Got my first ever 1099-K from Paypal - advice or insight appreciated (state law changed)
Bayard1908
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I have sold duplicate coins on eBay for years, never enough to trigger the $20,000 and 200 transactions threshold for a 1099-K though. Apparently my state, Illinois, has reduced the 1099-K threshold to $1000 and 3 transactions. I received my first ever 1099-K yesterday.
In the past, I have always reported my coin sales on Schedule D as capital gains. Every coin was a separate line item on Schedule D and the process was easy.
Now, Paypal is reporting a lump sum on the 1099-K which includes coin sales and whatever household junk also got sold on eBay last year.
I don't intend to pay income tax on this gross amount. How do you guys report your cost basis for the items sold? Am I going to have to file a Schedule C and act like I'm in the business of selling coins? Do I report "cost of goods sold" as a single line item and not break it out for each coin?
This seems like a lot of disruption for a relatively small amount of money. Your advice and experience is appreciated.
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Pay your taxes
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LOL! I'm not going to pay taxes on a used household item I sold. Hey, actually you could save some taxes if you report those because you are inevitably loosing money on them when you sell them and they could offset your capital gains on your coin sales!
Your post is neither responsive or helpful. As mentioned in the OP, I always pay capital gains taxes on coin sales. I need insight on how the 1099-K will affect how I report.
I'd just work in all your costs and deduct them from the gross income. One year I did not have the paypal 1099 as I don't think they sent it in the mail so did not include it though my net income on ebay was not much. So I got an $80K bill from the IRS! These are automatically generated based on what they get. I ran it through my accountant and ended up paying none of it.
Well, you are getting less than helpful advice. Then again, anyone who seeks tax advice on an internet forum is lucky they don't get harmful advice.
The easiest way to do it is to use schedule C. Your total cost of goods sold is a single number. The IRS will reconcile the 1099-K with your tax form so the number will need to coincide.
I used to report the net sales without the PayPal fee cuz I never saw that money. But the first year that PayPal issued 1099's, the IRS took the gross receipts and used the whole thing because it was larger than my reported gross. Phone call and an amended Schedule C fixed the problem, but they definitely look. (Well, the computer looks.) As long as your Gross Receipts on Schedule C are greater than the 1099s, you are fine. If they are less, you're going to have to justify it.
I don't know any better way to do it that will allow you to expense the household crap and other expenses from the Gross Receipts.
If you use the Schedule C you can deduct all expenses you incurred in the sales:
ie: postage, mileage, envelopes, ebay fees, paypal fees, etc.
Per the IRS you should report as a business.
see: https://www.irs.gov/businesses/understanding-your-form-1099-k
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My advice is use a CPA. Give them the 1099, explain the situation, and let the experts figure it out. I've been getting 1099's from paypal for years, and my CPA always figures it out for me once I give him all my information.
You are essentially a sole proprietor on eBay selling used items and collectibles. The 1099-K represents your gross sales, which you have to report on Schedule C. You should have a spread sheet or record of all your sales, but for the IRS Tax Form, you are reporting the 1099-K amount. I know you have both coins and household items lumped in the the 1099-K and that is OK. Next, you should have a record or spreadsheet of all the expenses that went into your eBay "business." This includes records of what you bought the items for, shipping expenses and supplies, mileage, paypal fees, ebay fees, etc. Your expenses will offset a great chunk of your gross sales and very little would be taxable if at all.
I am not an accountant, but in general, having detailed records of what you sold, when, and for how much is important as well as having records for what you paid for the items and when you bought them including all associated expenses. In this way, you have already helped the accountant do their work efficiently and less costly to you. If you have all sales and expenses nicely organized on two separate spread sheets with item, dates, dollar amounts, etc., the accountant will immediately know what schedule to use and may even remind you of a possible expense you might be missing that applies to you (for example, the many miles you traveled to the coin show just to buy that gold coin for $1000 and later sold for $1200).
A good rule of thumb is to report all sales like the 1099-K is doing, and get to work by finding all legitimate expenses to offset that. It is a lot of work, but it becomes less work when you start to have a system on how you keep records.
If for example, you sold a blender on ebay for $10 in 2020, but you have the receipt from 5 years ago that you paid $150 for it, that should bring down the tot taxable sales amount. If you do not have the receipt, then I guess you will have to put $0 for expense. This is what I mean about keeping careful records.
