3 ms·

You've got the right conclusion but the wrong reasoning. Non-inventory sales result in taxable gain if the sale price exceeds the seller's "adjusted basis" (i.

by rprasad 14y ago

You've got the right conclusion but the wrong reasoning. Non-inventory sales result in taxable gain if the sale price exceeds the seller's "adjusted basis" (i.e., tax-adjusted cost) in the item sold. For personal property that isn't subject to depreciation (basically, stuff you would sell at a garage sale), the seller's adjusted basis usually exceeds the sale price, so the seller recognizes a loss on the sale. Consequently, the money earned from the sale does not result in taxable income for federal income tax purposes. State income tax laws vary.... Also, income taxes are actually owed at least quarterly. The self-employed and contractors must deal with this timing issue, which can result in penalty interest rates on taxes not timely paid. Employers withhold and remit the taxes with each paycheck using automated payroll systems. April 2012 is the due date to settle up all income taxes for the entire 2012 tax year. In most cases, people will have overpaid taxes b/c remittances over the year were based on estimated income (i.e, prior to deductions and credits).

larrys 14y ago
"Non-inventory sales result in taxable gain if the sale price exceeds the seller's "adjusted basis" (i.e., tax-adjusted cost) in the item sold." The assumption here is that the OP was selling inventory. The FB ad said "I used to be a record dealer selling" and he is selling the inventory. We don't know if he had wound down the business or not. Hence my attempt to be circumspect about this. "April 2012 is the due date to settle up all income taxes for the entire 2012 tax year." I'm talking strictly about when the return is due. Not whether you have paid in estimated taxes. If you underpay, sure you will get hit with a penalty and interest potentially. The interest is actually quite reasonable. "For personal property that isn't subject to depreciation (basically, stuff you would sell at a garage sale), the seller's adjusted basis usually exceeds the sale price, so the seller recognizes a loss on the sale." These are typically de-minimis transactions that fly under the radar and people typically avoid paying taxes on because the chance of getting caught is low and the penalty is also low. If for arguments sake you buy 10 iphones and manage to resell them for higher than what you paid and make some money yes technically you owe taxes. Otoh if you are operating and doing this on a larger scale you have a different problem. And unless you are doing this on a grand scale you aren't getting any jail time and that's assuming you get caught. I'm not advocating any particular behavior. Just pointing out what actually happens (which explains why people cheat as well). Also keep in mind that the amount of risk an attorney (such as yourself) should be taking and how squeaky clean you need to be (to avoid losing your law license) is not the same as some guy selling stuff on ebay or by FB ads would do. "The self-employed and contractors must deal with this timing issue, which can result in penalty interest rates on taxes not timely paid." There are of course safe harbors [1] with all of this http://www.irs.gov/businesses/small/article/0,,id=110413,00.html/ http://www.irs.gov/businesses/small/article/0,,id=110413,00.... as anyone who has gotten whipped sawed by their income varying greatly from year to year knows. (Make money one year and you have to meet the safe harbor in order to not have a problem the next year). [1] "if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller."

by rprasad 14y ago

larrys 14y ago

"Non-inventory sales result in taxable gain if the sale price exceeds the seller's "adjusted basis" (i.e., tax-adjusted cost) in the item sold." The assumption here is that the OP was selling inventory. The FB ad said "I used to be a record dealer selling" and he is selling the inventory. We don't know if he had wound down the business or not. Hence my attempt to be circumspect about this. "April 2012 is the due date to settle up all income taxes for the entire 2012 tax year." I'm talking strictly about when the return is due. Not whether you have paid in estimated taxes. If you underpay, sure you will get hit with a penalty and interest potentially. The interest is actually quite reasonable. "For personal property that isn't subject to depreciation (basically, stuff you would sell at a garage sale), the seller's adjusted basis usually exceeds the sale price, so the seller recognizes a loss on the sale." These are typically de-minimis transactions that fly under the radar and people typically avoid paying taxes on because the chance of getting caught is low and the penalty is also low. If for arguments sake you buy 10 iphones and manage to resell them for higher than what you paid and make some money yes technically you owe taxes. Otoh if you are operating and doing this on a larger scale you have a different problem. And unless you are doing this on a grand scale you aren't getting any jail time and that's assuming you get caught. I'm not advocating any particular behavior. Just pointing out what actually happens (which explains why people cheat as well). Also keep in mind that the amount of risk an attorney (such as yourself) should be taking and how squeaky clean you need to be (to avoid losing your law license) is not the same as some guy selling stuff on ebay or by FB ads would do. "The self-employed and contractors must deal with this timing issue, which can result in penalty interest rates on taxes not timely paid." There are of course safe harbors [1] with all of this http://www.irs.gov/businesses/small/article/0,,id=110413,00.html/ http://www.irs.gov/businesses/small/article/0,,id=110413,00.... as anyone who has gotten whipped sawed by their income varying greatly from year to year knows. (Make money one year and you have to meet the safe harbor in order to not have a problem the next year). [1] "if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller."