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Paypal Reporting Income to IRS with 1099-K. eBay Sales Over $20,000 AND Sold Over 200 Items

blackblaze 3,162 February 2, 2012 at 07:18 AM
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I was reading this article this morning and posted it in another thread regarding 1099-K

http://www.forbes.com/sites/kelly...taxpayers/

I know there are a lot of folks here who buy and sell (using Paypal to receive payments) based on slickdeals they come across. Some folks for profit, some folks, to get their item for free (buy 4, sell 3, get their slickdeal item free). I've been able to get some great deals going the route of buying a few extra and getting the item for free. However, with so many great slickdeals throughout the year and selling, for some, you may have cross the threshold of now receiving a 1099-K from Paypal ($20K gross received and 200 transactions) that is also reported to the IRS

http://www.irs.gov/instructions/i1099k/ar02.html

So, how does one handle this. Some questions that come to mind:

1. What distinguishes hobby seller from small business?
2. Reported amount is gross, not net, where is clarity to show just net income?
3. If you receive this form, and somehow show a result of net income, can you claim expenses, itemized deduction (mileage to acquire items, etc, etc.)?
4. Since this is new, how well are tax accountants prepared to help tax preparers to navigate this new form?
5. Should you create a new Paypal/Ebay account to account for selling personal items/friends items, etc vs items strictly for resale?

Wanted to open it up for discussion. Cool2

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255 Comments

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#3
EBay sellers:

Has any of you sold over 20k on eBay? If yes, how much tax are we expected to pay to IRS?

Apparently PayPal reports to IRS when you have sold over 20k or more than 200 items

One obviously has to report the income while filing taxes...any advises or information, appreciated!
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#4
Quote from getdealsonline View Post :
If yes, how much tax are we expected to pay to IRS?
You're supposed to pay taxes on income earned. So if you sold $14,000 worth of stuff for $20,000 and paid $1,500 in fees than report $4,500!
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#5
Sales Price less Cost of Item less Fees.
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#6
Quote from LivninSC View Post :
You're supposed to pay taxes on income earned. So if you sold $14,000 worth of stuff for $20,000 and paid $1,500 in fees than report $4,500!
Okay, so for example how much tax I'd be paying on reported $4500 figure?
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#7
that depends. how much TOTAL income did you have for the year? including your day job, interest from banks, etc..
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#8
Quote from getdealsonline View Post :
Okay, so for example how much tax I'd be paying on reported $4500 figure?
That depends on your income bracket, your deductions, and whether your state also has income tax or not.
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#9
Quote from vbt View Post :
that depends. how much TOTAL income did you have for the year? including your day job, interest from banks, etc..
Quote from LivninSC View Post :
That depends on your income bracket, your deductions, and whether your state also has income tax or not.
I have kinda lost count of how much I made since I didn't really kept a track of my own cost ... but I know I din't make much profit to begin with and then ebay and pp fee ate whatever little profit could have made
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L10: Grand Master
3,162 Reputation
Original Poster
#10
Quote from getdealsonline View Post :
I have kinda lost count of how much I made since I didn't really kept a track of my own cost ... but I know I din't make much profit to begin with and then ebay and pp fee ate whatever little profit could have made
Ah tried to get this discussion going today as well in this post
http://slickdeals.net/f/3897114-Are-you-a-SD-Hobby-Seller-and-received-a-1099-K-from-Paypal?v=1

You may also want to update your title. I think you have to satisfy both criterias, 20K AND 200 items, not one or the other.
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#11
Quote from blackblaze View Post :
Ah tried to get this discussion going today as well in this post
http://slickdeals.net/f/3897114-Are-you-a-SD-Hobby-Seller-and-received-a-1099-K-from-Paypal?v=1

You may also want to update your title. I think you have to satisfy both criterias, 20K AND 200 items, not one or the other.

thanks for sharing your link ... i guess both of our posts are same - perhaps mods can merge it

on a sidenote we seem to be in same boat, as suggested by your OP .. what do you plan to do?
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L10: Grand Master
3,162 Reputation
Original Poster
#12
Quote from getdealsonline View Post :
thanks for sharing your link ... i guess both of our posts are same - perhaps mods can merge it

on a sidenote we seem to be in same boat, as suggested by your OP .. what do you plan to do?
Will probably consult with a tax preparer. This is a new area for a lot of folks and for the IRS and I do not think they did a good job preparing folks. Im just hoping there are some tax preparers who can really help navigate this first year of this new 1099-K form

Im currently contemplating buying quickbooks to track everything, or find Excel templates already out there or create my own so that I can itemize my deductions since it needs to figured out what my profit is, and then all the associated expenses that goes with that (cost of goods, distance driven to acquire goods, ship goods, packing materials, etc).

So far, for tracking ebay transactions, i've found this, but may be dated.
http://download.cnet.com/AccessPr...73564.html

then there is these guys
http://www.easyauctionstracker.com/

I'm hoping to hear more folks chime in.

I sent a note to the mods to see if they can combine the threads and if combined, will probably use your title, "Paypal Reporting Income to IRS. eBay Sales Over 20k AND Sold Over 200 Items" as that seems to relate to more folks on the site vs my title.
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#13
You can claim as much or as little profit as you like. Unless you are audited, it doesn't matter. If you are audited, you will be expected to provide some level of proof for what you paid for the items. If it was just a bunch of household junk that you were selling off after years of accumulation, it won't be an issue. If you were selling new items or items with questionable purchase history, then you better be able to show what you paid for them.
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L10: Grand Master
3,162 Reputation
Original Poster
#14
Quote from dealgate View Post :
You can claim as much or as little profit as you like. Unless you are audited, it doesn't matter. If you are audited, you will be expected to provide some level of proof for what you paid for the items. If it was just a bunch of household junk that you were selling off after years of accumulation, it won't be an issue. If you were selling new items or items with questionable purchase history, then you better be able to show what you paid for them.
Yeah, I didn't keep a lot of receipts once items were sold and 2 months had gone by and there was no need for the receipts anymore. Luckily, some of the items were from Best Buy and Sears and I can most likely get those receipts recreated. Now, deals from Target, I probably will not. But as you said, that is if you get audited.

How nice would it be to put down an mileage of traveling to store to store (Target deals are infamous for this) to find a slickdeal and put it down as a part of your itemized deduction for being in this category laugh out loud
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L10: Grand Master
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Original Poster
#15
Quote from getdealsonline View Post :
thanks for sharing your link ... i guess both of our posts are same - perhaps mods can merge it

on a sidenote we seem to be in same boat, as suggested by your OP .. what do you plan to do?
Went to HR Block today to get some information, and as expected, EVERYONE is learning how to treat the 1099-K. Was told today that information the 1099-K will then lead someone to do a Schedule C

http://biztaxlaw.about.com/od/glo...edulec.htm

So this probably takes folks out of the realm of a hobby seller, into a self-employed type bracket or small business, even if its not your primary job. And all that is associated with that (expenses, deductions, profits, loss) should be known so to report that.
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