Solo 401k for eBay sales?

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new2bogle2
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Solo 401k for eBay sales?

Post by new2bogle2 »

Apparently eBay issues a W2 to anyone who sells more than $1,000 in annual transactions on their platform.

Rather than pay tax on this money today, is it possible to open a solo 401k account at VG or Fidelity and put all the profits into the 401k?

This isn’t a business, it’s just a few extra dollars on the side. I have already sold $2k worth of items for 2022 and plan to sell a few more. I’m not sure how many years I’ll be selling anything significant.

Any direction or opinions are welcomed.
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CAsage
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Re: Solo 401k for eBay sales?

Post by CAsage »

I hear tell it's a 1099-K instead. So, not a W-2 which would imply wages/labor. If it were wages, I wonder if the fees on a solo 401K would make it impractical. There are a couple threads on this already, reporting ebay sales.
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Tamarind
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Re: Solo 401k for eBay sales?

Post by Tamarind »

1099-k income is reported on Schedule C like all other business income.

Yes you can open a solo 401k with that income.

If you don't have access to a 401k through an employer, you can make contributions as an employee and defer nearly all of your income.

If you are already maxing out a 401k through an employer, you can still contribute roughly 20% of your profits to the solo 401k as the employER.

Either way you'll still pay some self-employment tax.

Several providers including Vanguard offer solo 401ks with no fees except the fund expenses.
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new2bogle2
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Re: Solo 401k for eBay sales?

Post by new2bogle2 »

CAsage wrote: Sat Jan 22, 2022 11:32 am I hear tell it's a 1099-K instead. So, not a W-2 which would imply wages/labor. If it were wages, I wonder if the fees on a solo 401K would make it impractical. There are a couple threads on this already, reporting ebay sales.
Thank you for the correction.
Is my OP question still valid if asking about a 1099?
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Re: Solo 401k for eBay sales?

Post by new2bogle2 »

Duplicate post
Willmunny
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Re: Solo 401k for eBay sales?

Post by Willmunny »

Tamarind wrote: Sat Jan 22, 2022 11:57 am 1099-k income is reported on Schedule C like all other business income.

Yes you can open a solo 401k with that income.

If you don't have access to a 401k through an employer, you can make contributions as an employee and defer nearly all of your income.

If you are already maxing out a 401k through an employer, you can still contribute roughly 20% of your profits to the solo 401k as the employER.

Either way you'll still pay some self-employment tax.

Several providers including Vanguard offer solo 401ks with no fees except the fund expenses.
After buying a couple new watches late last year, I decided to do a New Year's cleaning of some used watches I bought over the past 15 years and no longer wear. So I sold those on Ebay earlier this month. The sales proceeds of all items exceeds $600, but is not much money ($1,000 - $2,000 range in total sale proceeds for all items). Ebay asked for my information to send a 1099-K. Each watch I sold was a used watch that was purchased new at a higher price than the price for which it was sold. So there is no way this is taxable income under any theory of federal income taxation. And these particular pieces were purchased just to wear and not for investment purposes, so I don't think I am entitled to take a loss against my other income. How would one make this clear in reporting to the IRS so that it doesn't cause the IRS to misinterpret it as not reporting income? Do I fill out a Schedule C reporting zero income with a narrative explanation? Could that be done in Turbotax?
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Re: Solo 401k for eBay sales?

Post by Laundry_Service »

CAsage wrote: Sat Jan 22, 2022 11:32 am I wonder if the fees on a solo 401K would make it impractical.
No additional fees at ETrade, Fidelity, Schwab and Vanguard for solo401k.
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Nate79
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Re: Solo 401k for eBay sales?

Post by Nate79 »

Willmunny wrote: Sun Jan 23, 2022 6:48 am
Tamarind wrote: Sat Jan 22, 2022 11:57 am 1099-k income is reported on Schedule C like all other business income.

Yes you can open a solo 401k with that income.

If you don't have access to a 401k through an employer, you can make contributions as an employee and defer nearly all of your income.

If you are already maxing out a 401k through an employer, you can still contribute roughly 20% of your profits to the solo 401k as the employER.

Either way you'll still pay some self-employment tax.

