2

I was wondering about how I would go about putting this into my tax return. So I've recently started using a website that has a referral program, by promoting through this referral program I've amassed thousands in credits. I've bought electronics and resold them for a lesser value online.

When I report my taxes will I be taxed for receiving the credits and the money I made from selling the electronics? Or will it count as a loss since I'm buying the electronics and selling them at a lower price?

7
  • 1
    Do the credits have a cash equivalent value? Could you get cash for them?
    – Joe
    Nov 20 '18 at 2:58
  • Yes they have cash value but you can't get cash for them you can only buy items with the credits. Nov 20 '18 at 3:44
  • 1
    @SPatrickApps Then they don't have cash value. It's like saying "this credit is worth a million dollars but you can only use it to buy this toaster."
    – D Stanley
    Nov 20 '18 at 14:39
  • 1
    @DStanley sounds like a nice toaster, how much would you take for that credit?
    – quid
    Nov 20 '18 at 18:02
  • 1
    @SPatrickApps Check the IRS guidance for the difference between a business and a hobby. If you believe it qualifies as a business, file a schedule C. I believe the fair market value of the goods is income but also cost of goods sold. Your sales are ordinary business income. You will have to pay self-employment tax on your income. You'd probably be better off if you could characterize it as a hobby unless you can qualify for things like a home office deduction or if having to itemize deductions hurts you. (See updates to my answer.) Nov 21 '18 at 16:34
1

You simply have a business. You go through a certain procedure.

The end result is you have a certain amount of USD, which you have "made" or "achieved" which you did not have previously.

You in fact "made" that much USD.

That's "income".

You are taxed on that much. That's it.

(BTW, don't forget, you can deduct actual costs such as postage, use of internet and your home office etc.)


HOWEVER....

I may be wrong.

It's very likly the IRS would simply tax you on the nominal (I guess retail) value of the TV set.

(The fact is that you then sold a used TV set on ebay is of no consequence to them.)

The fact is, through you efforts, you earned a TV set.

It's totally commonplace that when you do some work, you will be paid with a Good. You simply pay tax as if the retail value.

So above I suggest you'll pay ta on the "final dollar amount you got on eBay" (say $1500).

I'm probably wrong - it's more likely you'll pay tax on the full nominal retail value of the item. (example, say, $2000).


Just for clarity, the idea that you have a loss here in some way is utterly absurd.

13
  • In the US, businesses are taxed on income, not cash on hand.
    – D Stanley
    Nov 20 '18 at 14:40
  • ? the OP quite simply made - "got" if you will - a certain amount of USD, from the overall transactions. Could it be you saw the two words "in hand" and got muddled up with another concept?
    – Fattie
    Nov 20 '18 at 16:19
  • OP uses credits to "buy" a TV that otherwise sells for $2,000. OP then sells that TV for $1,500. OP then has $1,500 in cash. You're saying the $1,500 is what should be taxed, which I believe is incorrect.
    – D Stanley
    Nov 20 '18 at 16:25
  • 2
    @Gainz You are still legally obligated to pay tax on income, even via selling stuff online. Just because they don't send you a 1099 doesn't mean that legally you shouldn't pay tax. In reality, though, I suspect that very few people actually report that as income.
    – D Stanley
    Nov 20 '18 at 19:34
  • 1
    @Gainz Sure, the IRS won't investigate something they don't know about, but legally you're still obligated to pay taxes. BTW, the same goes for craigslist, too :)
    – D Stanley
    Nov 20 '18 at 20:01
0

To take Fattie's numbers, if you, as an individual, received a $2000 TV set, then you will be liable for taxes on $2000 in income. If you later sold it for $1500, then you would have a $500 loss, but the IRS won't let you deduct that loss if they consider it to be for personal use. So you'll have to clearly separate your business activity from your personal activity. How to do that in a manner that the IRS will accept is getting more into Law Stack Exchange territory.

