Kinda OT: PayPal 1099-K - it’s a doozy!

[stien]

This is all pretty ambiguous - I put in a "not-for-profit hobby" income of 2500 with expense of 2500 and it raised my federal tax owed by about 500 and my state by 150.

A lot of this stuff I paid sales tax on with already taxed income when I bought it.

I'm not sure anyone knows exactly how to handle this.

[NYCfixie]

Originally Posted by stien

This is all pretty ambiguous - I put in a "not-for-profit hobby" income of 2500 with expense of 2500 and it raised my federal tax owed by about 500 and my state by 150.

A lot of this stuff I paid sales tax on with already taxed income when I bought it.

I'm not sure anyone knows exactly how to handle this.

if you show a loss it should not factor any tax.

[stien]

Originally Posted by NYCfixie

if you show a loss it should not factor any tax.

It wouldn't let me put in more cost than income.

[PNW]

I still haven’t gotten anything in the mail yet..

[stien]

I just called paypal to check on my new form...and they informed me that I should be deducting the amount of a payment that I refunded instead of giving me a new form. Nobody called me or emailed me. Dude PayPal sucks. I would have just been waiting for mail that wasn't coming.

[stien]

Here's how I'm handling it:

https://ttlc.intuit.com/questions/42...-sales-on-ebay

Net 0 on the tax front. I'm good with that and not selling stuff using PayPal G&S from now on.

[Clean39T]

Originally Posted by stien

Here's how I'm handling it:



https://ttlc.intuit.com/questions/42...-sales-on-ebay



Net 0 on the tax front. I'm good with that and not selling stuff using PayPal G&S from now on.

Thanks Stein. I’ll still use G/S when needed. I’m just keeping better records this year. Though, honestly it hasn’t been that big of a deal given everything is email archived. It does help when people put the item description in their payment tho...

[PSJoyce]

I checked with Mass Department of Revenue via e-mail, Their reply:

>>
If you're selling used items for less than you purchased them for then you do not have to report your 1099-K. We are recommending that everybody keep their 1099-K for their records, just in case this is brought up in the future.
>>

[superbowlpats]

Originally Posted by PSJoyce

I checked with Mass Department of Revenue via e-mail, Their reply:

>>
If you're selling used items for less than you purchased them for then you do not have to report your 1099-K. We are recommending that everybody keep their 1099-K for their records, just in case this is brought up in the future.
>>

And EBaumann says

[NYCfixie]

Without going into all of the details, I ended up with a small gain for 2017 so it was treated as a business and my accountant had to fill out a schedule C. Make sure you continue to show a loss or you will need to report the gain on your tax forms.

[Clean39T]

Got an email back from the Oregon IRS folks:

This is really an issue of federal tax law, but I’ll try to give some perspective because Oregon is tied to it. The 1099-K information will also be reported to the IRS and it will be considered income to you. But, it appears you are conducting a “not for profit” business (commonly known in the tax world as a hobby). You have income from sales, but you also have expenses that would offset the income. In a ‘hobby’ situation, you can claim expenses up to the amount of income (you cannot show a loss).

They then pointed to this IRS fact-sheet guidance:

FS-2008-23, June 2008

The Internal Revenue Service reminds taxpayers to follow appropriate guidelines when determining whether an activity is engaged in for profit, such as a business or investment activity, or is engaged in as a hobby.

Internal Revenue Code Section 183 (Activities Not Engaged in for Profit) limits deductions that can be claimed when an activity is not engaged in for profit. IRC 183 is sometimes referred to as the “hobby loss rule.”

Taxpayers may need a clearer understanding of what constitutes an activity engaged in for profit and the tax implications of incorrectly treating hobby activities as activities engaged in for profit. This educational fact sheet provides information for determining if an activity qualifies as an activity engaged in for profit and what limitations apply if the activity was not engaged in for profit.

Is your hobby really an activity engaged in for profit?

In general, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business or for the production of income. Trade or business activities and activities engaged in for the production of income are activities engaged in for profit.

The following factors, although not all inclusive, may help you to determine whether your activity is an activity engaged in for profit or a hobby:

- Does the time and effort put into the activity indicate an intention to make a profit? No, it indicates an addiction to trying new things for fun and having to re-sell them to get the next hit.

- Do you depend on income from the activity? Better not,
or I'd be out on the street.

-If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business? Do losses due to the marketing of fat tires and disc brakes count?

-Have you changed methods of operation to improve profitability? What, buy high, sell low isn't a winning business plan?

-Do you have the knowledge needed to carry on the activity as a successful business? Does anyone? Best way to make a million in the bike industry is to start with two-million, or have AD&D insurance.

-Have you made a profit in similar activities in the past? There was that one time when I was 16 and bought a GT Tequesta from the nickle ads and resold it to a friend for $35 more than what I paid - does that count?

-Does the activity make a profit in some years? LOLZ

-Do you expect to make a profit in the future from the appreciation of assets used in the activity? Appreciation of bikes is not about them increasing in financial value.

An activity is presumed for profit if it makes a profit in at least three of the last five tax years, including the current year (or at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses).

If an activity is not for profit, losses from that activity may not be used to offset other income. An activity produces a loss when related expenses exceed income. The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations.

What are allowable hobby deductions under IRC 183?

If your activity is not carried on for profit, allowable deductions cannot exceed the gross receipts for the activity.

Deductions for hobby activities are claimed as itemized deductions on Schedule A, Form 1040. These deductions must be taken in the following order and only to the extent stated in each of three categories:

Deductions that a taxpayer may claim for certain personal expenses, such as home mortgage interest and taxes, may be taken in full.

Deductions that don’t result in an adjustment to the basis of property, such as advertising, insurance premiums and wages, may be taken next, to the extent gross income for the activity is more than the deductions from the first category.

Deductions that reduce the basis of property, such as depreciation and amortization, are taken last, but only to the extent gross income for the activity is more than the deductions taken in the first two categories.

So, I think I'm in the clear here - but I still need to figure out exactly how to tic'n'tie on my 1040 to keep it all square. Maybe I'll get to that during the first 200k of Milan - San Remo this weekend

[Bostic]

Originally Posted by Clean39T

What, buy high, sell low isn't a winning business plan?

"Where's Beeks? Where in hell is Beeks?"

[Clean39T]

Originally Posted by Bostic

"Where's Beeks? Where in hell is Beeks?"

[raygunner]

Just want to say thanks for this thread.

I just received my 1099-K from Illinois. And when I saw it I was like "there's no way I took in $20k from eBay" but then I learned something I wish I had known before.

The State of Illinois lowered their threshold from $20,000 and 200 transactions to....

$1000 over 4 transactions!

In 2020 I did 181 transactions but well under $20k. But over $1000.

I basically use eBay to sell stuff I no longer need and occasionally flip some stuff. And use the profits for my digital walking around money. And after looking how much in gross sales I did I was actually a little underwhelmed with how much I took in. Contrast that with how much time and hassle it takes. Then there's all the fees. But hey, I enjoy the hustle.

The past week I did some research and thinking in relation to the 1099-K and decided it came at a good time.

With two small kids I really don't have the time to keep up the side hustle. Especially when the juice is rarely worth the squeeze.

So I downloaded my sales for the year and plug in all the fees and gather my receipts. It's actually going to be good to bone up on tax compliance and learn a few things.

And for 2021 I'm going to limit my sales. Maybe I'll go over $1000 but I'll try not too. Instead I'm going to just sell items that justify the hassle and donate other things. And also not buy stuff I don't need.

Then I'll have more time and money for the kids, working out, and living more simply.

[RWL2222]

Dang this is just like me