If I understand this correctly, Paypal, along with all on-line payment sources like Venmo, etc. will now be sending out 1099 forms for all payments totaling $600 you receive in 2022 for goods or services. The only way around this is to use Paypal friends and family for payment which eliminates any buyer protections. Is everyone aware of this?
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A few days ago, I received a text from an acquaintance asking why the IRS was starting to track individual users’ Venmo transactions. As someone fairly tuned into the financial world, I was confused that I had heard nothing about this.
Searches on Google and Twitter quickly yielded a flurry of panicked and angry responses to a change in tax law put into effect by the American Rescue Plan last year that lowers the reporting threshold for business transactions on mobile payment apps. But users were largely mistaken to believe the change applied to them. The IRS is not requiring individuals to report or pay taxes on individual Venmo, Cash App, PayPal or Zelle transactions over $600.
Rather, small business owners, independent contractors and those with a side hustle who use third-party payment apps for commercial payments will have their total transaction value over that threshold reported to the agency by the apps. Previously, it was $20,000 and 200 transactions. This also applies to those who run an eBay shop, for example, or any other online store that accepts payment cards, according to the IRS.
“There’s been a lot of misunderstanding about the tax reporting changes,” says Garrett Watson, senior policy analyst at the Tax Foundation. “It doesn’t change anything about if any transactions are taxed or not.” In other words, the IRS is not starting to tax individual transactions between family and friends.
Splitting dinner with your friend, sending your roommate money for rent or gifting your cousin a round of birthday drinks? Don’t sweat it. “It’s not taxable,” Watson says.
That has been miscommunicated to many people, who seem to believe the IRS will be tracking every user’s account. Ambiguous headlines could be partly to blame. But the agency will receive aggregate transaction amounts from the payments apps about commercial transactions, Watson says, not information on specific payments.
Small business owners, those with a side hustle and others who receive commercial payments for goods or services through the apps will receive a 1099-K form from the payment apps, which will give the IRS more information about the business transactions being made on the platforms that often go unreported, Watson says. The change took effect Jan. 1, 2022, so filers don’t need to worry about it this tax filing season.
If your transaction is flagged by the IRS, Watson says you may receive correspondence from the agency that you can clear up with a receipt, bank statement or explanation. The only time you might really need to worry about being audited, he says, is if you move an “unusual” amount of money on the platform. But that’s always been the case.
“If we’re talking about a significant figure, into the five or six figures, of course you would want documentation,” he says. “But normal folks using it day to day, I wouldn’t worry about it too much. It shouldn’t dissuade you from using [the apps].”
Relax, you will simply certify that you paid $5,000, that you didnt save the receipt and that you didnt know years ago that you would need it. This isn’t the Spanish Inquisition. Much ado about nothing…unless someone has been running a side business without paying income taxes. Nothing will collapse, the earth will still spin and the sun will rise. I don’t have a great deal of heartburn about a system attempting to encourage compliance. Im a “everyone should follow the rules and if they dont they should pay the consequences” kind of person.
and that’s great, as this is a side business for you. However, the vast majority of audio enthusiasts selling gear here or in other places using PayPal, do this for pleasure, not a business (i.e. selling something to upgrade to a better / newer unit). THAT is the problem.
BTW, Here’s one for you. You do know if you buy something, even used, and you ultimately sell it for more than you paid, the difference is a taxable event. Art, antiques, exotic cars are usually hit hard on this. Let's say you bought a sports car for $16,000...Had it for 13 years. Sold it for $40,000, My accountant told me the difference, minus and expenses you incurred directly related to the car, was a taxable event. Forty years ago you bought a McIntosch XYZ for $1000 and you sell it today $5000....$4000 is taxable...(Not sure if you can deduct the electricity used to run it...Talk to your accountant.....) ....BTW, depending on the accountant, you might hear the term.."Casual Sale"....Be careful with this one. Talk to your lawyer or accountant to be sure.
Are you angry that taxes may be owed or that it has become more difficult to hide profits?
Are you asking me? If you did, there is no profit, so I have nothing to be angry about hiding anything. And I keep all my receipts, including shipping receipts, PayPal receipts, etc. etc. I know there is no tax as I did not make a profit. I was just inquiring on how to report that 1099-K in the tax return, as I am not a business. What do you suggest?
