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

blackblaze 3,352 February 2, 2012 at 08:18 AM
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Last Edited by blackblaze February 3, 2012 at 05:29 AM
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

265 Comments

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#106
Quote from Mike A. View Post :
Simply put, if you have income, then it should be reported. The 1099-K just makes it easier for them to match up sources of income with you. If you have income beyond a de minimus level (which if you're receiving 1099-Ks then you're likely above), then if audited at some point then they will find it since they'll have access to bank accounts etc.

You can count expenses and cost of goods against income. You cannot count your time. Technically, if you set up as a business and were paying yourself in some way then you could count labor as a cost for calculating business income; however, it then would be income on your end so for practical purposes it's a wash.
I think for small business, we should count time, we can say we hired some Mexico people shipping or buying for us.
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#107
Quote from truelies View Post :
I think for small business, we should count time, we can say we hired some Mexico people shipping or buying for us.
As long as you have records to show that you paid that cost, then you're good. If not, then no go.
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#108
Anybody can kindly share what kind of excel form you prepared? I am totally in dark how to prepare it. Thanks a lot!
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#109
Quote from Josh2009 View Post :
Anybody can kindly share what kind of excel form you prepared? I am totally in dark how to prepare it. Thanks a lot!
I don't think it's possible to prepare those, you need to write down each time you mail the item, things include how many miles to post office, how many miles to store to buy item or return item, and what happen if the item is for self use first then later you decide to sell it? You need to write down and keep a receipt for basically everything you bought.
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#110
Yes that is almost impossible to track all these. Can I just fill the schedule C with an estimate of the costs of goods sold at line 35 and put the eBay and paypal fee at line 10 for Commissions and fees? Then calculate Net profit on line 31. Which line can I put the shipping fee on it? I don't want to complicate things by putting too many items though. TIA!

Quote from truelies View Post :
I don't think it's possible to prepare those, you need to write down each time you mail the item, things include how many miles to post office, how many miles to store to buy item or return item, and what happen if the item is for self use first then later you decide to sell it? You need to write down and keep a receipt for basically everything you bought.
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#111
Quote from Josh2009 View Post :
Yes that is almost impossible to track all these. Can I just fill the schedule C with an estimate of the costs of goods sold at line 35 and put the eBay and paypal fee at line 10 for Commissions and fees? Then calculate Net profit on line 31. Which line can I put the shipping fee on it? I don't want to complicate things by putting too many items though. TIA!
I don't sure. I will put an estimated amount for expense. But based on this discuss

http://forums.ebay.com/db2/topic/...7?start=72

We don't need to report 1099k at all. I don't know why people here want to report it. IRS said they will not use those 1099k this year, but people here said maybe they will use those as an audit in the future?
This 1099k really is a heavy burden for everybody. I don't know how much a small company will pay for accountant on this thing.
Last edited by truelies April 5, 2012 at 10:23 PM
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#112
Quote from truelies View Post :
I don't sure. I will put an estimated amount for expense. But based on this discuss

http://forums.ebay.com/db2/topic/...7?start=72

We don't need to report 1099k at all. I don't know why people here want to report it. IRS said they will not use those 1099k this year, but people here said maybe they will use those as an audit in the future?
This 1099k really is a heavy burden for everybody. I don't know how much a small company will pay for accountant on this thing.
I think you still need to report it since nothing official from IRS website stated not to or postpone to file 1099k tax in 2011. Is the dead line to file tax before 4/17/12?
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#113
Quote from tomcoolz View Post :
I think you still need to report it since nothing official from IRS website stated not to or postpone to file 1099k tax in 2011. Is the dead line to file tax before 4/17/12?
Again, you've always needed to report the income. The only thing different this year was that PayPal (and all other merchant accounts, etc.), were required to report the income directly to the IRS via the 1099-K. The 1099-K requirements either way do not affect your requirement to report income. It simply makes it easier for them to match a specific income source with a specific person on an automated basis. As in the case of other 1099-type forms, where they see money reported from some source and no corresponding reporting on your end, then that will throw up a flag. Because you don't receive a 1099, it's less likely to be flagged but that that doesn't mean that the money you made is free and clear and that you don't need to report it. Obviously, you can do whatever want but that's the deal.

