Yep, if you're a drug dealer and you don't want them to get you on tax evasion, make sure you report it.
Or really any cash income. You don't have to tell them where it came from. You just tell them you got cash. Like when you do a garage sale and want to be legit, you report it in the same place.
This is not my understanding of how the tax code works. If the garage sale is not part of a business and you are selling an item you used for less than you paid for it, you generally have no reportable income. Everything I could find online seems to agree, [1] for example.
Agreed. I think the parent is confusing it with the case where you buy an item for your business, depreciate it to zero (thus deducting its full value as an expense), and then later find out you can salvage some value on resale. In that case, you would have reportable/taxable income from that resale, which you can think of as “correcting the overdeduction for depreciation.”
The link you posted explains the difference between business income and hobby income. It just depends on how often you have a garage sale. Like everything with the IRS, it's complicated, and also they usually don't care with small amounts anyway.
Even if you take this viewpoint, it still means you can't depreciate the item, because it wasn't part of your income producing activity until just that moment, which means the depreciation is zero, since depreciation can only be taken based on the time the item was used for your income producing activity.
That’s not what that means. That phrase is referring to you using an item as a tool to generate income. You could depreciate a desk that you work at, but not the one that your kids do their homework on. (Because homework is not an income generating activity)
I want to see the guy who lists his Bic pens that he lets customers use to sign contracts. Yes, it has a limited lifetime. Yes it will last over a year. Yes you'll be audited if you claim depreciation on them.
You can, but why would you? Buying into the accounting-uber-alles paradigm only makes sense for business that can actually benefit by deducting the depreciation. Individual taxpayers get no such benefit, and therefore have no need to depreciate items. And without depreciation, yard sales consist chiefly of capital losses.
The IRS says that the item depreciates whether you claim it or not. It is in your best interest to claim it, because when you sell the item, they assume the depreciated value.
This comes up when you own rental houses. If you sell the house later, they reduce the base price by the assumed depreciation of the structure, whether you took the deduction or not.
Tax code deducts from your basis in an item the "depreciation allowed or allowable".
For personal property [such as typically sold in a garage sale], there is no depreciation allowed or allowable, so your basis in the good is whatever you paid for it.
Ok, maybe the US tax system is very different from the Canadian tax system, but I've never heard of someone claiming depreciation on personal use of children's toys.
Because you don't want to go to jail for tax evasion? You don't pay tax on the profit, you pay tax on the sale.
My state also requires that you report everything you bought online from out of state so they can charge sales tax on it. Luckily Amazon has a distribution center in my state that charges sales tax so this is a much shorter list than it used to be.
No one goes to jail for underreporting a small amount of income, like a weekend garage sale.
When the IRS figures out that you underreported something, they assume it's a minor mistake and send you a bill for the difference, plus minor interests.
And, as far as out-of-state sales tax... Who actually keeps a list around of all the trinkets that they bought out of state so they can pay the extra $10 of tax at the end of the year? There is a reason why big-box stores are located immediately on the tax-free side of a state line.
> No one goes to jail for underreporting a small amount of income, like a weekend garage sale.
Almost no one goes to jail for tax-related issues, period. Only about 600 people are convicted of tax fraud per year and they usually do so because of amounts of more than $100,000.[1] If the IRS finds discrepancies, they'll work with the taxpayer to pay the appropriate penalties. You have to be doing something particularly egregious to end up going to prison.
The IRS is not the big, bad bully that it is usually portrayed as.
In Canada, when you sell the type of things you usually sell at a garage sale, it triggers the "personal use property" rules. It essentially removes any profit from items as long as they are under $1000, so you're safe selling stuff at a garage sale without tax implications.
BTW that's true of income tax but not necessarily true of sales tax. Rules vary across the country but I've read about people getting in trouble for not remitting provincial sales taxes on garage sales.
(There's no GST/HST issues since (a) "used goods" are generally exempt, and (b) almost everyone running a garage sale falls under the "small supplier" rules < $30k/year.)
What's the ballpark threshold for having to report cash you got to the IRS? Proceeds from a garage sale seem like they would be way too low to bother reporting, but I don't know at what point not reporting it would be illegal.
All income requires reporting, and cash payments received over $10k (lump sum or multiple payments for a single transaction) must be reported to the IRS on Form 8300.
Would it not be illegal at literally any point? If you make one dollar or a thousand, the IRS wants to know. Maybe you meant at what point they would investigate, but that's dependent on too many factors for me (not an American) for me to even guess at.
Perhaps the easiest way to gauge it is "If I earned this much in tips as a server, would I likely report it?"
Rule of thumb (for countries subject to FATCA) is $10k. After that, the tax department (of the local government) starts to look into the source of income.
Or really any cash income. You don't have to tell them where it came from. You just tell them you got cash. Like when you do a garage sale and want to be legit, you report it in the same place.