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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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#121
Is there any free or cheap software to file schedule C? Where to put the ebay and paypal fee on Schedule C?
Last edited by Josh2009 April 12, 2012 at 12:12 PM
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#122
Here is a question I can not find an answer to. If both me and my wife sell on ebay. We are legally married, live att eh same address and in general usually file taxes together. If neither of us alone hits the 20,00 mark but say together we hit 30,000 does this still get reoported? Someone hit me with an answer...
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#123
Quote from Mike A. View Post :
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.

Why can't I count my time looking thru all the SD's to find the few that I actually profit on?

Isn't that considered R&D, or research?

If I never looked thru SD to find a particular deal I never would have been able to sell that item for profit so IMO, it was indeed an expense because my time as my own employee could have been spent doing something else instead of research.

I'm sure bio tech and other companies are able to write off their employees time doing research so why not us?

If I paid myself, I would just pay myself minimum wage if I had to write it off as income.
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#124
Quote from shadowshopper View Post :
Why can't I count my time looking thru all the SD's to find the few that I actually profit on?

Isn't that considered R&D, or research?

If I never looked thru SD to find a particular deal I never would have been able to sell that item for profit so IMO, it was indeed an expense because my time as my own employee could have been spent doing something else instead of research.

I'm sure bio tech and other companies are able to write off their employees time doing research so why not us?

If I paid myself, I would just pay myself minimum wage if I had to write it off as income.

Read my post again, in particular the part re "...if you.. were paying yourself..." That wasn't his situation.

In order to write something off you have to be able to quantify it in specific dollar terms and also provide support that shows that you actually incurred that cost. Which you could do if you were paying yourself or someone else as an employee or paying on a contracted basis. But, as I said, in that case you'd have to claim the income at a personal level so net-net it really doesn't buy you much as far as reducing income for tax purposes. If you pay yourself at a minimal level, then the value of the amount that you can write off will be minimal as well.
Last edited by Mike A. June 12, 2012 at 04:34 PM
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#125
Hello,

So if on ebay I sell lets say 300 items but I only sell these items for 2 or 3 dollars each. Would I still need to report to the IRS?
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#126
Quote from TisLord View Post :
Here is a question I can not find an answer to. If both me and my wife sell on ebay. We are legally married, live att eh same address and in general usually file taxes together. If neither of us alone hits the 20,00 mark but say together we hit 30,000 does this still get reoported? Someone hit me with an answer...
Read their terms and conditions patiently and properly
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#127
Lets get to the nitty gritty--how do we get AROUUUUUND this? I was going to simply sign up for another eBay/Paypal account using a family member's info once I came close to $20k, but a person I talked to at Paypal said if they see similar items being sold from multiple accounts @ the same IP address, they'll just lump them all together and issue a 1099 anyway. So there goes that plan. For now I'm just pulling all my ads down once I get to approx $19,500 in sales and just waiting until Jan 1 to start selling again. I'm not going to deal with all this headache. I wish you could use other checkout options (like Google checkout) on ebay so that the $$ could be spread out over a broader area.
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#128
Quote from papatoony View Post :
Lets get to the nitty gritty--how do we get AROUUUUUND this? I was going to simply sign up for another eBay/Paypal account using a family member's info once I came close to $20k, but a person I talked to at Paypal said if they see similar items being sold from multiple accounts @ the same IP address, they'll just lump them all together and issue a 1099 anyway. So there goes that plan. For now I'm just pulling all my ads down once I get to approx $19,500 in sales and just waiting until Jan 1 to start selling again. I'm not going to deal with all this headache. I wish you could use other checkout options (like Google checkout) on ebay so that the $$ could be spread out over a broader area.
whos to say two people at the same ip address cant sell similar items for legitimate reasons? Thats like living with a roommate that works at the same place and the goverment saying they are going to combine your incomes and put both of you in a higher tax bracket. My girlfriend and I will often get in on the same deal and sell the item...but her money goes to her bank and my money goes to my account.
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#129
I called PayPal to make sure and they said 2 seperate accounts at the same address was not a problem. when reporting to the IRS they only look at the tax id/ss# and not the physical address. He said that they had a problem with people trying to avoid the 1099 by having multiple PayPal accounts linked to the same eBay name or vice versa. I specifically asked about my gf and I living at the same place and having 200+ transactions when combined and he said it would only be a problem if we had a shared PayPal account.
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#130
Quote from eddiehaskell View Post :
I called PayPal to make sure and they said 2 seperate accounts at the same address was not a problem. when reporting to the IRS they only look at the tax id/ss# and not the physical address. He said that they had a problem with people trying to avoid the 1099 by having multiple PayPal accounts linked to the same eBay name or vice versa. I specifically asked about my gf and I living at the same place and having 200+ transactions when combined and he said it would only be a problem if we had a shared PayPal account.
Weird, that's a totally different answer than I got from them! I guess it depends on who you talk to there. I asked the guy, I said "What if a husband and wife at the same address used to sell on eBay together, but under the new tax rules they decide to split their business into two individual eBay/Paypal accounts to avoid going over the $20k limit? For example instead of selling $30k together they each sell $15k individually?" He said, "As long as the two accounts are selling different types of items that should be fine, but if we look at both accounts and see the same or similar items being sold, we'll assume it's the same person and combine the accounts together and issue a 1099." He even said (at the time when I called) that they were still working on issuing 1099's for customers who'd tried to game the system that way.

