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Reseller Taxes - Helping a Friend, I'm Stumped On This One!

woweedaddy 2 10 April 18, 2016 at 02:09 PM
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I'll give you a scenario:

Lets say you buy a couple things on ebay and you accumulate Ebay bucks. You use those ebay bucks to purchase an item from ebay. That item in turn happens to be worth some money so you decide to sell it. Now under Paypal's 1099-K form they report all ebay earnings to the IRS (after selling a certain quantity and amount). Let's say that item is listed on that 1099-K form. You have to list your "Cost of Goods Sold". Would you list the ebay bucks that you used to purchase the item as your COGS? Lets say you accumulated $100 in ebay bucks, buy an item on ebay for $100 (using the ebay bucks) then sell that item for $110. If you don't report any COGS it would be like you profited $110 on the item.

Any accounting or tax pros here or resellers? What do you do in this scenario? My friend and I are a bit confused!

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#2
You have to report 100 dollars in expenses and 10 dollars in profit for taxation purposes. however, the ebay bucks you gained should not be from your accumulation of previous purchases ... If IRS questions, you will have to show them purchase copy of 100 Dollar ebay bucks. If they are accumulation from your spendings on ebay, they cannot be reported as expense and you will have to show full 110 dollars as profit.
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#3
The $100 is essentially a rebate. Just like CC's, "cash back" is a rebate and not taxable.
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#4
Quote from Dr. J View Post :
The $100 is essentially a rebate. Just like CC's, "cash back" is a rebate and not taxable.
For an individual yes, but if you're a business and you use a CC to buy inventory, then you must deduct any cash back from your cost of goods sold.
Same thing with Ebay Bucks.

Were the items you bought from Ebay for personal use or to resell? If you acquired the Ebay Bucks by purchasing personal use items, then you only have to claim a profit of $10 I believe.
If you bought items to resell and acquired Ebay Bucks through this, than you would claim a profit of $110.
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Quote from AnthonyP6674 View Post :
For an individual yes, but if you're a business and you use a CC to buy inventory, then you must deduct any cash back from your cost of goods sold.
Same thing with Ebay Bucks.

Were the items you bought from Ebay for personal use or to resell? If you acquired the Ebay Bucks by purchasing personal use items, then you only have to claim a profit of $10 I believe.
If you bought items to resell and acquired Ebay Bucks through this, than you would claim a profit of $110.
http://money.usnews.com/money/blo...es-taxable

Quote :
Taxation of Credit Card Cashback Rewards.

Whether you're using a personal credit card to earn rewards on high-end purchases or using a small business credit card to pay for business expenses, the IRS says credit card cashback rewards are not taxable--for the most part. Clarence Kehoe, executive partner of accounting firm Anchin, Block & Anchin, points out that in the eyes of the IRS credit card cashback rewards are considered to be a "purchase price reduction" instead of income. Just like any rebate offers you might be able to cash in for a large purchase, a cashback reward only deducts the price you paid for a particular item.

However, there may be situations where the IRS could see cashback rewards as income, says Kehoe. For example, if an employee was using their personal credit card to make business-related purchases and then was reimbursed by their employer --while earning rewards points or cash on their purchases--the IRS could see this as an abuse of the system if the individual was "earning" cash for tax avoidance purposes.

Kehoe says the IRS looks for abusive patterns when it comes to reporting income and business-related expenses. If you're a small business owner or are self-employed and are using a cashback credit rewards card to pay for inventory or business-related expenses, you will need to make sure you are reporting the reduction in your purchase price because of any cashback received. Not doing so may be a potential abuse of the system.
but this is your typical situation where Cash Back is applied to your balance on a CC or transfer to your bank account. Your scenario.. is quite different.

Here's an interesting scenario that's constantly used and falls correctly into IRS rules. You made $100 on eBay profit on the sale of an item. You sell an item you bought years ago for $200 for $100. That's a $100 LOSS. Your profit is now $0.
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Last edited by DJPlayer April 19, 2016 at 11:30 AM
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#6
Quote from DJPlayer View Post :
Whether you're using a personal credit card to earn rewards on high-end purchases or using a small business credit card to pay for business expenses, the IRS says credit card cashback rewards are not taxable--for the most part. Clarence Kehoe, executive partner of accounting firm Anchin, Block & Anchin, points out that in the eyes of the IRS credit card cashback rewards are considered to be a "purchase price reduction" instead of income. Just like any rebate offers you might be able to cash in for a large purchase, a cashback reward only deducts the price you paid for a particular item.
Quote from AnthonyP6674 View Post :
For an individual yes, but if you're a business and you use a CC to buy inventory, then you must deduct any cash back from your cost of goods sold.
You seemed to bold the wrong part and AnthonyP6674 is correct. You can either deduct it from the cost of the individual goods or you can do it all at once. If I get 10% cash back and buy 10 $100 items then buy an 11th with the cashback and sell all of them for $110 I can either calculate my net profit as 10X$20 ($110 - $90 ($100 - $10CB) +$10 ($110 - $100) = $210 which is what you're supposed to do or 10X$10 ($110-$100) +$110 ($110-$0) = $210.

If the CB came from personal purchases I'm not 100% what would happen.
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#7
Quote from NYExcuse View Post :
You seemed to bold the wrong part and AnthonyP6674 is correct. You can either deduct it from the cost of the individual goods or you can do it all at once. If I get 10% cash back and buy 10 $100 items then buy an 11th with the cashback and sell all of them for $110 I can either calculate my net profit as 10X$20 ($110 - $90 ($100 - $10CB) +$10 ($110 - $100) = $210 which is what you're supposed to do or 10X$10 ($110-$100) +$110 ($110-$0) = $210.

If the CB came from personal purchases I'm not 100% what would happen.
I think I merely misread his statement. For some reason I thought he meant a business must essentially treat the CB as taxable (equivalent to money) when involved in the purchase and resale.
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#8
Quote from DJPlayer View Post :
I think I merely misread his statement. For some reason I thought he meant a business must essentially treat the CB as taxable (equivalent to money) when involved in the purchase and resale.
Wouldn't it still be the same result though? Either you add it to your income or you subtract it from Cost of Goods Sold, you would end up with the same amount of profit.
Not sure if that's what you're referring to or not?
I guess yes technically it's not taxable income, you would just deduct it from COGS.
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Last edited by Arp590 April 19, 2016 at 01:16 PM
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