got my PayPal 1099 /// what now?

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.