So let's go back to my earlier example:
Say for example, I sold something for $1,000, that I bought a few years back for $2,000. Clearly a loss. It’s reported in that 1099-K form that also gets sent to IRS. What do I do with the form? Do I ignore it? Or do I have to report it in my return, and if so, how? Which schedule? Again, not a business, just an audio enthusiast upgrading.
I want to sell my old amplifier I bought it years ago for 5k and I sold it for 2500 I have no receipt so now I'm taxed on 2500 as profit this is the issue most people do not have receipts for old gear or any other old item. It is just a way to make people buy new a way to kill used item sales and knock out small-time businesses since now you have to treat even the smallest venture like a garage sale or lemon aid stand like a normal business. This will just criminalize 1000s many will not be aware till they get the tax forms in 2023. The sh.t will hit the fan then. Ebay will start to collapse Facebook marketplace will be all ads from big business audiogon and others will have greatly reduced listings. And you with your old gear will have to price in tax you now have to unjustly pay.
Its not hard to keep records. Its not hard to figure out if you made a profit. If you make a profit, you owe income tax. What is it about this concept that is so earth shattering? Is it that some believe they should be exempt from certain income taxes? Are you angry that taxes may be owed or that it has become more difficult to hide profits?
@rbertalotto: and that's great, as this is a side business for you. However, the vast majority of audio enthusiasts selling gear here or in other places using PayPal, do this for pleasure, not a business (i.e. selling something to upgrade to a better / newer unit). THAT is the problem.
no I don't and that's the point. Why does the government feel they are entitled to be involved in the minutia of everybody's every day life? My solution would be the Flat Tax
The progressive tax system is not new. Look up 16th Amendment from over a century ago, circa 1913.
I did not create the US tax system, and frankly I don't understand why is so bloated to the point of an entire industry of CPAs, tax advisors, tax attorneys, financial advisors, etc. etc. get paid a lot of money to "help" people with their taxes. But it is what it is. Good luck undoing it. Republican and Democrat governments have come and gone over that century, and nobody has done anything about it, other than making it worse.
I live in Massachusetts and I've been getting 1099 for years from PayPal. I sell a 17HMR Bore Guide and do about $3000 a year. I itemize and deduct any expense I can with regard to this little side business.
Meanwhile back at the ranch, if you make a profit when you sell something, you will owe income tax. In the event you don’t make a profit when you sell something, you won’t. Hardly the downfall of western civilization.
By the way, that was the case last year…and the year before….and so on. In the event someone is ticked off that their hobby was actually a side hustle…then they havent been paying their fair share.
I see @nonoiseyou don't have any answers for my questions or postulations other than ad hominin attacks. If you read through the entire thread on Prima Luna v Raven you will see this played out by yourself repeatedly as well as others on the left that you are unable to see anyone who disagrees with you as anything but a racist. The difference between liberals and conservatives is that conservatives believe liberals are people with bad ideas while libs believe that conservatives are just bad people. You see a racist around every corner. Someone went so far as to claim that there's no way Raven could make a good amp because it's located in a small town in Texas and everyone there is basically a troglodyte. I am a Constitutional Conservative. I am NOT a racist. I don't care what color your skin is. I would hire anyone who can come in and do the job required, they'd get the same pay as anyone else and more if they proved to be a good employee. The majority of conservatives are in my camp. We even like it when people from all over the world come here, as long as they come here legally according to the laws on the books written by congress. What we don't like is politicians who circumvent the laws they themselves have written. The majority of nation's do not allow the unregulated influx of foreigners so we are not unique in that regard.
@thynameno I don't and that's the point. Why does the government feel they are entitled to be involved in the minutia of everybody's every day life? My solution would be the Flat Tax where everyone paid the same 10% rate. Ten percent is the same amount for rich or poor. I think if half the nation who don't pay income tax had some skin in the game they might reconsider and think more about governments reckless spending habits. It's a lot easier to overlook it when it's someone else's money.
The Four Different Ways To Spend Money
1) You can spend your own money on yourself.
