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LLC and Selling Personal Property

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Stever_r

Junior Member
#1
What is the name of your state (only U.S. law)? Washington

My LLC buys and sells used batteries online and in person. Over the years, my wife's family has given her lots of jewelry that she no longer likes. Now, she wants to sell it all on eBay.

For however small the liability protection of my LLC, I would like to have my LLC purchase the jewelry from my wife, and then sell it on eBay under my LLC account.

Anything wrong with this?

Roughly, here are the steps: my wife has 10 pieces of jewelry that should sell for $200.00 each. My LLC will write her a company check for $500.00 (just $50 per item) and then list them on eBay under my LLC eBay account for $200.00 each.

If all the items sell, that would be a $1,500.00 gross profit for my LLC. If nothing sells, that would be a $500.00 loss for my LLC. Either way, I'll make sure to give the exact figures to my CPA at tax time.

My question: in theory, this sounds just fine: one 'entity' buying something from another 'entity' and trying to sell it for a profit. However, the "feeling" I feel is that this procedure is somehow "fishy." I'm not sure why I feel this way.... maybe because my LLC only buys/sells batteries? Maybe because it feels weird having my LLC buy from my wife? I'm not trying to "profit" from this, or "find some tax loophole."

What are the pros, cons, and ramifications I haven't thought of?

Thank you.
 

Zigner

Senior Member
#2
What is the name of your state (only U.S. law)? Washington

My LLC buys and sells used batteries online and in person. Over the years, my wife's family has given her lots of jewelry that she no longer likes. Now, she wants to sell it all on eBay.

For however small the liability protection of my LLC, I would like to have my LLC purchase the jewelry from my wife, and then sell it on eBay under my LLC account.

Anything wrong with this?

Roughly, here are the steps: my wife has 10 pieces of jewelry that should sell for $200.00 each. My LLC will write her a company check for $500.00 (just $50 per item) and then list them on eBay under my LLC eBay account for $200.00 each.

If all the items sell, that would be a $1,500.00 gross profit for my LLC. If nothing sells, that would be a $500.00 loss for my LLC. Either way, I'll make sure to give the exact figures to my CPA at tax time.

My question: in theory, this sounds just fine: one 'entity' buying something from another 'entity' and trying to sell it for a profit. However, the "feeling" I feel is that this procedure is somehow "fishy." I'm not sure why I feel this way.... maybe because my LLC only buys/sells batteries? Maybe because it feels weird having my LLC buy from my wife? I'm not trying to "profit" from this, or "find some tax loophole."

What are the pros, cons, and ramifications I haven't thought of?

Thank you.
These are great questions for your CPA.
 

quincy

Senior Member
#3
What is the name of your state (only U.S. law)? Washington

My LLC buys and sells used batteries online and in person. Over the years, my wife's family has given her lots of jewelry that she no longer likes. Now, she wants to sell it all on eBay.

For however small the liability protection of my LLC, I would like to have my LLC purchase the jewelry from my wife, and then sell it on eBay under my LLC account.

Anything wrong with this?

Roughly, here are the steps: my wife has 10 pieces of jewelry that should sell for $200.00 each. My LLC will write her a company check for $500.00 (just $50 per item) and then list them on eBay under my LLC eBay account for $200.00 each.

If all the items sell, that would be a $1,500.00 gross profit for my LLC. If nothing sells, that would be a $500.00 loss for my LLC. Either way, I'll make sure to give the exact figures to my CPA at tax time.

My question: in theory, this sounds just fine: one 'entity' buying something from another 'entity' and trying to sell it for a profit. However, the "feeling" I feel is that this procedure is somehow "fishy." I'm not sure why I feel this way.... maybe because my LLC only buys/sells batteries? Maybe because it feels weird having my LLC buy from my wife? I'm not trying to "profit" from this, or "find some tax loophole."

What are the pros, cons, and ramifications I haven't thought of?

Thank you.
WHY do you want to do this?
 

Taxing Matters

Overtaxed Member
#4
What are the pros, cons, and ramifications I haven't thought of?

Thank you.
Let me ask you a simple question: is her jewelry that you wish to see worth today more or less than what you paid for it? If the answer is less, then your plan will cause you to pay tax that you could otherwise avoid by having your wife just sell the stuff directly. If it is worth more than what your wife paid, then it becomes a tad more complicated.
 

