now that paypal collects state sales taxes. . .

derryb

. . . and processes them through your paypal account, does paypal's 1099k include this tax amount in your income or is it not included? Paypal reports to you and the IRS on its annual form 1099K the "gross amount of payment card/third party network transactions" in box 1a. There is no other amount reported on the form other than the monthly breakdowns of box 1a. The 1099K is not clear if the box 1a amount includes these taxes which are clearly not seller income. If box 1a does in fact include taxes collected by paypal it would be beneficial for a seller to keep a record of this amount to deduct from the box 1a total when reporting actual income.

daltex

It's always beneficial for a seller to maintain good records. I would hope that no one reports that box as income on their tax forms but, as always, see your tax professional.

fastfreddie

From paypal faq:

As required by the rules, the $20,000 will be calculated by looking at a seller’s gross payment volume for sales of goods or services. Gross amount means that any adjustments for credits, cash equivalents, discounts, fees, refunded amounts or any other amounts will not be netted out.

In addition, the reported amount will include any shipping and handling, sales tax or other fees which are included in payments you receive. We realize that these amounts may or may not be included in your taxable income, but we are required to report them. You should work with your tax advisor to determine how these items should be treated for tax purposes.

TwoSides2aCoin

If they're taking and paying the taxes on sales, then the 1099 reflects that. They actually simplify my reporting requirements. My taxable sales in house are a minimum since there's no sales tax on coins , currency, or bullion in my state. Needless to say, anytime another entity takes over accounting, my income typically goes down. Less income= less tax.

derryb

@TwoSides2aCoin said:
If they're taking and paying the taxes on sales, then the 1099 reflects that. They actually simplify my reporting requirements.

Unfortunately the 1099 does not separate them. The total reported in box 1a includes income that is subject to income tax. It also includes sales taxes collected by ebay and shipping fees paid by the buyer, both not subject to income tax. It serves no logical purpose for the IRS to require paypal to bundle together all of the money processed when only a portion of it is subject to income taxes. My fear is that in an audit, the IRS is gonna ask "why did you not report all of the income paypal reported in box 1a on the 1099K?" My answer will involve showing them that I have records showing the 1099K total was not all income. For this one must be prepared with good records showing what was actual income and what was not.

derryb

@daltex said:
It's always beneficial for a seller to maintain good records. I would hope that no one reports that box as income on their tax forms but, as always, see your tax professional.

The question is "does the IRS count that total as income when in reality it is not the actual income?"

daltex

@derryb said:

@daltex said:
It's always beneficial for a seller to maintain good records. I would hope that no one reports that box as income on their tax forms but, as always, see your tax professional.

The question is "does the IRS count that total as income when in reality it is not the actual income?"

Of course not. It is, in fact, entirely possible to have no income regardless of what your 1099-K says. How would Paypal know your basis, anyway?

daltex

If I buy a coin for $50,000 and sell it for $20,000 through Paypal, how much do I owe in taxes? What if my 1099 also shows that the customer paid $2000 in taxes and $35 in shipping, that is the gross is $22,035? If you say that Paypal wouldn't send a 1099 for just one coin, fine, how about if I sold 1000 coins in 1000 transactions for totals of the above numbers? What is my income that I must report?

derryb

@daltex said:

@derryb said:

@daltex said:
It's always beneficial for a seller to maintain good records. I would hope that no one reports that box as income on their tax forms but, as always, see your tax professional.

The question is "does the IRS count that total as income when in reality it is not the actual income?"

Of course not. It is, in fact, entirely possible to have no income regardless of what your 1099-K says. How would Paypal know your basis, anyway?

sounds like you are confusing income with profit. Even if you loose money on a sale you still have income from the sale and the income is required to be reported to the IRS. Your subsequent deductions on that reported income reduce your taxable income, but the income still has to be reported.

The purpose of a 1099K is for a third party to tell both the IRS and the taxpayer what income was processed through the third party on behalf of the taxpayer. All income is required to be reported by the taxpayer to the IRS. When a 1099K's reported income include no taxable money such as sales taxes collected and shipping fees paid then the IRS nor the taxpayer is getting an accurate income figure.

Cougar1978

I would report the 1099 income but charge the tax to tax expense on sch c.

derryb

@Cougar1978 said:
I would report the 1099 income but charge the tax to tax expense on sch c.

which means one would need his own records of what amount in 1099K box 1a was actually taxes.

How would one report the collected taxes included in box 1a on sales that are considered capital assets and reported on Sch. D?

daltex

Income is profit. Perhaps you're confusing revenue with income. In any event, sales tax is just one of many items you need to deduct from revenue to determine income. What is hard about this? Please consult your tax professional.

derryb

For income tax purposes income is all money received, not just the profits.

If I buy a coin for $100 and sell it at a loss for $60. I have income of $60 that has to be reported as income on tax return. Other info I provide will offset the income by the amount of loss/expenses. The fact that I lost money on a sale does not negate the requirement for me to report the income that I did receive.

fastfreddie

Gross revenue/receipt $60, basis $100, $40 pre-tax loss that may or may not be fully recognized.

WQuarterFreddie

😴😴😴😴 Wait! What?🤣😂

jt88

Is paypal really change sales tax? I am not sure about that because when I send out paypal invoice I don't know where the buyer located and I don't add tax on it. I know ebay charge sales tax even for Australia.

tommy44

Keep good records and it doesn't matter if shipping and sales tax is included in the gross amount on the 1099K. If you keep good records just deduct the shipping, sales tax and fees on your Schedule C. What frosts my behind is that PayPal charges me the 2.9% fee on the sales tax and I never see the tax in my account. Why don't they charge the taxing authority the fee.

PQueue

RE: For income tax purposes income is all money received, not just the profits.

Partially correct. If you are self employed and use Schedule C, the $60 is "Gross receipts or sales" as noted by fastfreddie. When you include your COGS, returns, & other income, you arrive at Gross Income. After you deduct your expenses you arrive at Net profit or (loss). As I am sure you know, this is the number that carries forward to your 1040 income.

daltex

@tommy44 said:
Keep good records and it doesn't matter if shipping and sales tax is included in the gross amount on the 1099K. If you keep good records just deduct the shipping, sales tax and fees on your Schedule C. What frosts my behind is that PayPal charges me the 2.9% fee on the sales tax and I never see the tax in my account. Why don't they charge the taxing authority the fee.

I assume the various laws don't allow the states to pay fees on the tax collection.