If you spend your own money on yourself, you’re very careful on what you spend it on. You make sure you get the most for your dollar.
2) You can spend your own money on someone else.
When you spend your own money on someone else, you’re careful on not spending too much. You don’t worry as much about the gifts you buy for other people as the things you buy for yourself.
3) You can spend somebody else’s money on yourself.
You’re careful to get good things for the money. But you’re not very worried about getting the best bang for your buck. You’re happier to spend more of somebody else’s money within reason.
4) You can spend somebody else’s money on somebody else.
You become a “distributor of welfare funds.” You’re interested in making your own life as good as you can. But you’re not going to be anywhere near as careful as spending this money on other people.
"More likely a personal item kinda thing, that you cannot take a tax loss for, or a hobby classification."
Read the second paragraph under, "Who Will Receive Form 1099-K in the Future?", of the article below*.
If you are 1099ed: you're being considered in business, to one degree or another.
If you're being taxed on the sale of ANY asset, the initial cost of the asset (as well as sales fees, shipping, etc) should be deducted to determine your tax liability, unless you just like paying something you don't owe.
Any business I've ever conducted, has been taxed account to profit/loss statements (Schedule C).
Thanks @rodman99999, I wish these qualify as capital loss, but I am afraid this is too good to be true. More likely a personal item kinda thing, that you cannot take a tax loss for, or a hobby classification. Hopefully a CPA can chime in here. Thank you though
Some people have a really skewed and fact free notion of how things work. Most of it sounds like a grade school level rationalization of a desire to gaslight people. Good luck with that. Maybe a career writing for right wing news is in order as they have a willing and uncritical following that will eat that crap up.
@dadork: other than the righteous speech, do you have any solutions to the PayPal reporting issue this thread was initiated? Read the OP. Or this does not pertain to you as you never bought or sold anything here? There are plenty of other sites for your kind of thing. Why is it so hard to stay on topic
Nonoise, I've got to wonder why no one read your comment about Brainwashed Infowars. More ado about nothing. I am not a sovereign citizen, heck, I am not a sovereign bot. Thank you for post and some truth.
I'm ticked at PayPal for taking a sizable hunk of the buyer's payment to me then sitting on MY money, first promising to give it to me the day after delivery, then sitting on it for two more weeks because "I hadn't used PayPal for awhile" (sounds like extortion). When they finally released the funds they wanted another $15 to wire the money immediately and avoid another "one to three day delay." Seems like just another money-grubbing corporation putting up unnecessary hurdles to squeeze the customer and make added interest on the money "in transition."
@thynameredistribution of wealth is another way of saying theft at the force of federal government. I hear the oft repeated phrase, "what do they need all that money for!" I don't have any idea how much money you make and I don't give a rip. It isn't my business. I want you to consider this though, to someone you are rich beyond their wildest dreams. Why is it right you should have what you have? Shouldn't you divest yourself of your possessions to make it "fair" or does that only apply to people you think are richer than you?
You didn't go as far as advocating violence, but you hinted at it as a remedy. Will you be comfortable when they come for you? The majority of rich people have come by what they have honestly and it's not any more fair to take it from them than it is from you. We don't have a too little taxation problem in this country; we have a spending problem in this country. Can you name any government agency that was created to solve a problem that has ever solved the problem then gone away because the job was done? You can't tax your way to prosperity. Even Jesus said 'the poor you will always have with you'.
One of you, I believe it was @nonoiseinferred that rich people hoarded their money and that's why people were poor. Do you honestly think that way? People that have money are putting it to work, not stuffing it in a mattress. They are investing, growing, building, spending, donating. Putting people to work. I have never gotten a job from a poor man and neither has anyone here.
The amount of confusion that has been displayed by what I would consider intelligent people about this IRS reporting issue is evidence of the reason it shouldn't be taking place. Do the majority of people have the savvy to comprehend it? At last count I believe our tax code was over 80k pages. It's too easy to end up on the wrong side of a very powerful federal entity who have the power to either take away your house, your livelihood or your freedom.
Do you think you own your house if you aren't renting? Even if it's been paid off for twenty years, thirty years or a hundred try to stop paying taxes on it and see how long it's yours.