9
  • I don't know what you mean by "for personal use". He's selling the electronics, not using them. IRC 183 sets the rules for when they're deductible and this answer doesn't address them. Nov 21 '18 at 3:58
  • @DavidSchwartz I think Accumulation is saying that the IRS's default position is that such reward schemes are "consumer orientated"... an "average Joe" gets enough points and is rewarded with (and potentially taxable on) a new TV. If they then decide to sell (2nd hand, below the "new" price), then so be it: that's not "tax relevant" – no different than selling your old TV when upgrading to a new one. On the other hand, If an "established business" bought goods which (for some reason) they then sold at a loss, that's a legitimate tax offset. [cont]
    – TripeHound
    Nov 21 '18 at 8:34
  • [cont] To have what the OP is doing count as the second case may involve having to jump though some IRS hoops (which they will probably then close if it happens often enough :-) )
    – TripeHound
    Nov 21 '18 at 8:34
  • @TripeHound Oh, well then that's almost certainly wrong. He's acquiring the property specifically to sell it, selling it new, and making a profit in the process. It's hard to imagine why his income wouldn't be taxable and his costs (necessary and reasonable to make that taxable profit) be deductible, per IRC 183 if nothing else. Nov 21 '18 at 8:37
  • @DavidSchwartz I agree the income (the "new price") is probably taxable in either case; it's more a question of whether what the OP is doing is sufficiently "like a business" to be allowed to offset that income and reduce their tax burden. As you say (in the answer I hadn't noticed when I first commented): is it a hobby or a business.
    – TripeHound
    Nov 21 '18 at 8:46
0

You either have a business or a hobby. There are several deciding factors, but key is whether you run it as a business and whether you have a reasonable expectation of making a profit. If you regularly profit, you can probably treat it a business and file a schedule C including your income and expenses.

As a business, you can probably treat the credits as having no cash value. That means you have no income when you get credits. However, when you trade these credits for electronics with a fair market value of $1,000, you have a $1,000 gain. If you then sell that piece of electronics for $800, you have a $200 loss.

If you don't meet the requirements to consider this a business, then it's a hobby. The rules for a hobby aren't quite as flexible. You must itemize your deductions, and you cannot take deductions that exceed expenses in any given year. The logic would still be the same, when you trade "worthless" coupons for something worth $1,000, you have a $1,000 hobby gain. When you sell that thing for $800, you have a $200 hobby loss. The gains are taxable, but you can deduct the losses.

In your case, you're probably better off if it's a hobby as that means your income isn't subject to self-employment tax. Check the IRS test carefully and see if you can defend that characterization.

Update:

Check the IRS guidance to see if it's a business or a hobby. Here are the differences:

Business: You file a schedule C. You may be able to take some deductions for things like a home office. You don't have to itemize your deductions. You will have to pay self-employment tax on your profits.

Hobby: You must itemize your deductions. You cannot deduct losses in excess of your income from the hobby. You do not have to pay self-employment tax on your profits.

-1

I would also say that it depends on the quantity of items you sold and the amount of money you made. Let say you have sell 4 items for a total of 900 USD, I would not necessarily declare taxes since it could just be a sale on eBay or Craiglist (just like selling a tv to your neighbour).

If you you sell a lot, then it is the same as a business and you will have to pay an amount of taxes depending on the state/country where you live.

In addition, for these electronic devices to count as a loss, you would probably have needed to buy them with real money. I'm not sure that the credits you used to buy these electronic devices count as a real dollar value (at least from a tax point of view).

3
  • This unfortunately amounts to no information, it seems.
    – Fattie
    Nov 20 '18 at 16:20
  • This answer doesn't really make any sense. Why do you care what it "could just be" since we actually do know what it is? And your last paragraph makes no sense at all -- it's the sale that would be the loss, not the getting of the items for free. (For example, say my boss gives me a $1,000 TV for free. That's a $1,000 taxable gain (since I have no cost to offset it). Then if I sell it for $800, I definitely have a $200 loss.) Nov 21 '18 at 6:14
  • I was assuming that people who sell under 20k online or 200 transactions didn't have to pay taxes (since most of them are not). D Stanley corrected me on this. Also as for the loss I was still talking if he was not going to pay taxes, since where I live under 20k (selling online) the revenu agency just doesn't know that you are selling items online. I'm sorry english is not my first language and I am still learning it.
    – Gainz
    Nov 21 '18 at 17:22

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.