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

blackblaze 3,218 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

256 Comments

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#16
Pretty basic tax setup with the schedule C, should always be using one when selling stuff for profit. Please be aware that you do get screwed on self employment tax, which is currently 15%. I would also recommend not wasting time at H&R as they are about as knowledgeable as a rock.

Keep Receipts
Keep track of mileage during your endeavors
Request yearly credit card statements to pull data from

For ebay, sign up for Sales Reports Plus to get a detailed monthly breakdown of sales/fees etc. In paypal, create a spreadsheet using the Historical Sales Report on a monthly basis. This report will show you every single thing you sold, tax collected on, etc.. If you sell via Amazon, use the monthly report. Create 12 separate spreadsheets with the data.
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#17
Quote from WildChickenDanc View Post :
Pretty basic tax setup with the schedule C, should always be using one when selling stuff for profit. Please be aware that you do get screwed on self employment tax, which is currently 15%. I would also recommend not wasting time at H&R as they are about as knowledgeable as a rock.

Keep Receipts
Keep track of mileage during your endeavors
Request yearly credit card statements to pull data from

For ebay, sign up for Sales Reports Plus to get a detailed monthly breakdown of sales/fees etc. In paypal, create a spreadsheet using the Historical Sales Report on a monthly basis. This report will show you every single thing you sold, tax collected on, etc..
Quote from blackblaze View Post :
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.
so one can't just say that my estimated cost is say $25K and after ebay and paypal fee .. didn't really make a profit .. ?

I wonder if it will take me entire another year to calculate what I sold, how much I bought them for etc. etc.

what a mess I seem to be getting in..
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#18
Quote from getdealsonline View Post :
so one can't just say that my estimated cost is say $25K and after ebay and paypal fee .. didn't really make a profit .. ?

I wonder if it will take me entire another year to calculate what I sold, how much I bought them for etc. etc.

what a mess I seem to be getting in..
So you don't keep track of anything you buy or sell? May I ask what it is you sold?
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#19
Quote from WildChickenDanc View Post :
Pretty basic tax setup with the schedule C, should always be using one when selling stuff for profit. Please be aware that you do get screwed on self employment tax, which is currently 15%. I would also recommend not wasting time at H&R as they are about as knowledgeable as a rock.

Keep Receipts
Keep track of mileage during your endeavors
Request yearly credit card statements to pull data from

For ebay, sign up for Sales Reports Plus to get a detailed monthly breakdown of sales/fees etc. In paypal, create a spreadsheet using the Historical Sales Report on a monthly basis. This report will show you every single thing you sold, tax collected on, etc.. If you sell via Amazon, use the monthly report. Create 12 separate spreadsheets with the data.
sounds like someone who already has a system in place Big Grin

I just bought Quickbooks today, after giftcards, was inexpensive. Was going to set up spreadsheets, but think I'll try this route out. Thanks for the tips nod

Quote from getdealsonline View Post :
so one can't just say that my estimated cost is say $25K and after ebay and paypal fee .. didn't really make a profit .. ?

I wonder if it will take me entire another year to calculate what I sold, how much I bought them for etc. etc.

what a mess I seem to be getting in..
You can always go based on Ebay history and estimate cost of good, packing material, to figure out your net and submit that. Its if your audited, that data becomes more valuable. I'll start my tracking and keeping receipts as of now.
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#20
Quote from WildChickenDanc View Post :
So you don't keep track of anything you buy or sell? May I ask what it is you sold?
I don't think a lot of us does. For example, the Monster 50% off sale, a lot of folks bought to sell some items, and get their personal item for free and get some pocket change in the process. Im sure there were a lot of folks who didn't think they surpassed a mark where it was felt they should have been tracking. This year will make folks like that MUCH MORE aware.
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#21
I would be interested to know how easy it is to integrate Quickbooks after the fact.
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#22
Quote from blackblaze View Post :
sounds like someone who already has a system in place Big Grin

I just bought Quickbooks today, after giftcards, was inexpensive. Was going to set up spreadsheets, but think I'll try this route out. Thanks for the tips nod

You can always go based on Ebay history and estimate cost of good, packing material, to figure out your net and submit that. Its if your audited, that data becomes more valuable. I'll start my tracking and keeping receipts as of now.
Quote from blackblaze View Post :
I don't think a lot of us does. For example, the Monster 50% off sale, a lot of folks bought to sell some items, and get their personal item for free and get some pocket change in the process. Im sure there were a lot of folks who didn't think they surpassed a mark where it was felt they should have been tracking. This year will make folks like that MUCH MORE aware.
so are we expected to submit all purchase receipts? I sold a few TPs, and some electronics from black friday deals

apparently I did buy quick books from staples so I now need to find where I kept it and then to use it to tabulate!
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#23
Quote from getdealsonline View Post :
so are we expected to submit all purchase receipts? I sold a few TPs, and some electronics from black friday deals

apparently I did buy quick books from staples so I now need to find where I kept it and then to use it to tabulate!
To my knowledge, you do not have to submit receipts unless they are requested. They are typically requested in an audit, otherwise, i am assuming now, if your numbers look good, then you are fine. Just a lot of backtracking booking to be done at this point to the best of your ability.

Quote from WildChickenDanc View Post :
I would be interested to know how easy it is to integrate Quickbooks after the fact.
Integrate quickbooks with Ebay?
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#24
Quote from getdealsonline View Post :
so are we expected to submit all purchase receipts? I sold a few TPs, and some electronics from black friday deals

apparently I did buy quick books from staples so I now need to find where I kept it and then to use it to tabulate!
Why would you submit receipts? All you do is figure out total revenue - total expenses. You use receipts to figure out cost of goods sold. If you get audited they will want to look at your receipts/credit card statements to verify that everything matches up.
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#25
Quote from blackblaze View Post :
To my knowledge, you do not have to submit receipts unless they are requested. They are typically requested in an audit, otherwise, i am assuming now, if your numbers look good, then you are fine. Just a lot of backtracking booking to be done at this point to the best of your ability.

Integrate quickbooks with Ebay?
yes, I have actually no idea how I am going to tabulate - i sold around 250 items so its not easy to backtrack at this point ...

what a mess I hate ebay/pp now Big Grin
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#26
In Paypal

Click Reports
Click Download History
Download and save reports for every month of 2011
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#27
Quote from WildChickenDanc View Post :
In Paypal

Click Reports
Click Download History
Download and save reports for every month of 2011
I plan to do this through Paypal and Ebay to start figuring out line items, and then fill out the necessary data to determine net. Its going to take some time, but the alternative is telling the IRS that you netted what you gross, which WILL NOT happen Nono
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#28
Quote from blackblaze View Post :
... but the alternative is telling the IRS that you netted what you gross, which WILL NOT happen Nono
what do you mean by this, 'telling that you netted what you gross?
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#29
Quote from getdealsonline View Post :
what do you mean by this, 'telling that you netted what you gross?
You will be paying tax on income that is not true income if you simply just tell the IRS that the amount reported on the 1099-K was pure income, which it is not. I'd take it day by day, download the monthly reports from Ebay sales and do a month a day in terms of lining up all the items sold, and if no receipts, guestimating what you paid for them.
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#30
Can't get a straight answer on this - maybe someone knows?

Are payments you get through Paypal as purely CashBack [fatwallet.com] from sites like FW, MRB, BC etc supposed to be considered in the 200 limit / considered as payment for the sale of "services?"
We aren't hiring the sites and collecting payment, or so I thought, but I got a 1099 because the FW, BC, MR payments pushed me from well under 200 to over 200.

Thanks!
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