got my PayPal 1099 /// what now?

I am not an accountant nor do I provide tax advice. The following is what my accountant did for the 2022 tax return.

Schedule C

Principal business is Internet sales

Accounting method is cash

Compute the gross profit or loss

exact receipt are not needed unless you get audited

Schedule 1

Enter the profit or loss from schedule C

Compute the net income/loss from schedule 1 and enter that number

on 1040 line 8.

In summary you should be able to deduct losses and reduce your tax liability or if you made a profit in will increase your tax liability

From what I understand is if you bought an item for say $10K and sold it for $7k then you have a loss and made no profit and would not have to pay extra tax on this but would have to still document the sale with the right forms to the IRS. I'm unsure what to do if you don't have any proof of purchase receipts. Maybe they don't require any up front. I was actually wondering the same thing.

Pretty sure receipts are not necessary unless audited.

Otherwise I have been prepared for this day by tracking every purchase and sale for the last 5 years. I keep every Paypal receipt, every shipping receipt, photos, every posting I sold or bought from, and every email exchange with the seller or buyer. All are filed as PDF’s and tracked in an excel spreadsheet so I can know how much I made or lost on each item. Typically lose thousands every year on the total amounts while some items may be "profitable", overall I am a loser! But prepared for an audit.

Some have questioned whether I actually have owned as many cables I have stated, and yes, I can prove every purchase and every sale.

Let’s see how much Friends and Family saves us from reporting. What is the 2024 number, $600 again?

I just got the PayPal 1099K. Do I have to enter the amount somewhere on my Tax returns? Hard to believe that selling used items will ever end up in a profit. But hey it's the Fed Government, no rational needed I suppose.

Or do I just have to be prepared in case I am audited?

ozzy

Looks like the threshold for 2024 is $5000.

@herman  Did Paypal itemize the transactions for you or just give you a totaled number and you have to figure out which items add into that total?

PayPal gave a month by month $ amount. It is gonna be hard to reconcile.  But I will.

ozzy

I'm very curious if "General Payment" which should be Friends and Family according to my records (dates and amounts) will be ignored as income.

I see some of my monies received labeled as Mobile Payments which were supposed to F&F may count against the income side. I'll have to be specific going forward to not allow the mobile app to be used if that turns out to be the case.

I've downloaded all the monthly PP statements and did a quick scan against my spreadsheet. Waiting to see what I get. I'm on the cusp of escaping if the F&F works out. Regardless, I have all the data and evidence. Not looking forward to filling out Turbotax forms.

I should think you can simply enter any numbers that make sense to you on your return.  Proof will only be an issue in the event of an audit.  I suspect the chance of an audit for the sale of some audio equipment is slim to nil, and slim doesn't live here anymore.  

I’m definitely getting hit by this becasue I’m well over the $5K threshold. I should go check PayPal for the forms.

Playing with crypto in 2020 was kind of a nightmare for taxes - LOTS of transactions, short term vs long term gains etc. I learned the little bit of accounting necessary, chose the basis (FIFO, HIFO etc) and wrote my own code to compile the results which I fed into TurboTax. Also had my code generate the IRS forms but didn’t end up needing them - TurboTax has its own inputs for that. Carried the accounting forward the next 3 years, and now I’m finally done with that mess. I was quite proud of it anyways, haha.

At least I’m sure this should be a lot simpler. Everything was a loss (of course), and I just need to track down the "close enough" original payments for cost basis. I assume TurboTax will have another input form for this that makes it relatively simple - we’ll see.

IRS has a $5000.00 threshold for the 2024 tax year.

Oh boy I hope I am not screwed. I filed my 2024 Taxes one day before receiving the PayPal 1099K, I really was not expecting any form. So the PayPal amount was never listed on my return.

I thought all I had to do was gather my information in case I was audited. But now I notice the PayPal 1099K amount needed to be listed on the Tax form.

I already filed and it has been accepted by the Fed. When I now throw that amount in it decreases my refund. However, there is a line that can counter that amount to zero.

But as I said I have already filed.

ozzy

@ozzy A copy of the 1099 goes to the IRS.  I would file an amended return, othersize the IRS will have $7k of unresolved income and you will get a letter.  Jerry

I agree. I'm trying to figure out how to do that with Turbo Tax.

ozzy

I found the IRS guidance on how to file this 1099-K.  Looks like there is a spot for it on form 1040.  And if you took a loss, you don't get to write it off.  As we thought. 

https://www.irs.gov/businesses/what-to-do-with-form-1099-k#:~:text=On%20Schedule%201%20(Form%201040)%3A,Sold%20at%20a%20Loss%20%2421%2C000%22

You got to love how this works. This is like triple dipping for the IRS. 

So I buy something with my after tax money. 

The item I buy, has tax on it that I have to pay. 

