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I run a very small business through PayPal. This won't change anything for me. I'll get a 1099 form telling me what I already know. At the same time, I frequen

I run a very small business through PayPal. This won't change anything for me. I'll get a 1099 form telling me what I already know. At the same time, I frequent a web forum for musicians, many of whom buy and sell instruments. I don't think most of them are thinking of it as a business, but simply enjoy trying different gear and flipping one piece to finance the next one. Many musicians also earn a certain amount of cash income. "Never ascribe to malice that which can be adequately explained by ignorance." Discussions of tax reporting and the new PayPal rule seem to express as much confusion as annoyance. There is a widespread belief that cash income is not meant to be taxed. I think this might be due to a number of reasons, notably the fact that most people don't do their own taxes any more. Your obligations end with handing a sheaf of papers to an expert, who works on your return and (hopefully) hands a check back to you at the end. Also for this reason they don't see a difference between reportage and taxation -- a rise in reportage is equivalent to a tax increase. And they don't understand marginal taxation, so they assume $600 means they have to send $600 to the IRS. On the other hand, those of us who really did run businesses qua businesses, and filled out our own Schedule C's (even through TurboTax), see exactly what goes into the calculation and what comes out the other end. There's a place for 1099 income but also for non-1099 income. We were already paying those taxes. A minor disruption is that people will have to manage their personal affairs more like businesses, most notably maintaining records of their purchases so they're not on the hook for the entire sale. Buying a guitar for $600 and selling it for $601 gets you a 1099 for $601, but you only owe your marginal tax rate times one dollar. Still, knowing the cost basis so you can work it out correctly requires keeping records.

conductr 5y ago
Keep your guitar for a little while and it becomes long-term capital gain of $1 :)
- analog31 5y ago
  When I bought a new instrument a decade ago, I did some reading on the tax implications. I was ready to splurge on something nice. There was a fascinating case of a musician who bought a super expensive 200 year old instrument. He amortized the expense over some period like 7 years. Then he was invited to come on down to the tax court for a friendly chat. Turns out, the tax court didn't smile on depreciating an appreciating asset that demonstrably lasts 200 years. I actually considered buying an instrument in salvage condition and paying to have it restored, since restoration is an expense. But in the final analysis, I was more interested in playing than screwing around for a few dollars in tax savings.
  - cdjk 5y ago
    Why? This is a serious question. Seven years is the correct time period for musical instrument depreciation. And if I recall, any property than can be depreciated must be, and if not will be treated as if it had on sale. Besides, if it’s ever sold there is recaptured depreciation which counts as income.
    - analog31 5y ago
      That's a perfectly fair point, and the answer is, I don't know. It's quite possible that I misunderstood the report.

conductr 5y ago

Keep your guitar for a little while and it becomes long-term capital gain of $1 :)

analog31 5y ago
When I bought a new instrument a decade ago, I did some reading on the tax implications. I was ready to splurge on something nice. There was a fascinating case of a musician who bought a super expensive 200 year old instrument. He amortized the expense over some period like 7 years. Then he was invited to come on down to the tax court for a friendly chat. Turns out, the tax court didn't smile on depreciating an appreciating asset that demonstrably lasts 200 years. I actually considered buying an instrument in salvage condition and paying to have it restored, since restoration is an expense. But in the final analysis, I was more interested in playing than screwing around for a few dollars in tax savings.
- cdjk 5y ago
  Why? This is a serious question. Seven years is the correct time period for musical instrument depreciation. And if I recall, any property than can be depreciated must be, and if not will be treated as if it had on sale. Besides, if it’s ever sold there is recaptured depreciation which counts as income.
  - analog31 5y ago
    That's a perfectly fair point, and the answer is, I don't know. It's quite possible that I misunderstood the report.