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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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#91
Quote from dancergrrrl3 View Post :
what exactly does that mean? sorry, I'm not good at "tax-speak" LOL!
It means first that this year you are not REQUIRED to put your income from your 1099k on the Schedule C (if you aren't reporting this income at this point though you are breaking the law). It also means, from what I can tell and have heard, that they wont be sending these statements out in the future.

That doesn't mean the IRS will not use this information to judge the correctness of your return. It just means that they aren't directly matching on the front end.

I know that taxes suck, I know its no fun to pay them, but, our society/government needs this money. If you aren't reporting this income on your own you are CHEATING, and should consider the old saying about what you do when no one is watching.

Now off my pulpit Stick Out Tongue
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#92
Quote from roxwella View Post :
It means first that this year you are not REQUIRED to put your income from your 1099k on the Schedule C (if you aren't reporting this income at this point though you are breaking the law). It also means, from what I can tell and have heard, that they wont be sending these statements out in the future.

That doesn't mean the IRS will not use this information to judge the correctness of your return. It just means that they aren't directly matching on the front end.

I know that taxes suck, I know its no fun to pay them, but, our society/government needs this money. If you aren't reporting this income on your own you are CHEATING, and should consider the old saying about what you do when no one is watching.

Now off my pulpit Stick Out Tongue
Roxwella, did you see my post #81?
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#93
Just saw it...the answer is not pure clarity.

This is not really a threshold situation, its more the intent you have in respect to the income. If it is regular and recurring, or it is engaged in with the intention of making a profit, or the activity is conducted in a business like manner the income should be on a Schedule C.

In respect to what form the business takes, the only type that goes on the C is a sole proprietorship. If you have formed a partnership or s-corp (could be taking salary/guaranteed payments as well on W2), it does its own tax return and then gives you a k1 with certain pass through items. If you have a full on corp it will do its own return and you will take dividends/salary.

In a sole proprietorship you are the only owner and unless you are also an LLC, you are 100% liable for any debts, etc. This income is subject to self-employment tax (effectively paying your own social security and medicare tax. Half of which is taken as a deduction to regular income). This formation occurs without effort, you doing business makes a sole proprietorship.
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#94
Quote from roxwella View Post :
Just saw it...the answer is not pure clarity.

This is not really a threshold situation, its more the intent you have in respect to the income. If it is regular and recurring, or it is engaged in with the intention of making a profit, or the activity is conducted in a business like manner the income should be on a Schedule C.

In respect to what form the business takes, the only type that goes on the C is a sole proprietorship. If you have formed a partnership or s-corp (could be taking salary/guaranteed payments as well on W2), it does its own tax return and then gives you a k1 with certain pass through items. If you have a full on corp it will do its own return and you will take dividends/salary.

In a sole proprietorship you are the only owner and unless you are also an LLC, you are 100% liable for any debts, etc. This income is subject to self-employment tax (effectively paying your own social security and medicare tax. Half of which is taken as a deduction to regular income). This formation occurs without effort, you doing business makes a sole proprietorship.
Let me rephrase my question, unless this does answer it.

If I am not a registered business, can I still use Schedule C, or do I have to be registered to use it? Can anyone joe from the streets use schedule C on their taxes but not have a business, but made profit from a business-like setting?

The second part of the question would be, if your answer is you HAVE to be a business to use schedule C, does the timing of when you register have impact on using schedule C this year. If I register as a business on April 1, will that count retroactively as a business for last year or only from registration date and forward?

I hope that clarifies what Im trying to ask. TIA.
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#95
Quote from blackblaze View Post :
Let me rephrase my question, unless this does answer it.

If I am not a registered business, can I still use Schedule C, or do I have to be registered to use it? Can anyone joe from the streets use schedule C on their taxes but not have a business, but made profit from a business-like setting?

The second part of the question would be, if your answer is you HAVE to be a business to use schedule C, does the timing of when you register have impact on using schedule C this year. If I register as a business on April 1, will that count retroactively as a business for last year or only from registration date and forward?

I hope that clarifies what Im trying to ask. TIA.
Yes you can use schedule C without being a registered business.

