't like the way it was being explained on the news.

[Tom S.]

Just split payments. For example, if I'm buying your $1200 lens, I could make 3 payments of $400, or one $300, one $400 and one $500. More devious? One via Paypal, one via Zelle and one via venmo. And don't forget money orders or even personal checks for trusted persons! Of course there's also Bitcoin.

Cats can be skinned in various manners!

[wadge22]

Just split payments. For example, if I'm buying your $1200 lens, I could make 3 payments of $400, or one $300, one $400 and one $500. More devious? One via Paypal, one via Zelle and one via venmo. And don't forget money orders or even personal checks for trusted persons! Of course there's also Bitcoin.Cats can be skinned in various manners!

The $600 reporting requirement is for the whole tax year. So using the same service with multiple transactions will get you nowhere. And using all the services you can think of won't get you very much further.

Just a total non-sequitur: tax evasion isn't any more ethical than mutilating dead cats.

[dirwood]

But if you pay taxes on an item you bought new, you shouldn't have to pay taxes on that same item again for selling it if your not a business of any sort.

[wadge22]

As I tried to describe up-thread, you only pay taxes on profits, which is revenue from sales minus your costs and expenses. You never pay taxes on the value you already paid the tax on.

If you're not a business of any sort, you very likely aren't making yearly profits reselling your junk. Conversely, if you are making a profit reselling your fine wares, that is a side hustle, aka you have a business of a sort. You should be proud that you have a profitable small business, no small feat.

Of course, some people (perhaps especially business-people) bristle at paying taxes of any kind, ever. But I'm not here to debate with people over how a society works.

File your taxes as you and your tax professional or accountant see fit. Nothing has changed except for the threshold for payment service networks reporting (on what has always been due).
And again, I'm not a lawyer, accountant, or tax professional.

[dirwood]

So if you didn't have proof of original purchase, then the amount you sell for could be considered all profit. I guess that's how I'm seeing it. It most likely won't affect me in any way now but if anything happens and I decide to sell all my camera gear, that could add up over the course of a year.

[wadge22]

I believe a reasonably accurate estimate will suffice. It will be entered on schedule C, likely all on one line, totaled with everything for the whole year. You will only be showing your work and/or proof in the event of an audit. I believe.
Additionally, you should only need actual receipts if you paid cash. Anything with a card or through Paypal/etc. creates it's own record you can access by logging into your account, and likely you can request a paper copy if need be.

But now I'm really going to shout that I'm not giving anyone any advice, and that I'm not qualified to.

I'm just trying to clear up that it is something we all should technically have been doing all along (and I've seen this gripe on other (less friendly) forums online, so I apologize if I'm taking it too seriously or getting sarcastic or curt, I know that I shouldn't).
And it's not extremely onerous, although filling out tax forms is always a pain. Especially the first year or two you have to learn a new thing.
Most people use tax software, which should provide resources to help walk you through this. I have no doubt there will be a thousand plus articles, Q+As, FAQs, blog posts, and probably more than a few scams, all designed to help (or "help") people with this issue. Because it's going to be new for a lot of people. And it's not going to take effect until 2022 tax year, aka filing in April 2023.

[dirwood]

Thanks for the feedback wadge. I know things can be less friendly on other forums, which is why I asked the question on this forum plus, quite a few things get sold here so I figured it was a good spot to ask.