So you're saying everyone who receives that 2022 1099-K next year will have to file an amended tax return for that year? I guess they're just delaying the inevitable nightmare for CPAs!
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Paypal Venmo Third Party Payment Tax Reporting Delayed
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So you're saying everyone who receives that 2022 1099-K next year will have to file an amended tax return for that year? I guess they're just delaying the inevitable nightmare for CPAs!
Especially if music or music item sales is your primary business, Check with your tax preparer, but I think it should be the “profit” of the sales. So if you’ve got a receipt or record of the purchase, then the positive difference the profit is taxable. If you took a business loss on the item, it should not be taxable income, and should be recorded as a business loss, along with business expenses, one time purchases that you don’t sell, things that wear out like cables. I don’t take depreciation on gear I expect to turn over, like a bass I bought low on FB and expect to sell. If you have a music business and itemize expenses, then you’re halfway there.
If you’re a buyer you can report the purchase as a business expense. If you don’t already itemize, then you might be better off taking the standard deduction.
If this is true, one should have been filing Schedule C all along, and this should simply be one more 1099 to process. Legitimate businesses are expected to report income derived from cash sales, as well. Even if music and/or gear sales is a sideline, you probably should have filed "C" and could have offset any tax due with legitimate deductions. I've had times where I had income from four completely diverse businesses at a time, and it was no big deal at tax time with pro guidance.
On a side note, it's worth noting that PROPERLY reporting business income and expenses can help you grow a business down the line if you expect to need financing for a major asset, like a building, trucks, or expensive equipment, or to seek investors. Your tax filings are a major part of how you prove to a business lender your ability to repay a loan, or the worth of investing to an investor.
Pay a CPA for an hour or two of time to get set up with bookkeeping software, ex:// Quickbooks, and to explain how to keep records, and you'll be good to go.
Anyone read "Tax Free Wealth" by Tom Wheelwright? I started going through it and so far it is excellent. He knows the tax law and draws some excellent conclusions that challenged commonly held perspectives I had.
For example, it's a misconception to think we "owe" the government our money. Over 99% of tax code explains how to reduce our tax burden, not increase it. Also, there's no such thing as a patriotic duty to pay more in taxes - by following the tax laws to reduce our own tax burden one isn't "avoiding taxes" - they're doing the things the government wants them to do. Government incentives certain financial behavior (like the creation of business) by the tax law.
Basically, the tax law is a map that shows you how to reduce the amount of taxes you pay. It behooves us to learn more about it, or hire someone to help with this.
For example, it's a misconception to think we "owe" the government our money. Over 99% of tax code explains how to reduce our tax burden, not increase it. Also, there's no such thing as a patriotic duty to pay more in taxes - by following the tax laws to reduce our own tax burden one isn't "avoiding taxes" - they're doing the things the government wants them to do. Government incentives certain financial behavior (like the creation of business) by the tax law.
Basically, the tax law is a map that shows you how to reduce the amount of taxes you pay. It behooves us to learn more about it, or hire someone to help with this.
Excellent post!
The takeaway is to understand the difference between tax avoidance and tax evasion. One of them is perfectly legal.
Misinformation abounds! You don't put business expenses on Schedule A (Itemized Deductions).
Misinformation abounds! The IRS plans to hire 87,000 new employees. That number will include many who are not involved in looking at our tax returns - Customer Service, IT, clerks, etc.. Revenue Agents and Auditors work in Examination.
No, that's not what I mean. Jeffery is legally entitled to take a salary and pay tax on whatever income he makes. Income tax is a tax on income; it is not a tax on wealth.
Correct, there's no notion or suggestion that tax laws are being broken by Jeffery personally.
Now that other guy in Florida who bragged, "That makes me smart", different story. There are plenty of that sort out there, too... speaking of IRS staffing levels.
Anyway, back to the point, this is precisely why I referred to "U.S. tax policies" earlier. What's fundamentally broken resides before, and arguably above (hint), the point legislation is signed into law.
Another hint...