Several providers including Vanguard offer solo 401ks with no fees except the fund expenses.
After buying a couple new watches late last year, I decided to do a New Year's cleaning of some used watches I bought over the past 15 years and no longer wear. So I sold those on Ebay earlier this month. The sales proceeds of all items exceeds $600, but is not much money ($1,000 - $2,000 range in total sale proceeds for all items). Ebay asked for my information to send a 1099-K. Each watch I sold was a used watch that was purchased new at a higher price than the price for which it was sold. So there is no way this is taxable income under any theory of federal income taxation. And these particular pieces were purchased just to wear and not for investment purposes, so I don't think I am entitled to take a loss against my other income. How would one make this clear in reporting to the IRS so that it doesn't cause the IRS to misinterpret it as not reporting income? Do I fill out a Schedule C reporting zero income with a narrative explanation? Could that be done in Turbotax?
The more consensus is Schedule D. Schedule C is wrong, this is not a business.


viewtopic.php?f=2&t=368487&p=6469333#p6469333
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Cubicle
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Re: Solo 401k for eBay sales?

Post by Cubicle »

A little of a sidetrack:

It's there a way to report the 1099 outside of a schedule C? The purpose to avoid self employment taxes. That's an extra 15.3% tax.

Can the 1099 income can just be added in as income on the 1040 or schedule 1/2/(whatever it actually is)?
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Tamarind
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Re: Solo 401k for eBay sales?

Post by Tamarind »

Nate79 wrote: Sun Jan 23, 2022 8:07 am
Willmunny wrote: Sun Jan 23, 2022 6:48 am
Tamarind wrote: Sat Jan 22, 2022 11:57 am 1099-k income is reported on Schedule C like all other business income.

Yes you can open a solo 401k with that income.

If you don't have access to a 401k through an employer, you can make contributions as an employee and defer nearly all of your income.

If you are already maxing out a 401k through an employer, you can still contribute roughly 20% of your profits to the solo 401k as the employER.

Either way you'll still pay some self-employment tax.

Several providers including Vanguard offer solo 401ks with no fees except the fund expenses.
After buying a couple new watches late last year, I decided to do a New Year's cleaning of some used watches I bought over the past 15 years and no longer wear. So I sold those on Ebay earlier this month. The sales proceeds of all items exceeds $600, but is not much money ($1,000 - $2,000 range in total sale proceeds for all items). Ebay asked for my information to send a 1099-K. Each watch I sold was a used watch that was purchased new at a higher price than the price for which it was sold. So there is no way this is taxable income under any theory of federal income taxation. And these particular pieces were purchased just to wear and not for investment purposes, so I don't think I am entitled to take a loss against my other income. How would one make this clear in reporting to the IRS so that it doesn't cause the IRS to misinterpret it as not reporting income? Do I fill out a Schedule C reporting zero income with a narrative explanation? Could that be done in Turbotax?
The more consensus is Schedule D. Schedule C is wrong, this is not a business.


viewtopic.php?f=2&t=368487&p=6469333#p6469333
This is a good point, as I assumed OP's activity was being pursued for a profit. If you're not trying to make a profit, schedule C is not right.
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new2bogle2
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Re: Solo 401k for eBay sales?

Post by new2bogle2 »

Tamarind wrote: Sun Jan 23, 2022 11:26 am
Nate79 wrote: Sun Jan 23, 2022 8:07 am
Willmunny wrote: Sun Jan 23, 2022 6:48 am
Tamarind wrote: Sat Jan 22, 2022 11:57 am 1099-k income is reported on Schedule C like all other business income.

Yes you can open a solo 401k with that income.

If you don't have access to a 401k through an employer, you can make contributions as an employee and defer nearly all of your income.

If you are already maxing out a 401k through an employer, you can still contribute roughly 20% of your profits to the solo 401k as the employER.

Either way you'll still pay some self-employment tax.

Several providers including Vanguard offer solo 401ks with no fees except the fund expenses.
After buying a couple new watches late last year, I decided to do a New Year's cleaning of some used watches I bought over the past 15 years and no longer wear. So I sold those on Ebay earlier this month. The sales proceeds of all items exceeds $600, but is not much money ($1,000 - $2,000 range in total sale proceeds for all items). Ebay asked for my information to send a 1099-K. Each watch I sold was a used watch that was purchased new at a higher price than the price for which it was sold. So there is no way this is taxable income under any theory of federal income taxation. And these particular pieces were purchased just to wear and not for investment purposes, so I don't think I am entitled to take a loss against my other income. How would one make this clear in reporting to the IRS so that it doesn't cause the IRS to misinterpret it as not reporting income? Do I fill out a Schedule C reporting zero income with a narrative explanation? Could that be done in Turbotax?
The more consensus is Schedule D. Schedule C is wrong, this is not a business.


viewtopic.php?f=2&t=368487&p=6469333#p6469333
This is a good point, as I assumed OP's activity was being pursued for a profit. If you're not trying to make a profit, schedule C is not right.
I sold old furniture form my house. The price they were sold for is much less than I paid years ago but I don’t have receipts from that many years ago, but it was significantly less than purchase price.