Zigner

Senior Member
#5
Let me ask you a simple question: is her jewelry that you wish to see worth today more or less than what you paid for it? If the answer is less, then your plan will cause you to pay tax that you could otherwise avoid by having your wife just sell the stuff directly. If it is worth more than what your wife paid, then it becomes a tad more complicated.
The OP says they were gifts to his wife from family members over the years.
 

LdiJ

Senior Member
#6
Let me ask you a simple question: is her jewelry that you wish to see worth today more or less than what you paid for it? If the answer is less, then your plan will cause you to pay tax that you could otherwise avoid by having your wife just sell the stuff directly. If it is worth more than what your wife paid, then it becomes a tad more complicated.
On the average, used jewelry generally has resale value of no more than 10-20% of what someone paid for it on a retail basis. Of course, since all of this jewelry was given to the wife as gifts, she gets the basis of the person who gifted the jewelry to her. So, that would apply if the pieces were purchased to give her, but things would be a bit more complicated if they were family pieces gifted to her.

In any case, the odds of her selling the pieces at a profit to her, would be pretty slim...therefore making the husband's idea a bad one.
 

Zigner

Senior Member
#7
I wonder if both the wife and the husband are members of the LLC.

As I mentioned above, the questions the OP has are great questions for his CPA. The CPA will (or should) know all of the relevant information regarding the LLC and the husband/wife.
 

Taxing Matters

Overtaxed Member
#8
In any case, the odds of her selling the pieces at a profit to her, would be pretty slim...therefore making the husband's idea a bad one.
Yes, exactly, well put. :) Even if sold at a profit, it’s still likely a bad idea because having it as part of the profit of the business means that in addition to income tax on the gain he’s also paying self-employment tax (Social Security and Medicare taxes) on the business profit.
 

LdiJ

Senior Member
#9
Yes, exactly, well put. :) Even if sold at a profit, it’s still likely a bad idea because having it as part of the profit of the business means that in addition to income tax on the gain he’s also paying self-employment tax (Social Security and Medicare taxes) on the business profit.
Yes, there is the SE aspect as well, which I did not even think about.
 

LdiJ

Senior Member
#10
I wonder if both the wife and the husband are members of the LLC.

As I mentioned above, the questions the OP has are great questions for his CPA. The CPA will (or should) know all of the relevant information regarding the LLC and the husband/wife.
Or his tax professional. The percentage of CPA's who do individual tax is fairly small...and a single member LLC is still individual tax.
 

Stever_r

Junior Member
#11
Thank you all for your thoughts. To answer some questions:
1.) it is just me on my LLC, not my wife.
2.) 1/3 of the items were gifted, 2/3 are items she purchased
3.) She will sell the 'purchased items' for less than she paid (she overpaid LOL)
4.) She will sell the 'gifted items' for whatever price similar items sell for (about $100 to $200 each).

I called my CPA, he is happy to handle things just fine if I hgave my LLC write a company check to my wife, and then sell all the jewelry under my LLC.

Whether I pay too much tax or not is not an issue (it's not about the money), it's all about having the liability buffer of the LLC.

The reason I feel 'weird' about it is because my LLC is in the business of buying and selling batteries. Does/Could/Would my LLC buying jewelry from my wife "look bad" to someone in the future (and, should I care)?

Although part of me feels weird abou this, the other part of me says "Go ahead and do it, but give my CPA all the paperwork and dollar amounts and everything will be fine."

Your thoughts please?
 

LdiJ

Senior Member
#12
Thank you all for your thoughts. To answer some questions:
1.) it is just me on my LLC, not my wife.
2.) 1/3 of the items were gifted, 2/3 are items she purchased
3.) She will sell the 'purchased items' for less than she paid (she overpaid LOL)
4.) She will sell the 'gifted items' for whatever price similar items sell for (about $100 to $200 each).

I called my CPA, he is happy to handle things just fine if I hgave my LLC write a company check to my wife, and then sell all the jewelry under my LLC.

Whether I pay too much tax or not is not an issue (it's not about the money), it's all about having the liability buffer of the LLC.
Why the heck do you think that you need a liability buffer? Seriously? You are going to be selling a couple of thousand dollars worth of used jewelry, what possible liability are you worried about? That you might have to refund someone for some reason? Why would you pay hundreds of dollars in SE and income tax to save that kind of potential liability?

