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

blackblaze 3,222 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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#31
I can not find where to enter the 1099K information. Any help would be wonderful!
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#32
Quote from getdealsonline View Post :
what do you mean by this, 'telling that you netted what you gross?
Thought you might appreciate some tips here
http://www.wholesaleforum.com/dis...ose-12520/

Quote from Love10014 View Post :
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!
You bring up an EXCELLENT question, as I completely forgot about cashback transactions through Paypal, ughhh Frown

Quote from cfnnb9 View Post :
I can not find where to enter the 1099K information. Any help would be wonderful!
Sorry, haven't gotten there myself, so couldn't answer this question.
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#33
Quote from blackblaze View Post :
Thought you might appreciate some tips here
http://www.wholesaleforum.com/dis...ose-12520/



You bring up an EXCELLENT question, as I completely forgot about cashback transactions through Paypal, ughhh Frown



Sorry, haven't gotten there myself, so couldn't answer this question.

Thanks for replying, if you do find it please let me know! I have been looking but cant find it at all.
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#34
Quote from blackblaze View Post :
Thought you might appreciate some tips here
http://www.wholesaleforum.com/discuss/accounting-tax-discussion-5044/ebay-accounting-advice-how-keep-records-tax-purpose-12520/

You bring up an EXCELLENT question, as I completely forgot about cashback transactions through Paypal, ughhh Frown

Sorry, haven't gotten there myself, so couldn't answer this question.
Quote from cfnnb9 View Post :
Thanks for replying, if you do find it please let me know! I have been looking but cant find it at all.
Just as I thought Cash Back payments are NOT supposed to be counted!

PP replied to my email today with a typical cut and paste without actually addressing the issue, BUT did confirm that Cash back payments ARE EXCLUDED!

HOWEVER - they absolutely DID count every single one on my account in the number of payments received. I would have had well under 200, and due to them mistakenly counting the CB - I went over 200

I am always amazed at how they manage to completely ignore the issue - I wrote to them saying CB payments were mistakenly counted and could they correct, so they replied stating the terms and ignoring my issue. AHHHHH!

Here's what they said

What transactions will PayPal be excluding?

PayPal is required to report your total gross payments received for sales of goods or services that were received through PayPal for the previous calendar year. As required by the IRS, this amount includes all fees and/or payments associated with your sales, including shipping fees or sales tax received.

The following transaction types are a sample of some of the transaction types that can be excluded from the gross payment received totals: Personal Payments, Add Funds to PayPal transfers, Debit Card Credits and Debit Card Cash Back Bonus, Merchant Referral Bonus, Cash Back Bonuses.
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#35
Quote from Love10014 View Post :
Just as I thought Cash Back payments are NOT supposed to be counted!

PP replied to my email today with a typical cut and paste without actually addressing the issue, BUT did confirm that Cash back payments ARE EXCLUDED!

HOWEVER - they absolutely DID count every single one on my account in the number of payments received. I would have had well under 200, and due to them mistakenly counting the CB - I went over 200

I am always amazed at how they manage to completely ignore the issue - I wrote to them saying CB payments were mistakenly counted and could they correct, so they replied stating the terms and ignoring my issue. AHHHHH!

Here's what they said

What transactions will PayPal be excluding?

PayPal is required to report your total gross payments received for sales of goods or services that were received through PayPal for the previous calendar year. As required by the IRS, this amount includes all fees and/or payments associated with your sales, including shipping fees or sales tax received.

The following transaction types are a sample of some of the transaction types that can be excluded from the gross payment received totals: Personal Payments, Add Funds to PayPal transfers, Debit Card Credits and Debit Card Cash Back Bonus, Merchant Referral Bonus, Cash Back Bonuses.
Definitely appreciate this clarification on this point and nice to know SOME things don't have to be taxed.
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#36
Quote from blackblaze View Post :
Thought you might appreciate some tips here
http://www.wholesaleforum.com/discuss/accounting-tax-discussion-5044/ebay-accounting-advice-how-keep-records-tax-purpose-12520/

You bring up an EXCELLENT question, as I completely forgot about cashback transactions through Paypal, ughhh Frown

Sorry, haven't gotten there myself, so couldn't answer this question.
Quote from cfnnb9 View Post :
Thanks for replying, if you do find it please let me know! I have been looking but cant find it at all.
Quote from blackblaze View Post :
Definitely appreciate this clarification on this point and nice to know SOME things don't have to be taxed.
YW - the problem is though that they ARE counting these mistakenly (at least they did for me, so assume it's for most/all) Which is going to either never get fixed or get fixed after the fact
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#37
I got a question hope i can get an answer too.

First i dont sell on ebay but i sell through email and other sources selling personal collection of things cds, dvds etc and this past year i needed some money for bills i needed to get of almost all my stuff which is a few thousand cds and dvds and some how my paypal gross got to 23,000.

