THE IRS HAS TAKEN MY TRANSACTIONS VIA PAYPAL AND IDENTIFIED THEM AS TAXABLE INCOME

You should probably look at it differently.  You will have to deal with them so I would learn to play their game.  Yes, you made income but I highly doubt you made profit.  You should take the deductions on the equipment you originally bought (higher dollar amount) and that should offset the sales proceeds from paypal.  

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@eag618 
Glad to see that you are on a path to getting problem resolved.

While I don't agree with all of PayPal's policies, on this issue with taxes, they are only doing what is required by lay for them to do.

Either of two ways to handle, depending on which most applies and works best for you: 

1) Show, with records of past purchases and sales and intent of sale, that you are only doing as a no profit hobby or are simply reducing or replacing some of your collection of audio gear.

2) If you are consistently making a bit of profit on sales and equipment turn over, consider yourself a small business and take advantage of itemizing cost of goods and operating expenses, that will help reduce or offset apparent profits.

Best of luck either way.........Jim

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Good I hope they know just how close we are to firing the whole bunch. AND putting them in PRISON. The biggest slush fund on earth needs a new Daddy. It has nothing to do with the current IRS agency or any of its staffing either. 2% tax across the board within 10 years reduce it to 1% after ALL the staffing is retired, fired or put in PRISON.. I prefer the latter, UP Front...

And any one that supports that type of complex system of figuring GD taxes. Put everyone one of the thieves in PRISON.

Defund... DEFUND the IRS.

Then on to the state thieves. 10% in CA. instant 5% across the board, then down to 3% after we sort the thieves out of the 5th largest slush fund on the planet and put their A$$ in PRISON. Start in the university funding, payola, and nutso crazy salaries that are unfettered and unchecked.. PRISON...

Nonprofits, done overnight.. Biggest scam on EARTH, PRISON..

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Whole different THING!!!

Then required watching by everyone on the planet. 

"Close encounter of the 5th kind" Time to invite the angles of old to come and stay forever.. 72 million is the estimate. Watch the movie.. I didn't think they new the number yet, NOW they do..

I really want folks to hear the testimony of the man whos hearing was fixed.. no more hearing aids..

July 4 1976 for me.. Have you had an encounter? 1/2 of our town did, the pictures we saw in the news papers over  the next few days were what we saw over our town for the next 30 days or so in the Northern California Sky.
Mount Diablo, and Lawrence Livermore propulsion lab in particular.

Their not back, they never left.. IRS that.. Their watching, the money grubbin' thieves of the world, the IRS is number one on the clean up list, Isle 1 please.

There I go being petty again..

Regards

I disagree with jdane about the hobby part. 

If you have the receipt showing you paid $1000 for something and the receipt showing you sold the same thing for $500, that’s a $500 loss to be applied against other income. 

I’m not a tax lawyer but it does look that way to me.