Paypal Changes for 2022

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.

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.

Fines are a penalty for doing wrong.

Taxes are a penalty for doing right.

@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.