I don't know. I just hung up and decided it wasn't worth the risk or the headache. In the end eBay is suffering. We're only half way through the year and I'm already at $16k in sales...at this rate I'll be pulling all my ads down in another month or so and doing nothing for the rest of the year.
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#131
LOL, that would never happen papatooney. Paypal is going to generate 1099s with a computer, there not going to audit your ebay account and contrast and compare your sales. If you have one paypal account with a ss# and another paypal acct with a different ss#, there is no way they can group that together. Even if you were married filing jointly, I still have a hard time believing that would happen.

I think Ebay should deduct all your commission, listing fees, paypal fees and postage fees before factoring sales. Ebay/paypal is making at least 15%. Post office is eating about 10%. That's another $5K right there.
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#132
It could be that they look at splitting an existing account differently. Our accounts were always seperate and previously at different addresses. Did you tell him the husband and wife have seperate PayPal accounts?
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#133
I read through all the stuff I could find online and this thread, but still have some questions.

I'm a pretty big collector of video game, comics, anime, toys, etc. (all the dorky things) and usually buy quite a bit and sell off extras, dupes, etc. to break even. I also completely downsized my personal blu-ray, dvd and VHS collection (probably like 4 or 5 thousand in sales right there).

I just looked at my paypal account for the year and I just went over the 20,000 mark (including the 4K and shipping for the post office).

Now this isn't a business, just a hobby and a way for me to increase my collection without hopefully going into the poor house. My usual goal when I buy stuff is to *hopefully* break even or maybe if I'm lucky make a few bucks after keeping what I want out of it. My own collection of stuff was sold at a massive loss (why did I pay 25 bucks a pop for DVDs back in high school?) but it is going to be counted as income? What about the times I take a massive loss when I buy stuff. Get some rare games I don't have, but spend a few 100 on each of them and after selling the ones I don't want am still down 700 or something?

I'm definitely going to have to go to someone this year I assume (I usually just do it myself with turbo tax), but I was wondering if I should expect to be crucified coming January when I try to do my taxes. For the stuff I bought from people (their collections, etc.) it is only cash dealings. I have some e-mails back and forth, but no receipts, etc.
Last edited by dokstarr September 11, 2012 at 12:40 AM
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#134
May have been covered, whats the best way to see how much in sales I have done this year?

I got my log from paypal. I totalled my express checkout payments received, and the mobile express payments. Is this the best way to do it. What about refunds or shipping costs, do I need to subtract those? Are all these payment from ebay? I've received some non-ebay related payments. I'm up to almost $16K totalling these two types, trying to stay under the $20K as I have not been keeping any sort of records.
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#135
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!
How does PayPal figure out the cost basis? You may be selling for a.loss.
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