@rodman99999just pay your taxes. Its a privilege to live in this country and Im certain ther are plenty of people who pay alot more than both of is who never gripe. Thankfully.
Breaking news! redistribution of wealth is the foundation of a modern society. Otherwise you would have the vast majority of not wealthy people take up on tools to take the wealth off the vast minority of wealthy people. Why is this so hard to comprehend.
Funny thing is these folks calling foul are more often than not, in the receiving end of the government handouts.
Ok. Loud and clear? How about a little love for the government. They are simply looking to redistribute wealth from those who have earned it to those who have not. Pretty simple, I give my money from my stash to those who have done nothing to merit such a receipt. I work hard, accumulate assets with post tax dollars and then sell such assets at a profit or loss and then pay a tax on those sales. Yup, makes sense to me. Moving closer towards a socialist state with every passing day.
Say for example, I sold something for $1,000, that I bought a few years back for $2,000. Clearly a loss. It’s reported in that 1099-K form that also gets sent to IRS. What do I do with the form? Do I ignore it? Or do I have to report it in my return, and if so, how? Which schedule? Again, not a business, just an audio enthusiast upgrading.
Well, I've about reached the end of my knowledge on this issue. I didn't realize that Paypal itemized all of the transactions.
That’s OK. I appreciate the effort
You would normally list any income and account for a 1099 on Schedule C. On this schedule you have the opportunity to deduct expenses. In our case we would deduct the original cost of the item(s).
Schedule C is for self employed people. Business. I ran no business. This is my audio hobby.
@thynameWell, I've about reached the end of my knowledge on this issue. I didn't realize that Paypal itemized all of the transactions.
At this point I'm sort of guessing but here goes. You would normally list any income and account for a 1099 on Schedule C. On this schedule you have the opportunity to deduct expenses. In our case we would deduct the original cost of the item(s).
I'll look forward to the IRS publishing the rules around this change (I live in Washington) but you will have to file before that happens. It's obvious to me that the current rules (I looked them up) were not put together with this type of situation in mind. Without knowing any more than I know now, here's how I think I will handle it when the time comes.
If my Paypal 1099 only represented audio gear I would lump it all together on one line on Schedule C and show that I had a loss. If the 1099 had more than audio gear then I would break it into categories and put down the profit or loss for each category. You don' need receipts - if the original cost is in the ballpark that is close enough. The main thing would be to account for the total of the 1099 on Schedule C so that your return matches IRS records. Again, I'm speculating, but I think the IRS doesn't want to worry about selling household items at a loss. I just can't believe that the IRS wants to get into the weeds regarding the sale of amps, turntables, used books, old computers, and gramma's dishes. As long as your schedule C matches your 1099's you should be fine. But I've been wrong before......
@8th-note: They do get itemized. I received already a PayPal 1099-k for 2020 last year. I am in one of those 9 states I mentioned above (see reference below) that already had and have the PayPal reporting requirements for much lower amounts. The 1099-k form had each transaction listed separately with dollar amount and date of transaction.
Are you saying we just ignore the form if we know we did not make any profit?
Say for example, I sold something for $1,000, that I bought a few years back for $2,000. Clearly a loss. It’s reported in that 1099-K form that also gets sent to IRS. What do I do with the form? Do I ignore it? Or do I have to report it in my return, and if so, how? Which schedule? Again, not a business, just an audio enthusiast upgrading.
_————-
Maryland, Massachusetts, Mississippi, Vermont, and Virginia require a 1099-K to be filed if a TPSO pays a state resident $600 or more during the year.
Illinois and New Jersey have a $1,000 1099-K threshold (plus, for Illinois, a requirement of at least four transactions).
@8thnote, Lots of folks don’t accept PayPal that are great sellers. Its becoming more “normal”. Look at the feedback first. However, I hope you are right about the other stuff in your post! Good post.
@jond, you are correct. Wait for a check to clear or bank transfer. I like bank transfers. Only deal with proven sellers however.