You do realize that the liability buffer of a single member LLC is NOT what you think it is?

The reason I feel 'weird' about it is because my LLC is in the business of buying and selling batteries. Does/Could/Would my LLC buying jewelry from my wife "look bad" to someone in the future (and, should I care)?
If you actually make the bad decision in going that route, you should not care.

Although part of me feels weird abou this, the other part of me says "Go ahead and do it, but give my CPA all the paperwork and dollar amounts and everything will be fine."

Your thoughts please?
My thoughts are that you are like many people, you think that an LLC is some kind of magic thing against liability, when it really is not, and you are also like many people who make foolish financial decisions on the basis of virtually non-existent liability.

Seriously, a good business liability insurance policy does more to protect you than being a single member of an LLC does.
 
#13
Your thoughts please?
I’m struggling to identify what liability it is that you are afraid you will incur in the sale of the jewelry — I’m having trouble seeing much in the way of realistic scenarios in which you would have any kind of serious liability here. At worst I could see that you may have to refund the purchase price (in which event you should jewelry back in most cases) and your LLC should have the funds to do that if it is properly capitalized; if it doesn’t even have enough money to do that you may well be opening the door to creditors of the LLC piercing the corporate veil and going after you personally anyway. So what liability do you fear that would be large enough that the LLC could not pay it and thus cause the creditor to start looking at your personal assets to collect?

Next, even if you come up with a situation where there might be large liability, how to you hope for the LLC to protect you from personal liability for it? Be aware that the LLC does NOT protect you from personal liability for your own intentional wrongdoing (like fraud or misrepresentation) or for your own acts of negligence. Its main benefits are shielding you personally from the business liability that results from: (1) contracts the LLC breaches (unless, of course, you personally guaranteed the contract — you are always liable on your personal guarantee); (2) the liability the LLC has that is caused by the wrongful acts or negligence of employees (or other members, if you had other members); and (3) liability that the LLC has for some (but not all) taxes or other mandatory fees imposed by the government. If your business is a one person operation (no employees, no other members) then the limited liability protection you are getting is primarily for contract claims where you did not personally guarantee the contract.

So, you are setting yourself up to pay perhaps hundreds of dollars in tax that you would not have to pay if you just sold it yourself in order to guard against a risk that seems to me to be pretty small and that the LLC should have the funds to cover anyway. In short, I’m not seeing where the LLC liability protection might be needed here.
 
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Stever_r

Junior Member
#14
Thank you all...
It seems the majority of respondants have a similar question: "What *possible* liability might one have from selling jewelry?" Well, here is a very, very possible scenario:

Buyer purchases diamond studded pendant, leaves it on the table next to kitchen window.

During the early hours of sunrise, the sunlight passes through the window and hits the diamond at a particular angle causing light to reflect/beam through the living room window (the house is a single-level home, with the kitchen right next to the living room.... the living room has what's called a "picture window," i.e. a very large window).

The reflected/directed light beams through the living room window onto the front yard, creating a pattern of light on the ground.

The reflected pattern of light on the ground happens to be a specific pattern that has been searched for (for decades, maybe even centuries) by one of the alien races who have been periodically visiting this planet.

The alien race perceives this pattern, runs it through the alien software aboard their hybrid life-form/machine craft, causing an immediate recognition and a landing *on the property!*

The front lawn now has alien craft landed ('in situ') directly in the middle for all, and I mean ALL neighbors to see.

The property owner happens to be a member of a homeowners association whereby ANY alien craft within 100 feet of property is expressly prohibited (e.g. otherwise there will be a substanital fine, e.g. $500.00 / alien-craft prohibited, even if lawn cut 3" or less, etc.).

The jewelry buyer fights the HA ruling, ends up in court, the judge declares "A contract is a contract," and therefore the buyer/homeowner MUST pay $500.00 to the Homeowners Association for breach of contract (again, absolutely no alien craft within x number of feet of property, no exceptions).

Of course the homeowner may try to fight this (arguing the definition of 'craft' -- e.g. what if the craft is actually a lifeform and not really a machine).

To make a long story/scenario short, the buyer now owes $500.00 because of the diamond jewelry I sold him and now sues me.

I believe having an LLC would help shield me from such a scenario.

Please let me know your thoughts.

Thank you.
 
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