The 1099-K forms actually make things easier for me. Previously, I had to go through PayPal and other dumps and calculate the totals. Now I can just rely on the amount reported on the 1099 and deal with some exceptions. Still need to deal with the cost/expense side, which is the biggest pain, but that cuts out a lot of the work by giving me an easy "official" source for most of the income side.
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#114
Quote from tomcoolz View Post :
I think you still need to report it since nothing official from IRS website stated not to or postpone to file 1099k tax in 2011. Is the dead line to file tax before 4/17/12?
Here is the link from IRS.gov

http://www.irs.gov/newsroom/artic...29,00.html

I just sell for hobby and the income is very small, not even a small business. The problem is how can we approve the expense without change my life? Small business are protesting in congress.
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#115
Quote from truelies View Post :
Here is the link from IRS.gov

http://www.irs.gov/newsroom/artic...29,00.html

I just sell for hobby and the income is very small, not even a small business. The problem is how can we approve the expense without change my life? Small business are protesting in congress.
so essentially, we get a pass on 2011, but are fair warned now that it can be used for audit purposes 2012 and moving forward, that is how I interpreted all of this. Only the 1st quarter of 2012 is complete, and I can easily go back and see what I've done so far, vs estimating 2011. Im somewhat glad this came out, as to now make me better at tracking all this and truly seeing where I can improve. I always wanted to track, but wasn't motivated to do so, but now, there is reason that can be helpful down the line.

I appreciate everyone's input and glad this thread was useful for some. nod
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#116
Quote from blackblaze View Post :
so essentially, we get a pass on 2011, but are fair warned now that it can be used for audit purposes 2012 and moving forward, that is how I interpreted all of this. Only the 1st quarter of 2012 is complete, and I can easily go back and see what I've done so far, vs estimating 2011. Im somewhat glad this came out, as to now make me better at tracking all this and truly seeing where I can improve. I always wanted to track, but wasn't motivated to do so, but now, there is reason that can be helpful down the line.

I appreciate everyone's input and glad this thread was useful for some. nod
I am not sure what's IRS mean. Why they said bank and PayPal released from report 1099k, but I still received it? Did paypal report it to IRS or not? We need somebody with accountant background to confirm we can ignor the 1099k.

http://www.irs.gov/newsroom/artic...29,00.html
Last edited by truelies April 8, 2012 at 10:24 PM
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#117
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#118
Quote from truelies View Post :
Here is the link from IRS.gov

http://www.irs.gov/newsroom/artic...29,00.html

I just sell for hobby and the income is very small, not even a small business. The problem is how can we approve the expense without change my life? Small business are protesting in congress.
Very interesting. According to the 'Notice 2011-89' that this links to, they are saying that there will be no penalties to payors not accurately filing 1099-K for sales in 2011 "in order to provide additional time to develop appropriate procedures for compliance"

However it also does state this applies to payors that make "good-faith efforts in filing accurate Forms 1099-K". Which can be interpreted in different ways since if it was reported to IRS, you would either be reporting the correct amount, or something less or zero, which is inaccurate...
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#119
Quote from ikuzo1 View Post :
Very interesting. According to the 'Notice 2011-89' that this links to, they are saying that there will be no penalties to payors not accurately filing 1099-K for sales in 2011 "in order to provide additional time to develop appropriate procedures for compliance"

However it also does state this applies to payors that make "good-faith efforts in filing accurate Forms 1099-K". Which can be interpreted in different ways since if it was reported to IRS, you would either be reporting the correct amount, or something less or zero, which is inaccurate...
government lackeys and their ways of making something that could be simple, complicated Facepalm
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#120
Quote from blackblaze View Post :
government lackeys and their ways of making something that could be simple, complicated Facepalm
OK. I just decide to report those and tried Schedule C, if you need to do it accurately you should hire a great bookkeeper in you house to record all you travel, meal, each time ebay and paypal fee, each shipping.......

BTW. I just estimated all the spending. Looks like we all paid huge money to ebay and paypal. I still didn't record spending in 2012, if I want to do so, my life will be miserable.
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