My question is this if i use other forms of payment who also file the 1099k such as Google Checkout who has the same rules the 20,0000 and 200 transactions.

If i have 15,000 in sales on paypal and 15,000 in sales on google checkout will they be reported combined or does each company need to go above the 20,000 and 200 transactions? In total its over 20,000 but separate it is not.

thanks
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#38
Quote from FunkTech View Post :
My question is this if i use other forms of payment who also file the 1099k such as Google Checkout who has the same rules the 20,0000 and 200 transactions.

If i have 15,000 in sales on paypal and 15,000 in sales on google checkout will they be reported combined or does each company need to go above the 20,000 and 200 transactions? In total its over 20,000 but separate it is not.

thanks
Yes, it is "per company" however some companies have been sending 1099-K's for even $200 in sales and 4 transactions. The $20,000/200 is only a "required" 1099-K point but it can be sent at any point. PayPal, Amazon & SquareUp have stuck with the $20K/200. Not sure about Google.
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#39
Quote from FunkTech View Post :
I got a question hope i can get an answer too.

First i dont sell on ebay but i sell through email and other sources selling personal collection of things cds, dvds etc and this past year i needed some money for bills i needed to get of almost all my stuff which is a few thousand cds and dvds and some how my paypal gross got to 23,000.

My question is this if i use other forms of payment who also file the 1099k such as Google Checkout who has the same rules the 20,0000 and 200 transactions.

If i have 15,000 in sales on paypal and 15,000 in sales on google checkout will they be reported combined or does each company need to go above the 20,000 and 200 transactions? In total its over 20,000 but separate it is not.

thanks
Quote from MisterEdF View Post :
Yes, it is "per company" however some companies have been sending 1099-K's for even $200 in sales and 4 transactions. The $20,000/200 is only a "required" 1099-K point but it can be sent at any point. PayPal, Amazon & SquareUp have stuck with the $20K/200. Not sure about Google.
Yes, each company would have to surpass that threshold each to have a 1099-K given to you and the IRS. Now, if you didn't cross that threshold on either case, I still wonder if you "have to" report on it if these companies do not submit that information to the IRS.
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#40
Paypal email support is useless x 100. Don't bother emailing re: this issue, the replies are so ridiculous and moronic it's beyond comprehension how these people got hired to deal with financial issues!

I'm trying to call to get an answer on why they did the opposite of what their terms say they should do, however, it looks like ALL users cashback payments WERE counted incorrectly, pushing many over the 200 limit and getting reported when they should not have been

Techincally yes - supposed to report everything regardless of whether the co. reports.
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#41
I wonder if Paypal reports money that it steals from its customers, or hold for a indefinite period of time..... Guess the gov't isn't interested in Paypal's crooked business policies...

Guess your tax money isn't going to the gov't to protect your rights as a consumer....
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#42
sounds like someone who already has a system in place
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#43
Now PP says that cashback payments are actually NOT technically excluded, because the sites send payments as "mass payments" (obviously as they send millions, so ANY cb site will use this method.)

The response:
It appears that all of these were not casbacks rather mass payments from urlhasbeenblocked.com. That's why all of it was counted as received payments.
I hope this information clarified your confusion between a cashback from a received payment.

I get that they can't control how people send money, but if its a site that CLEARLY only sends CB money, they should be able to distinguish.
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#44
what happens if you just ignore the 1099 for 2011??? Wink

I'm seriously having a freak out moment...I got a 1099 in the mail and didn't realize that I had received that much via Paypal! I thought it was just a hobby LOL...now really, I have to backtrack the WHOLE YEAR?
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#45
Everyone breathe Smilie http://www.irs.gov/pub/irs-pdf/f1040sc.pdf

Notice there on line 1a. "Merchant card and third party payments. For 2011, enter -0-"

Also, I recently attended an IRS convention and heard repeatedly that the service will not be matching these numbers to tax returns this year (doesn't mean that next year they wont look at this years return and compare it to your 1099k, or just see if you have a schedule C in there). With that said..if you are selling on the internet at these levels you best damn be reporting that income on your small business return, cause no matter what you think, you are a small business.

My suggestion, is to make sure that you are reporting AT THE LEAST the amount shown on the 1099k statement on your C. You can then expense the cost of your inventory, your fees, and whatever other expenses you can come up with to reduce that amount.

Also, be aware, your state government may have a gross receipts tax, sales tax, etc., and they may be requiring people selling over the internet to pay tax on those sales. If you report gross income on your C, you want to make sure that you are paying the appropriate sales tax, because the states are starting to match those numbers, Ive had a few clients audited recently due to this exact situation.

Final suggestion to everyone is not to think you are smarter than the taxing authorities, they will catch you eventually..and you will pay more then than if you report and pay the appropriate amounts now.

Good Luck!
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