I should have been more specific in my OP.
Does that change how my situation is viewed?
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Re: Solo 401k for eBay sales?

Post by MP123 »

new2bogle2 wrote: Sun Jan 23, 2022 12:53 pm I sold old furniture form my house. The price they were sold for is much less than I paid years ago but I don’t have receipts from that many years ago, but it was significantly less than purchase price.

I should have been more specific in my OP.
Does that change how my situation is viewed?
Yes, you have a capital loss on personal use property. There really isn't anything you can do with that, and it doesn't allow for a Solo 401k.

If you bought a truckload of widgets and sold them on eBay then that would be Schedule C/SE income and would qualify for the Solo 401k.
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Re: Solo 401k for eBay sales?

Post by new2bogle2 »

MP123 wrote: Sun Jan 23, 2022 1:06 pm
new2bogle2 wrote: Sun Jan 23, 2022 12:53 pm I sold old furniture form my house. The price they were sold for is much less than I paid years ago but I don’t have receipts from that many years ago, but it was significantly less than purchase price.

I should have been more specific in my OP.
Does that change how my situation is viewed?
Yes, you have a capital loss on personal use property. There really isn't anything you can do with that, and it doesn't allow for a Solo 401k.

If you bought a truckload of widgets and sold them on eBay then that would be Schedule C/SE income and would qualify for the Solo 401k.
Does that also mean I won’t owe taxes on these eBay transactions? Does it matter that I don’t have receipts from my original purchase from many years ago?
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Re: Solo 401k for eBay sales?

Post by MP123 »

new2bogle2 wrote: Sun Jan 23, 2022 1:22 pm
MP123 wrote: Sun Jan 23, 2022 1:06 pm
new2bogle2 wrote: Sun Jan 23, 2022 12:53 pm I sold old furniture form my house. The price they were sold for is much less than I paid years ago but I don’t have receipts from that many years ago, but it was significantly less than purchase price.

I should have been more specific in my OP.
Does that change how my situation is viewed?
Yes, you have a capital loss on personal use property. There really isn't anything you can do with that, and it doesn't allow for a Solo 401k.

If you bought a truckload of widgets and sold them on eBay then that would be Schedule C/SE income and would qualify for the Solo 401k.
Does that also mean I won’t owe taxes on these eBay transactions? Does it matter that I don’t have receipts from my original purchase from many years ago?
Right. You don't owe tax on that loss. Receipts would be nice of course, but just keep whatever records you do have of the transaction.
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Re: Solo 401k for eBay sales?

Post by new2bogle2 »

MP123 wrote: Sun Jan 23, 2022 1:31 pm
new2bogle2 wrote: Sun Jan 23, 2022 1:22 pm
MP123 wrote: Sun Jan 23, 2022 1:06 pm
new2bogle2 wrote: Sun Jan 23, 2022 12:53 pm I sold old furniture form my house. The price they were sold for is much less than I paid years ago but I don’t have receipts from that many years ago, but it was significantly less than purchase price.

I should have been more specific in my OP.
Does that change how my situation is viewed?
Yes, you have a capital loss on personal use property. There really isn't anything you can do with that, and it doesn't allow for a Solo 401k.

If you bought a truckload of widgets and sold them on eBay then that would be Schedule C/SE income and would qualify for the Solo 401k.
Does that also mean I won’t owe taxes on these eBay transactions? Does it matter that I don’t have receipts from my original purchase from many years ago?
Right. You don't owe tax on that loss. Receipts would be nice of course, but just keep whatever records you do have of the transaction.
Thank you.
Does it matter that they will issue me a 1099? Does that mean they are sending a copy to the IRS? Will this cause any red flags to appear on their end? Of course this situation is legitimate but I don’t think anyone welcomes an audit.
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Re: Solo 401k for eBay sales?

Post by jucor »

This is what I did:

I reported the total sales amount on form 8949 Part II (E) - LTCG where cost basis was not reported to the IRS on the 1099.