So I've already paid a lot of tax on this purchase technically. Now when I go to sell it, I'm getting taxed again if it's over a certain threshold. Even if I am selling it at a loss, the government still wants to tax me for the item that was already mine that I paid taxes on that I paid with money that had been taxed already. 

That whole lot of taxes. 

Then I will buy something else that I will have to pay taxes on also. 

The IRS is a government-funded program that is paid for by my taxes. To make sure I pay my fair share of taxes. ....

there's a Wall Street Journal article about this.  

Etsy, eBay or StubHub Sellers: Expect a 1099-K From the IRS This Tax Season - WSJ

If you don't subscribe, here's a relevant paragraph.

The tax rules for selling personal stuff online are different. If you get a 1099-K for something you sold for less than you originally paid, you wouldn’t owe tax, but you would need to disclose it to the IRS.

eBay doesn’t know if the stuff you’re selling is your personal property, if you’re selling at a loss or reselling items at a profit. The IRS gives examples of how to account for these sales in the instructions to Schedule 1. There is a new line item on the top of Schedule 1 where you can list any amount received in error or for personal items sold at a loss.

Even if I am selling it at a loss, the government still wants to tax me for the item 

That is incorrect, You only owe taxes if you had a profit. They want you to show you sold at a loss. If you did , you owe no tax.

It has always worked that way for a business. Second hand stores have always owed taxes on things they are reselling.

Nothing has changed except for enforcement of laws and rules that have existed for many years

Something that hasn’t been said here that might help clarify it for some:

You are not a business. the tax law was not meant for you. It was designed for those who make their living by reselling on ebay. Have a garage sale and resellers will show up trying to buy anything they can resell for pennies. they will be moving fast and have a truck already half full of junk.

But in typical government fashion, they decided to go ahead and tax you if you made a profit, even it it was just luck.

As an aside, I’m not sure what happens if you sell 10 items in 2024. You sold 9 at a loss of a total of $10,000. But you sold one at a profit of $1000. You had a net loss of $9000. I hope they don’t tax you on the $1000 profit.  Those of us used fo filling out schedule D for capital gains know that this isn't how it works, we even harvest losses in December to offset gains.  But since they aren't letting you use losses to offset income, they may not let you use losses to offset gains made through other sales.

Jerry

Not sure if this has been made clear, or not. The IRS $5000 threshold is the amount at which Third Party Settlement Organizations (TPSO) like eBay, etc. need to provide a 1099 in 2025. It's not an amount below which the seller can ignore sales. The IRS still wants taxes paid on any profits, but a TPSO isn't required to provide a 1099 for sales below $5000.

they decided to go ahead and tax you if you made a profit, even it it was just luck.

The government has no way to know if a PayPal user is a business or not. If they did not do it like this, then every business would just say they are not a business, just a hobby, and pay no taxes. As others have said, simply state you sold at a loss and move on.

But since they aren’t letting you use losses to offset income, they may not let you use losses to offset gains made through other sales.

The gain or loss is not for a single item, it is the total for the year. It is that way for a business, it is that way for capital gains, it is that way for buying and selling anything whether you are a business or not, it is that way for this.

The difference between a hobby and a business is, if you lose money on a hobby, you can’t use that loss to offset other income.

Does bitcoin send out 1099?

First and foremost book the income. The IRS computer audits ALL 1040s.  If they show a 1099 and you don’t the examination escalated!

You do not need to provide reciepts unless you are audited. At that point, abscent proof of payment (your basis) you may be required to demonstrate with “reasonable satisfaction” the MSRP prices on your gear in the year offered for sale.  The IRS will then “impute basis” and do the profit/loss calculation from there.

It is my strong conviction that you should have a CPA prepared and CPA signed return.  This greatly reduces your risks.  Remember these are goverment employees- they take the path of least resistance and a CPA in this case IS resistance.
 

Does bitcoin send out 1099?

If you traded through a major exchange (Binance, Coinbase etc) they should, though they did not always in the past. You’re still supposed to report and pay taxes on any trades for profit that you’ve done, regardless of a 1099. And technically if you made significant profits you’re supposed to pay estimated taxes every quarter before year end. But the risk of not reporting really has "teeth" if you were issued a 1099. Good luck with the accounting on crypto, it’s complicated if you did a lot of buy/sell - that’s on you.

If you missed a 1099 on a prior year you might be at risk. If you didn’t miss a 1099 then you might be OK depending on how much effort the IRS wants to spend on backtracking this stuff.

I used Binance and even in the years before they issued 1099’s (IIRC 2021 and earlier), you could download a file (PDF, CSV) with all your raw transactions for the year. That doesn’t include the accounting number-crunching you need to report taxable income. It’s nasty stuff; I’m a software dev by trade so I wrote my own.

@welcher summed it up very well.