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I'm a hobbyist trombone player. Over the years, I'd collected a fair number of odds and ends related to my music playing that were mostly taking up space, so at year begin of 2016, I started selling what I didn't need on eBay and on various forums.

Later in the year 2016 (October), I started an LLC to officially register the music playing that I do as well as to make the sales of some of these music related items moving forward official.

So I have records for the things I purchased in 2016, but records for stuff prior to that I don't have (some of the items I sold this year were purchased over a decade ago). Most (probably all) of those older items were sold both prior to my establishing the LLC and were sold at a loss.

Concerning my taxes: How should I go about reporting this income for the items I don't have records for how much I purchased them for? Do I need to indicate 100% of the income because I can't prove that I sold it at a loss? Or can I not report the income for those items since I know I sold them at a loss, but can't prove it?

I'm located in the US.

  • Why do you need to list these items? Are you saying you purchased them years ago and only just sold them this year? Were you selling them as business income for your LLC, or was it hobby income? – flareartist Apr 5 '17 at 18:52
  • I didn't know whether or not I needed to list the items. I did purchase them years ago and only sold them this (2016) year. I wasn't selling them as business income; but I didn't know if I was allowed to simply say, "Yeah, I sold those at a loss, just go ahead and trust me I pinky swear I lost money on them." – mkingsbu Apr 5 '17 at 19:06
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    You bought these for business, your music playing. Did you depreciate these instruments and treat them as a business asset? – JoeTaxpayer Apr 6 '17 at 2:25
  • I did not depreciate the instruments; (nobody told me anything about how to handle assets when I majored in music, which is ironic given that making an income that's arguably the most important skill is being able to handle business assets intelligently and correctly...) So I did not treat them as a business asset in a tax sense. If its important, I did make money with them and I didn't use them for 'personal' use. – mkingsbu Apr 6 '17 at 12:54
  • If your only concern is about being taxed on these items, unless it was tens of thousands of dollars, I really wouldn't worry about it. These types of transactions happen all the time, and like I said in my answer, the IRS isn't looking at those. Your chances of being audited are low, and even if you were to be audited, if you purchased these items years ago, you'd probably be fine. – flareartist Apr 7 '17 at 19:52
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+25

This is what this sounds like to me: https://www.thebalance.com/having-a-garage-sale-or-yard-sale-what-to-do-first-399030 also: http://blogs.hrblock.com/2012/07/25/garage-sale-money-does-the-irs-need-to-know/

Selling a personal item at a loss is generally not a taxable event. You cannot report it as a loss, and the IRS can't tax a transaction like that.

If you really want to include these as sales as part of your LLC, you'll probably have to pay tax if you list it as income. I'm just confused as to why you'd want to do that, if you know that you're selling these particular items at a loss, and you also know that you have no documentation for them.

I just wouldn't report anything you sold at a loss and treat it as "garage sale items" separate from your business.

-1

We're in the business of selling pleasure. We don't sell handbags or haute couture.

-Alain Wertheimer

I'm a hobbyist... Most (probably all) of those older items were sold both prior to my establishing the LLC

This is a hobby of yours, this is not your business. You purchased all of these goods for your pleasure, not for their future profit. The later items that you bought after your LLC was establish served both purposes (perks of doing what you love).

How should I go about reporting this income for the items I don't have records for how much I purchased them for?

There's nothing you can do. As noted above, these items (if you were to testify in court against the IRS). "Losses from the sale of personal-use property, such as your home or car, aren't tax deductible." Source

Do I need to indicate 100% of the income because I can't prove that I sold it at a loss?

Yes, if you do not have previous records you must claim a 100% capital gain. Source


Addition:

As JoeTaxpayer has mentioned in the comments, the second source I posted is for stocks and bonds.

  1. Capital assets include property such as your home or car, as well as investment property, such as stocks and bonds. Point 1, Page 1
  2. Generally, you will have a capital gain or loss if you sell or exchange a capital asset. Page 1
  3. (Noncapital Asset) Stock in trade, inventory, and other property you hold mainly for sale to customers in your trade or business. Page 1

Breaking it down:

So at year begin of 2016, I started selling what I didn't need on eBay and on various forums [January - September].

  1. How should I go about reporting this income for the items I don't have records for how much I purchased them for?

Because you are not in the business of doing this, you do not need to explain the cost; but you do need to report the income as Gross Income on your 1040.

  1. Do I need to indicate 100% of the income because I can't prove that I sold it at a loss?

Yes, if you bought a TV three years ago for a $100 and sold it for $50, the IRS would recognize you earning $50.

  1. Can I not report the income for those items since I know I sold them at a loss, but can't prove it?

As these are all personal items, they can not be deducted; regardless of gain or loss. Source

Later in the year 2016 (October), I started an LLC (October - December)

  1. How should I go about reporting this income for the items I don't have records for how much I purchased them for?

If these are items that you did not record early in the process of your LLC, then it is reported as a 100% gain as you can not prove any business expenses or costs to acquire associated with it.

Under the uniform capitalization rules, 
you must capitalize all direct costs and an allocable part 
of most indirect costs you incur due to your production or resale activities. 
To capitalize means to include certain expenses in the basis of property you
produce or in your inventory costs rather than deduct them as a current expense.

Source

  1. Do I need to indicate 100% of the income because I can't prove that I sold it at a loss?

Refer to above answer.

  1. Can I not report the income for those items since I know I sold them at a loss, but can't prove it?

Refer to above answer.


Conclusion

Again, this is a income tax question that is split between business and personal use items. This is not a question of other's assessment of the value of the asset. It is solely based on the instruments of the IRS and their assessment of gains and losses from businesses. As OP does not have the necessary documents to prove otherwise, a cost basis of $0 must be assumed; thus you have a 100% gain on sale.

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