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First, I HOPE all TB’ers can keep this thread from straying into political commentary. Let’s mind the rules folks. Please don’t give the hard working mods reason to close the thread. Rather, a constructive thread on the topic should probably be a sticky.
Second, I just ran across this concern, when I sold a pair of cabs, and PP required me to furnish my EIN, due to the rule changes.
This is a really big deal that will affect most of us.
I have a passing familiarity with tax rules as related to small business activity. I understand capital depreciation, record keeping etc. There were posts from tax professionals in the thread on the topic back in September, saying essentially that this is the way tax rules work, and musicians just need to comply.
The problematic part of that rule for musicians at large is that musical instruments don’t depreciate in any manner close to what industrial equipment does. Most of us find it appropriate to buy and sell instruments for any number of reasons.
To take an extreme example, let’s imagine that a principle violinist in a major orchestra finds it necessary to take a different position, which requires the sale of a $1MM violin to obtain a violin near the same price point, but with a character more appropriate to the new position. Extreme, I know; but, I would be surprised if it hasn’t happened.
Well, this new rule would require taking the sale of the $1MM instrument as income. And, I think it is pretty clear that 7 year depreciation and documentation for the new instrument isn’t going to fix that.
Further, I am unaware of how diligent record keeping for the original purchase would account for inflationary effects on value, especially for original purchases which may be 4 or 5 decades in the past.
Add to all of this the fact that for retirees, Medicare premiums are closely calculated to income.
All of which makes purchasing any kind of high priced instrument a risky and in many ways unwise decision.
I don’t believe this complication is what was intended. So, perhaps it will sort itself out.
In the meantime, I hope we can maintain a NON-political discourse on how to best cope with situation.
For my part, any interest in any > $1k instrument is simply off the table. Non-starter.
Second, I just ran across this concern, when I sold a pair of cabs, and PP required me to furnish my EIN, due to the rule changes.
This is a really big deal that will affect most of us.
I have a passing familiarity with tax rules as related to small business activity. I understand capital depreciation, record keeping etc. There were posts from tax professionals in the thread on the topic back in September, saying essentially that this is the way tax rules work, and musicians just need to comply.
The problematic part of that rule for musicians at large is that musical instruments don’t depreciate in any manner close to what industrial equipment does. Most of us find it appropriate to buy and sell instruments for any number of reasons.
To take an extreme example, let’s imagine that a principle violinist in a major orchestra finds it necessary to take a different position, which requires the sale of a $1MM violin to obtain a violin near the same price point, but with a character more appropriate to the new position. Extreme, I know; but, I would be surprised if it hasn’t happened.
Well, this new rule would require taking the sale of the $1MM instrument as income. And, I think it is pretty clear that 7 year depreciation and documentation for the new instrument isn’t going to fix that.
Further, I am unaware of how diligent record keeping for the original purchase would account for inflationary effects on value, especially for original purchases which may be 4 or 5 decades in the past.
Add to all of this the fact that for retirees, Medicare premiums are closely calculated to income.
All of which makes purchasing any kind of high priced instrument a risky and in many ways unwise decision.
I don’t believe this complication is what was intended. So, perhaps it will sort itself out.
In the meantime, I hope we can maintain a NON-political discourse on how to best cope with situation.
For my part, any interest in any > $1k instrument is simply off the table. Non-starter.
No, but the output from schedule C is reported there, and it’s also true that the standard deduction as recently increased may in fact end up a better deal than itemization. A CPA can help determine that.
This is not a problem... in fact, it's a good thing. If you sell an asset for more than its depreciated value, you must recapture the depreciation up to the amount of sale. Since instruments typically depreciate little - and some actually appreciate - there is little reason to depreciate them.
Let's take the 1-million-dollar violin. Let's say the violinist originally paid $600,000 and for some reason has fully depreciated it over the years, so it's now worth in the eyes of the IRS. IF she's able to sell it for a million dollars, her cost basis is $0, and she will owe tax on a long-term capital gain of $1 million.
