May 7, 2010
When You Realize You Really Goofed
When You Realize You Really Goofed Cliff Ennico www.creators.com "I am so confused and sick in the stomach about selling on eBay and the IRS. I have so many things around my home that I have been saving and collecting for many years now. My daughter is 22 and I have saved so much of her stuff from her childhood also. Not to mention I have always over the years loved shopping at yard sales and thrift stores which in return has caused my home to be very cluttered with closets running over. I have made myself stop buying from these places because I end up buying things I do not need. I also became addicted to eBay a few years back, and for about three years got caught up in buying way too many things. Mostly dolls, teddy bears, and old toys - mementoes of my childhood. I have them all over the house. Some of them I have donated to thrift stores and some I have been selling on eBay. Much of the stuff I list on eBay does not even sell and when I pay eBay's fees I suffer a loss, but some things I have gained on. I do not count on this for my income and never considered it a business. The thought of having to go back over the past few years and amend our tax returns because I may have made a profit selling something on eBay or in my local 'pennysaver' makes me feel ill with stress. I am afraid it is going to cause me to get sick with worry and enable me from functioning properly. I take medication for problems of excessive worrying, depression and anxiety and this is the kind of situation that can trigger me to get sick again and it scares me real bad. Thanks so much for any help." A lot of longtime eBay sellers are waking up and finding out they should have been paying taxes on their selling profits. Unfortunately, I can't give this reader the "get out of jail free" card he so badly wants. Since he obviously didn't keep good records of what he sold and what he paid for it (most eBay sellers don't), this reader has no idea whether he made or lost money at the end of each year. While the amount of any profit or loss was probably small, given that these were household items and not precious antiques, still . . . the law is the law is the law. If you have a hobby and you make as much as One Dollar in profit, the IRS wants you to report the profit as "hobby income" on Form 1040 and pay the taxes on it. If you fail to do so, and the IRS picks up on it during an audit, you're toast. For peace of mind, if nothing else, this reader should go back and attempt to figure out if he made a profit in any of the years he sold on eBay. If he can document that overall he lost money each year, then he's probably okay - the IRS does not require you to report "hobby losses" on your tax return (they actually prefer that you don't). If the records show that this reader made a profit in one or more prior years, he has a difficult choice, neither of which will be stress-free. If he amends his tax returns for the prior years in which he made a profit, he will have to pay interest and penalties on the overdue taxes, and he may be "waking a sleeping Rottweiler" in the form of an IRS audit to see if he's failed to report any OTHER income. If he decides not to amend those returns, he will have many sleepless nights hoping he won't get audited until the statute of limitations on each return expires (currently three years from the filing date, unless the IRS suspects fraud, in which case there is no statute of limitations). Is there anything this reader can do? Yes. He can't change the past, but he sure can change the future. He should get into compliance this year, by keeping good records for any eBay listings and sales he makes during the current tax year which began on January 1. If he shows a profit at the end of the year, he should pay the taxes due plus a little extra, say 5%. Why the extra 5%? In a word, "penance" for his past sins, and a little insurance in the event the IRS audits his past tax returns and discovers his goof. The IRS (and any other government agency, for that matter) is always going to go easier on someone who they see is working hard to get into compliance than they will someone who sticks his head in the sand and hopes the Bogeyman will go away. As an IRS agent once told me, "even a dog knows the difference between being kicked and being stumbled over." Happy April 15, everybody, and remember: this is one of the many reasons we have liquor. Cliff Ennico ( cennico@legalcareer.com is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. His latest books are 'Small Business Survival Guide' (Adams Media, $12.95) and 'The eBay Seller's Tax and Legal Answer Book' (AMACOM, $19.95). This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com . COPYRIGHT 2007 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com.

Posted by Staff at 1:50 AM