US Sellers - IRS Issued "Understanding Your Form 1099-K" Yesterday

"If I buy a collection of stamps from auction house for 1000$.
And I find 10 stamps out of thousand in this lot and resell these 10 stamps for 1000$, what is my cost basis? I owe no tax?"

No, you can't claim the entire cost for the lot as the cost basis for part of the lot and zero cost for the rest of it.

I assume it's the same or similar in the US (but always consult a tax person Etc etc) but a business in Canada uses a Cost of Goods Sold (COGS) calculation. Without considering any other expenses, the deductible amount is whatever the "value" of just the items actually sold in that tax year amount to. A simplified example:

I buy 10 stamps for $100. Perhaps these 10 stamps are roughly equal in value so each stamp has a Cost of Good (value) of $10. If I sell 4 of them in the year, I can deduct $40. So if I sold those for stamps for $80, the math is $80-40 = $40 profit, which you pay tax on. My ending inventory is $100-40 = $60 which is carried over to the next year.

Perhaps one stamp is a gem and 9 are not and I valuate them such that one stamp has a value of $91 and the others are $1 each (still the $100 total for all 10 stamps). If I sell the 9 junky stamps for $20, the math is $20-9 = $11 profit which I pay tax on. My ending inventory is $91 since that stamp is unsold. I can only deduct it once it is sold (perhaps next year).

The stamp business is a bit tricky with the valuation of inventory. It is subjective and somewhat arbitrary but it *should* be done such that if you were audited and the person had some knowledge of stamps (or maybe they hire someone who does know philatelics to assist), that they would come in and see what you have on hand, what you purchased, and what you sold, and at least see and understand why you valuated things the way you did. If you wanted to have a bigger tax deduction this year and said your Cost Of Goods Sold for 9 giant wallpaper Sharjah stamps was $90 but the USA #1 cover you got in the same lot was only $10 (because maybe you plan to keep it and never sell it!), this may raise eyebrows. Anyone with stamp knowledge is probably going to tell you that your COGS for the Sharjah stamps is maybe $1 at best so you pay more tax).

It may sound complicated at first but after awhile, if you keep a good record of purchases, sales, and general valuations and label things well, it isn't too bad.

Again, this is a subjective Canada-based explanation. The disclaimer is always to seek professional advice. But hopefully this gives some helpful info. One advantage to being a "business" is being able to deduct other expenses. But there can be caveats depending where you live. Things like tax collection and remittance, zoning bylaws, home business stuff, and the time to do bookkeeping, etc etc etc.

Sadly but not surprisingly, Uncle Sam and his entire family aren't interested if putting their hands in your stamp books is costly or in inconvenient!

Thanks for explanation
Hard to believe the mathematics involved just to sell a stamp collection
Never sold a stamp
But perhaps in my very old age I will. If I mess up the tax thing, I can spend the last 5 years in federal prison… probably better food and care than a nursing home and prison is free!

Given that the cost to house a federal prisoner is in excess of $50,000/year. It is a losing proposition. That is why they love tax liens. Much more painful and cheap. They can also pull your passport and do other dastardly things. It will be interesting to see how they proceed. I fully expect them to make some very public examples of a few folks to send a message. Heck, they have 87,000 new agents.

101 - same in US

I realize this is not a tax forum, but a lot of people probably receive multiple types of payments via Paypal, from online sales, surveys, rebates, etc.. Will the 1099-k itemize these? Do you have to pay Social Security and Medicare taxes on 1099-k deposits?

Since Senator Dirksen died September 7, 1969, he was talking about billion when a billion still had some value. Today you'd need $8.12 billion to equal a 1969 billion.

For most casual sellers, like me - just count as income and be done with it. For heavy rollers they should have been thinking about this a long time ago, and not waited until the forms are about to arrive - just pointing out the obvious...

It doesn't matter if I personally agree with the tax, or not.



John

Torin - Taxpayers will receive one 1099-K from each service through which the taxpayer received more than $600 in income. So if you received $650 in transfers to you via PayPal, and $700 inbound via Venmo, you will receive a 1099-K from each and those services will report the same to the IRS. Form 1099-K is a report from those services of income you received from others, not "deposits" you made. Social Security and Medicare taxes don't apply as the income is considered miscellaneous income and not wages.

Has this been reported here in a different thread?

IRS Halts Controversial New Rule Requiring Reporting of $600 Payments

https://www.theepochtimes.com/irs-h...4942931.html