Dear Tax Guy: ‘I’ve accumulated a lot of trash.’ I plan to make $6,000 from selling on eBay. Can I put it in an IRA instead of paying income taxes?

Is it possible to use an income figure above 1099, say $6,000, and contribute this to an IRA instead of claiming a small interest and paying taxes? Of course, I would make $6,000 to deposit in an IRA and be tax-deferred.

Determined to relieve

Dear determination,

All you want to do is clean your house and make a tax-saving move with your cash.

All I want to do is give you a clear answer. But I can not.

Your question is a hot topic and an open question about the tax forms and obligations that small businesses and many ordinary people are likely to face during the approaching tax season.

In its pile of documents, the Internal Revenue Service has a Form 1099-K. This is a form that the payment platform creates when the payee earns a certain amount. (In this case, you’re the recipient after you get paid for the things you’ve sold. Meanwhile, eBay is the platform that sends the form to you and the IRS.)

Under the old rule, third-party payment platforms will generate 1099-K once the combined payouts exceed $20,000 and There were more than 200 transactions.

In the U.S. Rescue Plan 2021 — the same sweeping bill that would authorize a third round of stimulus checks and temporarily boost child tax credit payments — lawmakers included reporting thresholds much earlier.

Starting this year, it only takes $600 in payments before these third-party platforms need to deposit a 1099-K. That can happen with just one transaction. Assuming these reporting rules remain in place, you’ll likely receive a 1099-K, with your estimated $6,000 in revenue.

Alliance of online businesses and marketplaces — including eBay, PayPal
PYPL,
-4.93%

and Etsy
ETSY,
+0.79%

– want Congress pass the law before the end of the year push the 1099-K reporting threshold higher.

Among its complaints, the union said the low threshold would cause too much confusion for people who may not be obligated to pay taxes. If you sell personal property at a loss—such as pocketing $100 on eBay to buy the bike you originally bought for $200—tax code capital loss provisions do not apply.

So stay tuned to Capitol Hill to see what happens next in a Busy lame duck session.

“EBay has worked hard on behalf of its sellers to change the new 1099-K reporting threshold from an unreasonably low $600,” an eBay spokesperson told me. “While we expect Congress to act on this important issue, we are also helping our sellers prepare for any outcome,” the spokesperson said. online sources of information The company has grown based on what sellers should know about 1099-Ks.

Forget politics, let’s talk about taxes

Regardless of the amount that will trigger the tax form, if you make a profit from the sale of personal property, you have a capital gain that the IRS will want to tax. Profit is the difference between the amount you paid for the property (“cost basis”) and the amount you sold it.

The IRS says: “If you sell an item that you own for personal use, such as a car, refrigerator, furniture, stereo, jewelry or silverware, etc., then the interest you earn will be taxed as capital gains.” a series of FAQs on the refurbished 1099-K. “If you experience a loss when you sell an item that you own for personal use, do not report the loss (non-deductible loss),” the agency notes.

You can make money selling your stuff and I hope you do. A person’s “garbage” is someone else’s treasure. But the money you receive is not necessarily capital gains for tax purposes.

First, you’ll need to know how much you paid initially to determine the cost basis for the capital gain. If you have receipts on a pile of junk, I welcome your tough record keeping. Remember, selling stocks, bonds, and other investments at a loss will trigger the tax code’s capital loss provisions, but selling personal property does not allow for a loss.

“Personal losses are not usually a reported tax event, but this 1099-K threshold makes that impossible,” said Ryan Ellis, a registered agent. Ellis is also the president of the conservative nonprofit, the Center for the Liberal Economy. He wants to go back to the pre-existing threshold to avoid the “mess” that he says is the highlight of your script.

Ellis said he worries that if taxpayers fail to report such online sales on their income taxes, they will receive an IRS letter asking for an explanation.

The IRS itself says it will match 1099-K data with tax returns. Data 1099-K “will be used to systematically computer-match tax returns to determine potential unreported income,” IRS said.

For his clients, Ellis said he can put the 1099-K amount in a total line over 1040 for unspecified income and also in a total line for deductions. “Then to be honest, I’m hoping for the best,” he said.

You ask, “How do I declare Form 1099-K on my tax return?” The IRS writes, “The information on your Form 1099-K may be used to calculate your gross or revenue. You should follow the return instructions on the form you’re completing to report your total sales or sales.

Is juice worth squeezing?

Remember my apologies for not being able to give a clear, simple answer? It’s about to get more complicated.

You are thinking of putting the proceeds into an IRA. Here’s the catch: You contribute to an IRA with earned income such as “wages, salaries, commissions, tips, bonuses, or net self-employment income,” as the IRS Note.

To generate earned income for an IRA, Ed Ryan, a registered agent and founder of Ryan Financial in Rutherford, NJ, says, “You have to say you’re in the business of selling secondhand.”

But if you’re self-employed, you’ll also have to pay self-employment tax, Ryan noted. For a retiree looking to save money, Ryan says that might not be the best route. “Juice is not worth squeezing,” he said.

If you want stock market exposure and tax advantages, put your eBay proceeds into a brokerage account.

If the market recover in 2023, you can sell and lock in profits after a year. That gives you long-term capital gains. (That’s 15% for most households. It’s 0% for single filers up to $41,675 and up to $83,350 for couples filing jointly.his year).

If Bear market stays for 2023, you have capital loss provisions that can eventually be used again. You can offset capital gains other than these losses. If the loss exceeds the gain, the IRS will allow you to deduct up to $3,000 from your earnings and roll over the remaining loss.

If these tax questions feel new to you, remember that you are not alone. As Ryan said, “How many customers are selling something on eBay? I will find out this tax season.”

Have a tax question? Write to me at: [email protected]

Thanks for reading. I want to help you think more broadly about the issues that affect your taxes. I’m not giving tax advice, just an attempt to see what the spiral of tax regulations and economic conditions can mean for your pocket.

I’m here because readers are facing their taxes with doom. You don’t care about taxes, I get it. I used to be that guy. Beneath the jargon, think of your taxes like a maze – money in the end. Or a trap that you need to avoid.