PSA: Keep detailed records of your knife transactions

Comeuppance

Fixed Blade EDC Emisssary
Joined
Jan 12, 2013
Messages
4,765
Popping back on here after being gone for a while. School and WoW ate all of my brain cells and free time for a while.

I'm here to share a recent event that happened to me: I received a notice in the mail from the IRS (which is always fun times) stating proposed corrections to my 2016 tax return.

The proposed changes: That I had under-reported my 2016 taxes by $50,156, as PayPal told them I had earned in 2016 through their mandatory 1099-K form. The IRS requested that I either refute the proposed changes (with backing documentation) or send them a little over $20,000 in interest, fees, and income tax.

This was no error on their part. In 2016, I was very active on eBay and the forum exchanges, buying and selling knives almost every day. I functionally had a rotating knife collection where I would buy knives, handle / inspect / admire them, discuss them on forums, and then sell them within a week or so unless I felt a really strong connection (like my Cold Steel Master Tanto in 3V that I will take to my grave). I generally waited until I found the knife I wanted at a very good price, and would sell just enough above what I paid that I wouldn't lose money after shipping and fees.

Luckily, PayPal has downloadable records for date ranges you can specify, and I sorted through the 2000+ transactions (I also used my PayPal card for day-to-day living expenses and minor interpersonal transactions) and narrowed it down to the relevant ones. It was a lengthy process.

After deducting all the original purchasing costs, shipping fees, and eBay fees, my net profit for 2016 - after 389 transactions and involving over $50k in knives - was... wait for it...

$110.12

This means my average profit for a transaction was about 28 cents.

(As an aside, it was very gratifying to learn that I had handled $50k+ in 2016 given that my maximum budget for how much I would allow myself to have tied up in knives was about $700.)

Long story short: If you buy, sell, and trade actively, do yourself a favor and keep detailed records - or you might end up in a very stressful and potentially costly situation. I was lucky in that it was all through PayPal and I was able to identify all the relevant transactions by deleting the obviously irrelevant ones, a helpful person on the IRS help line told me what form I needed to fill out (1040-C), and my brother has some accounting experience and helped me navigate excel and devise ways to organize/filter the data.
 

halden.doerge

I'll Sharpen Your Knife
Gold Member
Joined
Aug 17, 2014
Messages
4,739
Popping back on here after being gone for a while. School and WoW ate all of my brain cells and free time for a while.

I'm here to share a recent event that happened to me: I received a notice in the mail from the IRS (which is always fun times) stating proposed corrections to my 2016 tax return.

The proposed changes: That I had under-reported my 2016 taxes by $50,156, as PayPal told them I had earned in 2016 through their mandatory 1099-K form. The IRS requested that I either refute the proposed changes (with backing documentation) or send them a little over $20,000 in interest, fees, and income tax.

This was no error on their part. In 2016, I was very active on eBay and the forum exchanges, buying and selling knives almost every day. I functionally had a rotating knife collection where I would buy knives, handle / inspect / admire them, discuss them on forums, and then sell them within a week or so unless I felt a really strong connection (like my Cold Steel Master Tanto in 3V that I will take to my grave). I generally waited until I found the knife I wanted at a very good price, and would sell just enough above what I paid that I wouldn't lose money after shipping and fees.

Luckily, PayPal has downloadable records for date ranges you can specify, and I sorted through the 2000+ transactions (I also used my PayPal card for day-to-day living expenses and minor interpersonal transactions) and narrowed it down to the relevant ones. It was a lengthy process.

After deducting all the original purchasing costs, shipping fees, and eBay fees, my net profit for 2016 - after 389 transactions and involving over $50k in knives - was... wait for it...

$110.12

This means my average profit for a transaction was about 28 cents.

(As an aside, it was very gratifying to learn that I had handled $50k+ in 2016 given that my maximum budget for how much I would allow myself to have tied up in knives was about $700.)

Long story short: If you buy, sell, and trade actively, do yourself a favor and keep detailed records - or you might end up in a very stressful and potentially costly situation. I was lucky in that it was all through PayPal and I was able to identify all the relevant transactions by deleting the obviously irrelevant ones, a helpful person on the IRS help line told me what form I needed to fill out (1040-C), and my brother has some accounting experience and helped me navigate excel and devise ways to organize/filter the data.

Wow, that's a heck of a story! Very cool info, which I'll gladly keep in mind. There's no way I'm running a profit though, lol. Good job there.
 

Deinos

Gold Member
Joined
Feb 7, 2016
Messages
1,601
Yeah, these days I document damn near everything. You never know... and keeping a record is easier than ever now if you are diligent. Thanks for the reminder and glad they didn't skin you for the full amount!
 
Joined
Dec 15, 2016
Messages
3,310
Wow. Not just that you ended up with just 110$ but that you turned over 50k in knives. That's either insane or very dedicated or maybe a little of both. I don't get the turnover, it would seem cheaper to just move close to a knife shop and fondle them in person rather than constantly buying and selling :D.
 

BilboBaggins

Gold Member
Joined
Feb 14, 2016
Messages
1,661
Good god you moved some steel around. I'd have to sell way more than I do. Things come in, but they find it much harder to leave.
 

Comeuppance

Fixed Blade EDC Emisssary
Joined
Jan 12, 2013
Messages
4,765
Wow. Not just that you ended up with just 110$ but that you turned over 50k in knives. That's either insane or very dedicated or maybe a little of both. I don't get the turnover, it would seem cheaper to just move close to a knife shop and fondle them in person rather than constantly buying and selling :D.

To be honest, that was part of the fun for me. I had packages showing up almost every day, I treated preventing loss as a sort of game, and I got to handle and see a lot of cool stuff and had some good conversations as a result of it. I'd do it again given the chance... But I'd keep better records this time.

In the end, it didn't really cost me anything - and it prevented me from being that guy that shows up at the knife shop every day, asks to handle a bunch of knives, and never buys anything.
 
Joined
Dec 15, 2016
Messages
3,310
To be honest, that was part of the fun for me. I had packages showing up almost every day, I treated preventing loss as a sort of game, and I got to handle and see a lot of cool stuff and had some good conversations as a result of it. I'd do it again given the chance... But I'd keep better records this time.

In the end, it didn't really cost me anything - and it prevented me from being that guy that shows up at the knife shop every day, asks to handle a bunch of knives, and never buys anything.

Well it did cost time and gas I imagine. If you're into the whole selling and buying procedure it's all good, I just know it's not for me. Sure, getting packages daily is neat, but packing things up again, dropping them off at the post station, keeping records, checking if the money arrived and the packages got to their destination, email correspondence. Nah. But I am glad it worked out for you. :):thumbsup:
 

jlauffer

Tempt not the Blade
Platinum Member
Joined
Apr 11, 2016
Messages
9,693
Had a similar issue last year. Got a 1099K from PayPal for $3k and had no idea what was going on. Research revealed that the federal thresholds for this sort of thing are $20k and 200 transactions. Well MA and VT (other states likely to follow) decided near the end of 2017 to go with their own limits and lowered it to $600 and any number of transactions, and made it retroactive for the whole year. So had to fill out tax forms as if I owned a business. Luckily was able to get the taxable amount down to about $600 after expenses, etc. If I had all the records I'm sure I could have done better. Have pretty much stopped buying and selling knives as a result, which sucks since it was a hobby I enjoyed. But with PP fees, ebay fees, and now taxes, just not worth it anymore.
 
Joined
Mar 10, 2010
Messages
588
Last year PayPal started issuing 1099-k's for all incoming money totalling over $600 for the year in my state.

Worked through it with the accountant to show the tranactions resulted in a net loss. Buy an item for $100, sell that same item for $80. Shipping costs are also a consideration, if need be.

Best part is that if you can't prove the net loss, it's taxed as income. If you can prove a loss, you can't claim it.
 

Wharn

Gold Member
Joined
Feb 1, 2011
Messages
2,733
Thanks for the warning. I sell every so often but generally end up breaking even or at loss.
 
Joined
Sep 11, 2014
Messages
2,731
With the knowledge that the IRS and some States are now taxing individuals based on Paypal reports, and that the taxable portion is what you profited over your original purchase cost, what can one do about knives they bought decades ago and there are no records of anything.
I have a couple of knives I bought in the early 1980s and if I sold them using Paypal I'd never be able to prove what I paid for them.
 
Joined
Sep 4, 2016
Messages
215
Now that you're a schedule C filer you simply fill in the spaces. Now trips to knife shows are deductible. You may even have a loss. Consult a tax person
 

jlauffer

Tempt not the Blade
Platinum Member
Joined
Apr 11, 2016
Messages
9,693
With the knowledge that the IRS and some States are now taxing individuals based on Paypal reports, and that the taxable portion is what you profited over your original purchase cost, what can one do about knives they bought decades ago and there are no records of anything.
I have a couple of knives I bought in the early 1980s and if I sold them using Paypal I'd never be able to prove what I paid for them.

That's why I could only get my taxable amount down to ~$600...simply didn't have records for what I paid for some of the older knives i sold. Now I keep better records.
 
Joined
Jan 31, 2018
Messages
2,347
Eagle scout, how is that possible? Normal businesses write off losses all the time, why does that apply?
 
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