State of MA has ruined my hobby

jlauffer

jlauffer

Tempt not the Blade
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Apr 11, 2016
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Since most of my collection is Cold Steel, figured I would post this here. I enjoy buying and selling knives, mostly via eBay, using PayPal. I look for knives I think I can "flip" to make a little profit so that when I find something I want to keep, it softens the hit to the wallet. Have been doing this for years, and the profits (when successful), are no big deal. But it's fun.

Well thanks to MA, that is pretty much over. I received a 1099K this year from PayPal, and had no idea what it was about. Google to the rescue. Apparently the Fed requires a 1099K to be sent when there is over $20k and 200 transactions. Well my 1099K showed only $3k and 43 transactions. So what's the deal? Further research revealed that at the end of 2017, MA (and VT) decided to set their own dollar threshold at $600, with no threshold for transactions, and make it retroactive for all of 2017. Nice! They apparently estimated that they were missing out on $20 million annually in tax revenue using the Fed thresholds.

So basically I had to do my taxes as if I had a small business, and fill out the forms showing the income (from the 1099K) and expenses (original cost of item, eBay and PayPal fees, shipping, etc) so that I only got taxed on the net profit, which was pretty minimal. Would have been even less but I didn't have records for some of the older stuff.

So anyway, between the eBay fees, PayPal fees, and now getting taxed by MA, it's just not worth it anymore. I'm just under $600 already for 2018, so won't be selling anything for the rest of the year. What a bummer....
 
That is interesting. Do they tax you on the gains only or the total revenue?

Reason I ask is, in a scenario where you buy a knife, let's say you pay $100, and then sell it on ebay for $120, then spend $3 on paypal fees, $7 on shipping, $5 on ebay fees, you are "making" $5, but it sounds like in your state you'll be taxed on the entire sale as income. Now I imagine you were taxed as income when you earned the original $100, so it's a double taxation.

Plus, I imagine your state is like Illinois, where you are taxed on internet purchases, which you are legally obligated to disclose on your annual tax form. This means if the buyer is in your state, the state is double dipping both sides of the transaction.

Like the old adage, if you want to make a small fortune selling knives, start with a large fortune and work at it.

best

mqqn
 
mqqn said:
That is interesting. Do they tax you on the gains only or the total revenue?
mqqn
Click to expand...

They only tax the profit, but since the 1099K only shows gross revenue, you have to fill out the appropriate tax forms and list the original cost of goods and expenses (fees, shipping, etc) to figure out the net gain (or loss). In my case, I kind of lucked out because I had all the shipping receipts for 2017, so I had the shipping expenses, and if the item was insured (which most were), they also listed the value, so I knew what I sold it for. And I could get the PayPal fees from PayPal. eBay is weird...they only go back 60 days for sold items (so I could only get some of the eBay fees), but purchases goes back a year. So I had the original cost for many items, but some were from years ago. I created a big spreadsheet to track it all, in case MA/IRS comes knocking. So the 1099K had approx. $3k gross revenue, and with all the costs and fees that I could prove, I got the profit down to under $600. If I had all the info, I know it would have been much less.

Another thing is that sometimes I will find a better example of a knife I already have, so want to buy it and sell mine, regardless of profit or loss. This all puts a damper on that too. But at least now that I know about this whole thing, I will keep better records moving forward, and now that I've been through it once already, I know how to do the tax forms.

What really sucks is that if I ever wanted to liquidate my collection all at once for some reason (money for son's college most likely :) ) I would get totally screwed.

Also, the various articles I read while researching this suggested that while MA and VT are the first to do this, other states would most likely follow suit eventually.
 
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"Also, the various articles I read while researching this suggested that while MA and VT are the first to do this, other states would most likely follow suit eventually."
You can bet on it!
You will have to sell and buy more knives from here. I was planning on dialing down my ebaying(kinda doing the same as you) anyway but thanks for the heads up, guess I will speed that up.
 
nephron said:
You will have to sell and buy more knives from here.
Click to expand...

That won't really help, as it is currently a PayPal issue, not an eBay issue, but it wouldn't surprise me if it becomes an eBay issue as well at some point.
 
Yeah that really sucks big time. So they let Wells Fargo and all the other thieves get away with highway robbery in the hundreds of billions of dollars, but they have to screw the little guy with a few hundred dollars profit in an ebay transaction. Way to go Massachusetts! Maybe it's time to look into those off the grid currencies like bitcoin?
 
I hate these cash grabs so that politicians can fund their pet projects and use it for political capital. I actually purchase things out of state and usually pay more then what I would pay in state, including taxes just out of spite. Plus I’m working on moving.
 
I was born here and I will die here, nobody but nobody is going to make me leave. Awesome weather, awesome house, 45 minutes to beach/mountains/desert and I can drive my Mustang GT year around. I can work around the rest quite nicely.
 
I think this was done in 2 states to try and get taxes out of Uber and Lyft drivers. Ebay itself has always done the $20k or 200 transaction thing. Hit either of those marks and yoyr "hobby" has just become a business and the income from it taxed
 
I just brushed up a bit about this crap. According to J.K. Lasser's Your Income Tax, sales of property held for personal use (such as knives) are subject to capital gains tax and not income tax. See www.irs.gov for Form 1040 Schedule D and Form 8949. Unless you are in the business of selling knives (or unless you want to file as a business), it's not income. This is for the federal side of things. For the state side, you'd have to review your state's tax laws. Having tax software that covers both federal and your state should help.

If you choose to treat what you're doing as a business, it's going to be pretty easy to generate a huge loss. Everything that has anything to do with your knife acquisitions can be deducted. Paper (for printing out receipts, keeping records), internet access, phone lines. Keep in mind that the IRS takes a dim view of a business generating losses when they could be construed as a hobby. I think the rule is maximum five years of consecutive losses. But hey, it's worth a shot to take a look at it. Trump hasn't paid any federal income tax in 20 years with this kind of bs.
 
nephron said:
I was born here and I will die here, nobody but nobody is going to make me leave. Awesome weather, awesome house, 45 minutes to beach/mountains/desert and I can drive my Mustang GT year around. I can work around the rest quite nicely.
Click to expand...
mass has a desert? learn something new everyday.....go figure. good luck to y'all up there.
 
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