Change in reported tax liability for US sellers

The Lounge General Discussion
#27

LLCs can be expensive, and usually require a lawyer ($$) to properly execute any sort of restructuring. They are primarily a tool for isolating liability, which shouldn’t be an issue for a private studio. The IRS has strict guidelines for “hobby” businesses, and wrapping your hobby in an entity probably won’t fool the IRS.

The good news is that if I understand the IRS publications correctly, we can deduct any spend on new gear from the income from selling old gear. So if you sold a $120k CS 80, don’t have receipts for the $250k you paid for it in the '80s, but plan on buying a quartet of Colossusses then I don’t think you will owe any federal tax if it all happens within the same calendar year.

If you are a professional musician/studio, then you can deduct like any other business, but you have probably already been doing that.

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#28

To take the edge off the anger (or at least re-direct it), it’s the transaction that’s taxed, not the goods. You don’t pay taxes on something you’ve already paid taxes on because it’s a different transaction even if the goods are the same.

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#29

LLCs in the US are about 50$. I have 7 of them.
LLCs just protect your personal assets from the company assets as al income flows through your personal taxes.
It also not against the law for a business not to be successful. The govt kinda expect new businesses to lose money for ~5 years

so yeah… you should have an LLC for all the music equipment you buy wether or not you ever plan on making a dime.

edit: and the 1st thing you get to write off is that 50$

#30

LLCs are issued by states, not the Federal government. In California, the annual fee is $800. In Massachussets, $500. All I’m saying is that people should do some local research, because the conventional wisdom in location X may not apply in location Y.

#31

yep, it does vary by state. and 800$ is a small price to pay to save yourself thousands in taxes.
(and you still write off that 800$)

(also i can’t find that 800$ figure you’re talking about…but nothing surprises me about california anymore…i do see 75$ to file)

edit: there really should be a “best business practices for your studio” thread

#32

if you’re in the states, be careful doing this. you must claim sales over $600 now. and if you make a profit on it, you’ll owe taxes, as it’s considered income. how heavily taxed you’ll be, I don’t know (new for tax year 2022). but it’s something worth being aware of.

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Affordable gear rotation
Affordable gear rotation
#33

I received the link to my Reverb tax form this morning and I was bummed out.

I haven’t even opened it yet.

:dizzy_face:‍:dizzy::see_no_evil:

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#34

To be clear – It’s the rules about reporting by Reverb that has changed. This sort of tax liability for income is the same as before.

ADDED : Detail from Reverb.

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#35

I should clarify that I’m talking about Paypal, Venmo, CashApp, etc. sales. those have changed drastically. used to be you have to do over 100 goods and services sales worth over $20k. now it’s just $600 and you’re getting a 1099-K.

and yes, this applies to Reverb as well. and you’re right it’s just the reporting requirement that’s changed. but that’s quite a threshold difference. for example, I sold well over $10k worth of gear in 2020, but didn’t have to claim anything. likely didn’t make anything on it either, to be fair… but now I’ll have to claim all of it and defend it.

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#36

Correct. But that is a fairly big change.

Edit: and the threshold, as @chiasticon points out.

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#37

That sucks that it has to be claimed.What about Craigslist?

#38

friends and family/direct transfers are exempt. so if you meet up with someone and pay them that way, no worries on claiming.

I’m OK with paying the taxes if I actually do make money on a sale (though it’s certainly arguable there’s much bigger fish to fry there than me…). I just hate having to track all of it. and it can get complicated quickly. like selling a modular system where some modules were bought outright, and some modules were traded for, over a several-year period. now you have to prove that you did or did not make money on that sale. good luck.

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#39

This may mean the end of my reverb shop. That’s probably for the best anyway. One side effect though, may mean that prices on the secondary may go down. If you’re selling at a loss, then it’s not income, so you won’t owe any taxes on the transaction. If nothing else, I will silently relish the thought of these reverb scalpers getting hit with a big tax bill after selling whatever “scarce” piece of gear they have for egregious prices.

I wonder what would happen if you couldn’t prove how much you paid for an item – do you then owe tax on the sale price? Seems like the IRS should have better things to do… :man_shrugging:t2:

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#40

What a shame, it will undoubtedly affect peoples decision to buy and sell stuff, so will have a negative effect on small businesses and private sales, dumb greed by governments yet again.

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#41

Cash should be re-throned.

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#42

Then the government subsidizes your operations AND you can keep ungodly amounts of cash around to buy potential competitors!

Even the bucket shoppy exchanges also report to the IRS to avoid getting rekt, and I don’t think most naïve speculators understand how taxes are managed for securities transactions.

I can’t wait for every NFT wash trader to pay full taxes on the first sales of their ugly-ass procedurally generated jpegs

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#43

Yeah i don’t understand. How can they know where, when, and for what dollar amount you got the gear you’re selling, and thus how much you’re netting on a sale? I’ve been collecting gear since I was 10., so do they need receipts from 20 years ago? Seems like what someone else mentioned, you’ve got to sell a lot and have a strong paper trail of your inventory, for it to be worth their while to go after you on this

#44

where did you find this link/form.
ive done well over the threshold on both reverb and ebay (which means paypal as well) have have not received anything

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#45

Check your spam or get in touch with Reverb. I got a link to fill out part of the form ages ago.

I think part of the reason I got one was because my state had revised the threshold? Can’t recall.

#46

no emails or anything, but after extinsive digging there a little link on my billing page, which I never would have seen if i didnt go hunting for it. ty for the heads up that you actually got something.

doesnt really matter to me as i report it all anyway as it reduces my tax burden

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