I reported it as "Misc Personal Property Sold on eBay/FB Marketplace"; Date acquired: Various over [time period]; Date sold: [date to date_year]; Proceeds: The amount reported on the 1099; Cost basis:The amount you think the goods cost you (being conservative) -- which is higher than the proceeds, so no need for tax.

I do not think that if you are selling used items irregularly on eBay or FB Marketplace that this is going to be a problem -- even if audited. If you sold a super rare piece of furniture or a panting for tens of thousands, then, yes, you will likely have to have real backup with receipts/appraisals/etc. I cannot imagine that the used bric a brac/household/tools I've sold more to get them out of the house and not in the landfill will cause an issue.
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Re: Solo 401k for eBay sales?

Post by MP123 »

jucor wrote: Sun Jan 23, 2022 8:05 pm I reported it as "Misc Personal Property Sold on eBay/FB Marketplace"; Date acquired: Various over [time period]; Date sold: [date to date_year]; Proceeds: The amount reported on the 1099; Cost basis:The amount you think the goods cost you (being conservative) -- which is higher than the proceeds, so no need for tax.
This approach would create a capital loss where one isn't allowed, right?

Maybe making the basis the same as the proceeds ($0 net) would be better?
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Re: Solo 401k for eBay sales?

Post by jucor »

MP123 wrote: Sun Jan 23, 2022 8:24 pm
jucor wrote: Sun Jan 23, 2022 8:05 pm I reported it as "Misc Personal Property Sold on eBay/FB Marketplace"; Date acquired: Various over [time period]; Date sold: [date to date_year]; Proceeds: The amount reported on the 1099; Cost basis:The amount you think the goods cost you (being conservative) -- which is higher than the proceeds, so no need for tax.
This approach would create a capital loss where one isn't allowed, right?

Maybe making the basis the same as the proceeds ($0 net) would be better?
Yes, you are correct -- I looked at my forms from last year and that is actually what I did, and will do again :) :sharebeer
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Re: Solo 401k for eBay sales?

Post by new2bogle2 »

jucor wrote: Mon Jan 24, 2022 7:04 am
MP123 wrote: Sun Jan 23, 2022 8:24 pm
jucor wrote: Sun Jan 23, 2022 8:05 pm I reported it as "Misc Personal Property Sold on eBay/FB Marketplace"; Date acquired: Various over [time period]; Date sold: [date to date_year]; Proceeds: The amount reported on the 1099; Cost basis:The amount you think the goods cost you (being conservative) -- which is higher than the proceeds, so no need for tax.
This approach would create a capital loss where one isn't allowed, right?

Maybe making the basis the same as the proceeds ($0 net) would be better?
Yes, you are correct -- I looked at my forms from last year and that is actually what I did, and will do again :) :sharebeer
Make it net $0. No income tax. No SE tax. Though no 401k.

So it’s that simple?
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Re: Solo 401k for eBay sales?

Post by MP123 »

new2bogle2 wrote: Mon Jan 24, 2022 5:09 pm
jucor wrote: Mon Jan 24, 2022 7:04 am
MP123 wrote: Sun Jan 23, 2022 8:24 pm
jucor wrote: Sun Jan 23, 2022 8:05 pm I reported it as "Misc Personal Property Sold on eBay/FB Marketplace"; Date acquired: Various over [time period]; Date sold: [date to date_year]; Proceeds: The amount reported on the 1099; Cost basis:The amount you think the goods cost you (being conservative) -- which is higher than the proceeds, so no need for tax.
This approach would create a capital loss where one isn't allowed, right?

Maybe making the basis the same as the proceeds ($0 net) would be better?
Yes, you are correct -- I looked at my forms from last year and that is actually what I did, and will do again :) :sharebeer
Make it net $0. No income tax. No SE tax. Though no 401k.

So it’s that simple?
In prior years it was even simpler because transactions such as yours simply weren't reported anywhere because they aren't taxable.

It's really conjecture whether the IRS will match all of the new 1099-Ks against tax returns and issue CP2000 notices to people that don't report the 1099-K they same way they do with missing 1099-Bs, 1099-DIVs, etc. And if they are matched, then what exactly are they matched against?

I haven't seen any reliable guidance about how to handle personal property losses reflected on a 1099-K but the approach above with 8949 certainly seems better than creating a fake Sch C business with zero profit for any year you sell some old junk.

Have you recieved the 1099-K yet? I note there is a box for the Merchant Category Code, not sure what that would be in your case.
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