If she never depreciated it, her long-term capital gain is $1 million MINUS $600k - $400,000.
Again, what you seem to omit is that this violinist, in the first place, must have paid for the violin that she's selling. The income realized from its sale now is $1 million MINUS what she paid for it originally.
Yes, that's right ... but let's keep in mind that any tax she must pay on the sale will be in those inflated dollars! Furthermore, it will be a long-term capital gain, which has a much lower tax rate.
If your income exceeds $97k, yes, Medicare premiums increase. But realizing a big profit on one big item in a year affects only one year of Medicare premiums ... not to mention that our violinist may or may not be on Medicare.
BUYING something has no effect on your income! It's only SELLING transactions that trigger gain or loss. And keep in mind that if you lose money in selling an asset, that REDUCES your tax.
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Thanks for your replies.
So, let’s take an Alembic Series I bass I’ve had for maybe 30 years now. I had been thinking about selling it as part of downsizing. But, I have no records of my original purchase of 30 years ago. So, what is my purchase price?
I would argue that converting a held asset to cash is not income; or at least is not what income tax was intended to tax. The asset was originally purchased with AFTER income tax dollars. So, why is that asset basis logically taxed a second time? That makes zero sense.
And, I have to disagree that raising Medicare premiums isn’t a big deal, because it is only a year. That logic to those on fixed incomes is a non-starter. Respectfully.
Also, I would point out that your statement that the violinist may or may not be on Medicare is a flawed logic, in that it assumes that all working musicians are below the age of 65. You may want that to be the case; but, that discriminates against a certain segment of the working musician population.
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Your best honest guess will be good enough. In the unlikely case of your return getting into the Underreporter Program, your honest response will be taken at face value. The IRS understands that 30-year-old records may not exist, and they also fully realize that you paid SOMETHING for the instrument.
Well, you can argue that until you're blue in the face, but the way it is is how it's since whenever the income tax was instituted. When I sell a stock, how is that not income (or loss)?
Again, purchases have nothing to do with it. The tax is not on the item - it's on whatever profit you realize from selling it. You did not pay tax on that profit when you purchased the item!
If you make enough profit to put you into increased premiums, you're not really on a fixed income, are you?
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Completely agree that profits are properly taxed. Not an issue for me. Stocks are an investment asset that now has a long and pretty mature track record for how that gets done. I want to believe your suggestion that “memory” of original cost basis on MI’s will be accepted; but, we shall see.
To the point about income level and increased premiums, the problem obviously comes up when the fixed income is close to the subjective increased premium mark; and then sales of previously held instruments put the tax payer over that mark.
Another thing, and just my experience: Anticipating retirement five years ago or so, I personally commissioned two somewhat higher end bass builds. I will admit that it takes me some time to sort out whether an instrument is a forever tool or not. Still, I honestly am pretty comfortable with one of them and still undecided about the other. But, I have not been depreciating them. So, what I am not getting is will IRS just look at cost vs resale, or was the depreciation supposed to have been documented? Isn’t capital outlay supposed to be depreciated for business tax reporting?
I'm not an accountant, but a pitfall to that approach is that there might be rules about using a loss from one business to offset gains from another. Or, if one of your two businesses dips into "hobby" status.
IRS has a set of requirements for an asset to qualify for depreciation. One of those requirements is that the asset must have "a determinable useful life." I don't think most musical instruments qualify; a guitar may have a useful life, but can its lifespan be determined before it "dies?" I doubt it. So, your profit or loss - and this would be long term capital gain or loss, because you've had it over 6 months - is simply whatever you can sell it for minus what you have in it.
The increased standard deduction is indeed more than what most people could deduct if they itemized.
But your first statement is incorrect ... Show me where "output from schedule C is reported" on this Schedule A:
Ah! …bustedThe increased standard deduction is indeed more than what most people could deduct if they itemized.
But your first statement is incorrect ... Show me where "output from schedule C is reported" on this Schedule A:
. I don’t use schedule A. My mistake. It is carried onto the 1040 long form, I believe, but check with my accountant.