Not following your second question...but if you start a business on 4/1/2012 and assuming you are filing calendar year then revenues and expenses would be reported for the time period of 1/1/12 thru 12/31/12
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#96
Quote from PiratesSayARRR View Post :
Yes you can use schedule C without being a registered business.

Not following your second question...but if you start a business on 4/1/2012 and assuming you are filing calendar year then revenues and expenses would be reported for the time period of 1/1/12 thru 12/31/12
My second question was based on the answer to the first. If you had to be a business, would it be based on a calendar year of when you started your business or a standard calendar year? But, since you don't have to be a business, my second question is mute.

So,
1 for 2011 taxes, not registered as a business, can use Schedule C (but seems we "technically" don't have too based on information roxwella found.)

2. for 2012 taxes, registered as a business (sole proprietorship for example), can use Schedule C
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#97
Quote from blackblaze View Post :
My second question was based on the answer to the first. If you had to be a business, would it be based on a calendar year of when you started your business or a standard calendar year? But, since you don't have to be a business, my second question is mute.

So,
1 for 2011 taxes, not registered as a business, can use Schedule C (but seems we "technically" don't have too based on information roxwella found.)

2. for 2012 taxes, registered as a business (sole proprietorship for example), can use Schedule C
Correct...but again it depends. You could start a corp and use a fiscal year that doesn't match a calendar year for tax filing purposes.
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#98
Quote from PiratesSayARRR View Post :
Correct...but again it depends. You could start a corp and use a fiscal year that doesn't match a calendar year for tax filing purposes.
Ok, then that answers all my questions. Appreciate the help, repped Thumbup
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#99
Quote from roxwella View Post :
LOL...just got a Kiplinger tax update in the mail today, looks like these forms will not be going out next year because of the Sh$t storm that followed them...Good bye and Good riddance!

New Developments on IRS 1099-K Reporting
http://www.nsba.biz/content/4425.shtml
do you know if there is any further information regarding the usage of this form for 2011?
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#100
I have a question for the tax masters here.

So Paypal sent me a form saying I received 34K in deposits. My mom got some lame accountant and he had me make a list of my purchases to write-off, I totaled them to 28K (though that's a guesstimation, I had a lot of different accounts receiving/spending money and didn't keep track). I also received two college tax forms with tuition around 10K for each (not sure what to do with them). My mom's accountant said I needed to make a business or whatever, but is this the best way to go about this? He also said I'd have to pay 28% on my income. Can I fill out my taxes for free in an easier way? Also is there a way I can avoid paying like 2K in taxes, I know I seem like a bum and should pay taxes on my income, but I got to save money where I can. I'm a 21 year old student btw, I don't know if that's useful at all.
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#101
best thing to do is just register as a business (Sole Proprietorship) with the state. Collect tax on your state purchases on eBay and file with your BOE every three quarters.
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#102
Trying to finish my taxes up, I got a 1099K from stubhub, approx. 45K in sales, most at face value some more some less. Where does this go to? I am using H&R Block online. Any help would e greatly appreciated. I just cant find where it says to put the 1099K. Thanks
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#103
This will be a disaster if I want to calculate it out accurately. I don't have any idea how much I paid for the items, how much miles did I drive to mail items. I think maybe the time I spent to shopping and mailing all count to my expense?
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#104
Quote from roxwella View Post :
It means first that this year you are not REQUIRED to put your income from your 1099k on the Schedule C (if you aren't reporting this income at this point though you are breaking the law). It also means, from what I can tell and have heard, that they wont be sending these statements out in the future.

That doesn't mean the IRS will not use this information to judge the correctness of your return. It just means that they aren't directly matching on the front end.

I know that taxes suck, I know its no fun to pay them, but, our society/government needs this money. If you aren't reporting this income on your own you are CHEATING, and should consider the old saying about what you do when no one is watching.

Now off my pulpit Stick Out Tongue
So in this year we don't need to deal with 1099k, just treat it like no 1099k at all?
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#105
Quote from truelies View Post :
So in this year we don't need to deal with 1099k, just treat it like no 1099k at all?
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.
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