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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

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L10: Grand Master
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#61
Quote from dancergrrrl3 View Post :
I would like to know as well. Now that I received a 1099, I am going to be re-creating all of 2011 (FUN) and there are a lot of things I can deduct (gas, ect.). I also have a regular full time job. So what forms do I need to use to file this year? I think I will just go to a tax person...
Suggested reading material
http://www.amazon.com/-commerce-R...269&sr=8-1
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~Super Uber Fab Shopper!~
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#62
Quote from blackblaze View Post :
Suggested reading material
http://www.amazon.com/-commerce-R...269&sr=8-1
That looks good! I wish I could find some reviews on it though...
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#63
I just finished up my return and I was a pretty active amazon seller. Just make sure your 1099-K matches your revenues and then deduct your cost of goods sold and tax deductible fees and costs -- that's your net.

If it was a personal item you purchased for more than the selling price, you can only deduct the selling price (cannot show a loss on personal items). That's my understanding.
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#64
Quote from Snyder.698 View Post :
I just finished up my return and I was a pretty active amazon seller. Just make sure your 1099-K matches your revenues and then deduct your cost of goods sold and tax deductible fees and costs -- that's your net.

If it was a personal item you purchased for more than the selling price, you can only deduct the selling price (cannot show a loss on personal items). That's my understanding.
that helps clear things up on selling used goods that were your personal property vs new goods sold for profit. Thanks and repped.
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#65
Check out the ebay application called Outright [ebay.com]. I have just started to play with it, but it looks like you can add your paypal account and such, and use it to help fill out taxes.
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#66
Quote from xur17 View Post :
Check out the ebay application called Outright [ebay.com]. I have just started to play with it, but it looks like you can add your paypal account and such, and use it to help fill out taxes.
Repped for the suggestion nod
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#67
Quote from blackblaze View Post :
Repped for the suggestion nod
Thanks. I ran across it when looking up 1099-K form information since I am curious for 2012. It imported all of my information mostly correctly, and I was able to manually change anything that wasn't. It looks like you can add other account (credit cards, banks, etc) similar to what Mint lets you do, which would be very helpful for people that spend a decent amount, and have a card dedicated to buying stuff to sell.
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#68
I still have not found where to put the 1099K in, I am using the free turbotax system that was posted on slickdeals the other day, I have everything else done but that!
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#69
Quote from xur17 View Post :
Check out the ebay application called Outright [ebay.com]. I have just started to play with it, but it looks like you can add your paypal account and such, and use it to help fill out taxes.
Yeah, I tried using that...funny thing is it isn't compatible with a lot of new updates of some browsers, including my Firefox! I asked them if they were planning on updating, and they didn't really know. Roll Eyes (Sarcastic)
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#70
Quote from dancergrrrl3 View Post :
Yeah, I tried using that...funny thing is it isn't compatible with a lot of new updates of some browsers, including my Firefox! I asked them if they were planning on updating, and they didn't really know. Roll Eyes (Sarcastic)
I tried it as well and I wasn't sure of the accuracy of the dates on the data, maybe 1 or 2 days off on certain transactions. I'll continue to refine and populate my spreadsheet so to create pivot tables and graphs off the data.
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#71
Quote from blackblaze View Post :
I tried it as well and I wasn't sure of the accuracy of the dates on the data, maybe 1 or 2 days off on certain transactions. I'll continue to refine and populate my spreadsheet so to create pivot tables and graphs off the data.
Yeah, the whole thing seemed kind of "off" and I didn't find it that user-friendly. This week I am diligently filing all of my records and getting ready to start re-creating all of 2011 vomit
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#72
Quote from roxwella View Post :
A "hobby seller" still reports the income they make in the course of the hobby to the IRS, the difference is that they do not get to deduct hobby loss against ordinary income, and they are limited to deducting against that hobby income on the schedule A under misc deductions (which are limited to anything above 2% of AGI, and can only be used if they are in excess of the standard deduction). If you are making money, you want to be classified as a business. The IRS will actually challenge your business status if you have too many loss years in a row (at that point they make your business into a hobby with the above limitations).

Secondly, a sole proprietor is just a person in everyday business, requires no special forms or start up procedure. What you may require is a tax id from your state, or an employer id in the odd chance you employ another.
Are you a hobby seller yourself, or do you have yourself a small business setup?
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#73
Small business all the way my friend .. Wink.

And lets see here, first (http://www.irs.gov/pub/irs-pdf/f1040sc.pdf), the 1099k reportable will not have its own home this year, you can see on line 1a "Merchant card and third party payments. For 2011, enter -0-". If you only have sales through 1099k providers, make sure the sum of your 1099ks is lesser than or equal to what you enter on line 1b.

Next..other expenses.

1. Lets approach vehicle expenses first. There are two different ways that the IRS allows for calculating what to deduct for your vehicle usage, the first is actual, and the second is based on a per mile allowance (.55 cents a mile this year). The actual mileage (based on receipts that you have collected for your actual expenses and then limited to the percentage of business use to normal use you have) VERY RARELY results in a higher deduction, especially if the vehicle isnt used primarily for the business. The 55cents adds up! You need to have some sort of record, so Id suggest google mapping your drive from home to post office. Then multiplying that by the number of times you went, sourced from some amazon record of shipping (and making some sort of spread sheet as proof). Also, once you have chosen one of these methods you are stuck with it, you cant switch back and forth.

2. You are selling on the internet with a computer. Maybe you bought one during the year that you use for your business. This is a capital asset, which means that for business purposes it should be depreciated over a set number of years (5 regularly I believe)..not simply expensed. (When an item is depreciated it has a yearly expense associated with it. Which means this year you wont take the full deduction for its value, but only a portion, and the rest will help reduce future years of income.). There is currently something called a 179 deduction where you can take the full value of a capital asset in the year that you purchase it.

I have made the previous paragraph somewhat comprehensive so you can understand what I say next. Consider both of these options, sure a large deduction this year is nice, but if you (as I) believe that taxes will be going up in the near future (or that you will be making more money in the future) you may want that yearly amount of depreciation. Up to you

3. Office in the home deduction. If you have a space that is used specifically (and in this case specifically means specifically..if you are audited and they come to your house you better not have anything but work in that room), you can take a percentage of the price to run your home (which would include mortgage interest/rent, insurance, utilities, repairs, etc.) based on your office sq ft to home sq ft ratio. This can be fat. But it needs to seriously only be used for business.


Finally, let me put this forward to all..if you are uncomfortable with your tax situation, don't want to do your own taxes anymore, or just plain want to see (cause most will review for free) go see a CPA or EA (lesser known certification, but proven experts in tax). Their fees can be quickly recouped and, in many examples, far exceeded by the savings they uncover.
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#74
for those over 200 transactions but below 400...couldn't you just have someone else in your household (spouse or parent) open a paypal/ebay account and sell your stuff?
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#75
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!
Actually, he would need to to report $20,000 and then report $15,500 in expenses. Paypal will report it to the IRS anyway if you cross the threshold so lying about it is only going to get the individual audited.
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