@grannyringI certainly respect your position. I don't sell much anymore but curious what alternative payments you would take that wouldn't generate a 1099? I assume most Paypal, Venmo, Zelle, would does that mean we're back to waiting for checks to clear. That's how we did it here back in the 90s. 😁
@thyname: Here is some further explanation. The following is my understanding but I'm not an accountant and I'm welcome to be corrected if I get any of this wrong. Overall, I'm speaking from a practical standpoint as opposed to a strict legal standpoint. Another point is that the IRS publishes rules regarding any change in the tax code and this issue will be no exception. Some time this year we will be able to see specific rules on how to handle this.
The first thing to realize is that this law was not intended for us. It's aimed at people who are acting like a business (making money in other words) and not reporting their income. If you have a handmade jewelry store on Etsy and you never formed a business and never got a tax ID then the IRS is coming after you.
A 1099 from an entity like Paypal will have only one line that represents the total amount you received. It will not be itemized. When you do your taxes you will show a combined cost basis for the money received.on your 1099. I do not believe that you will be required to list each transaction and note the cost basis for each individual item. The government does not want to make things any more complicated than necessary.
The above is why I said that you can offset any gains by losses. It will all be combined into one line. Technically the IRS could argue that if you made $500 on one phono cartridge but lost $5000 on other audio gear then you should pay tax on the $500. However, there is an allowance for grouping transactions for an "Activity." Gambling is the best example. If you win a $10,000 jackpot but you can show that you lost $15,000 gambling in the same year then you don't have to pay tax on your winnings. In our case I think it could be shown that someone who buys and sells a lot of stereo gear could have that considered an Activity and pay taxes on the net profit for the year - likely zero.
Lastly, I can't emphasize enough, this only matters if you get audited which for most of us will never happen. Even then I guarantee that the IRS agent isn't worried about the slim possibility that you made a little bit of money selling an obscure phono cartridge. If you go into the audit and show the agent a picture of your stereo and describe how many components, records, and CDs you own, and explain that you buy and sell a lot of gear, almost entirely at a loss, he's going to roll his eyes and move on. Your little stereo hobby is a total waste of his time and resources.
I think it's going to be hard to abandon Paypal over this. Every payment service like Paypal is going to have to conform to the same rules which means that you will have to go outside of the normal transactional system. I would not buy or sell anything from anyone who would not accept Paypal because that's the first sign of a scammer. The thought of sending a money order to a complete stranger is laughable. Cryptocurrency? I don't think so. In my case I'll just put up with the minor hassle of adding a line to my tax return and go about my life.
Makes sense Ghasley. Very rarely do we make money on an audio sale or selling our used furniture. Keeping records of all these purchases going back 3,5,10 or 15 years is another matter.
This wont be much different than what we now do when we donate goods to a certified charity. You can guesstimate with some backup, receipts are best but guesstimates with backup work and passed the smell test with a recent audit. It also depends a great deal on materiality of the aggregate tax return...$50,000 on a paypal 1099 on a return showing $1million of AGI isn’t a thing. $50,000 on a $50,000 AGI is a side business unless its a one off year.
By the way, everyone is aware that this isn't a new thing, its just that some of the vendors like Paypal must report the transactions. Technically, you must be able to determine basis for every transaction to determine if there was income or not.
Let’s talk about non-audio. You downsize and sell you home. Now it’s time to sell all the extra stuff you have. Some of it is really great furniture, rugs etc…We did this recently.
Your lucky to get 10-15 cents on the dollar, but you end up selling some $2500-$5000 worth of stuff. You use Venmo and a 1099K form is issued. Now you have to go back as much as 10 or more years to determine what you paid for this stuff. If you can’t find the receipts, then I suppose you just pay the tax if you no longer have “precise” records. Again, don’t want the hassle.
The $600 hurdle is far to low in my humble option. Make it closer to $2500-$5000.
@grannyringI also recognize that I am an outlier. I probably bought and sold a combined six figures worth of gear during 2021 BUT, I keep meticulous records out of habit. In the past, if something was less than a few thousand dollars, I haven't kept up with it. Going forward, I will. Paypal is still pretty darn convenient but I see your point.
@grannyringI see your position. Many may not be aware but you often do favors for fellow hobbyists and mod their gear...best I can tell you barely cover your costs for doing so.
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