BST: Tennessebanker, Downtown1974, LarkinCollector, nendee
I've got a question.
I'm in Illinois too and wasn't expecting to get one but I did since Illinois has lowered their limit to $1k. The things I buy to resell are from estate sales and pay cash. I don't have receipt for most but do keep a spread sheet of the purchase price along with date and a description of the item. How do I go along with posting my expenses if I don't have receipts for most of my item expenses?
Collector
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The only useful advice is to not ask for advice here. Use a CPA.
I do have a family member that's a CPA but they don't know what to do with the costs that I have that was paid in cash and have no receipt to show for it.
Collector
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Illinois sucks
I feel your pain. I’m assuming your tax situation in the past was simple and you filed your taxes yourself. Being told “hire a CPA” or “make sure you keep records of every purchase and expense and shipping cost and sales tax including that toaster you bought in the 1980’s” probably makes you want to bang your head against the wall.
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Nothing like corrupt governments. If they want to tax every dollar that comes in, you should be able to deduct as an expense every dollar you spend.
You can use the numbers. Only problem is if you were audited they would want receipts.
Find a different CPA. Not being flip here, but it is always dangerous to use/rely on family members, and this one has admitted he doesn't know the correct answer. It's best to do business with people you won't mind permanently cutting ties with if things go wrong.
For buying coins and bullion Illinois is actually quite nice because they aren't charged sales tax. I can't imagine I would have bought nearly as much if I had to pay an extra ~10% on everything.
As far as income tax, apparently we are the only state with a flat tax(4.95%). This could have changed to a progressive tax like every other state this year but was shot down in the general election. Servicemembers are not charged state income tax, and are also eligible for four years of paid tuition at any state school under the Illinois Veterans Grant.
Illinois is pretty alright in my book, not perfect, but not as bad as people from other states like to make it sound.
Collector, occasional seller
Agreed, pay or enjoy your time in jail.
Illinois does have the worst credit rating of any state in the US.
Just sayin'.
This is a very good question and a situation many of us encounter to some degree. A CPA would be able to answer that one. It is safe to put $0 for the expense if you have no proof, but I know you want a better way. If you use cash, which most accountants would advise against if you want to substantiate expenses, they told me to at least save the bank's cash withdrawal slip. This is not as good as getting an invoice for the purchase. I have also heard to create your own invoice template and have it ready to be filled out by the seller and yourself to substantiate the transaction. The fact that you are keeping your own records is good. I mean, this is how mileage is kept too (unless you have an IRS compliant app that tracks your driving, then the print out of that app's record is IRS compliant). I like your question and hopefully an accountant or CPA on these boards can shed some light.
BST: Tennessebanker, Downtown1974, LarkinCollector, nendee
Just be able to document those expenses.
Lived here my whole life. It is a "----Hole" in most every way!
You have no 2020 tax documents
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Online sales tax is suppose to be 6.25% not 10%. Or did they change that too?
Collector
75 Positive BST transactions buying and selling with 45 members and counting!
instagram.com/klnumismatics
"Find a different CPA. Not being flip here, but it is always dangerous to use/rely on family members, and this one has admitted he doesn't know the correct answer. It's best to do business with people you won't mind permanently cutting ties with if things go wrong." Daltex
What an interesting viewpoint. I think there is some wisdom here. While we want all transactions and professional services to go smoothly, the reality is, sometimes they don't, so we sue, settle, and/or sever further ties with that individual. It is called cutting our losses and since the individual involved was not a friend or relative, it does not matter to sever ties with such a person.
BST: Tennessebanker, Downtown1974, LarkinCollector, nendee
Not offering tax advice to anyone...or else I'd have to charge you...since I am a CPA
. But what some people might do in that situation is...
Pick up the 1099-K on your Schedule C, that's where the IRS is going to look for it. If you believe the transactions are legitimately capital gain transactions that should be reported on Schedule D, I would show an expense line with a description of "Form 1099-K receipts reported on Form 8949" and "Form 1099-K proceeds received for casual sale of personal assets." Preference would be against reporting those "expense" items as cost of goods sold on your Schedule C as the IRS will be looking for gross income on a Schedule C to match up the 1099-K.
Not to spoil your song. You might to check on January 31st to see if this is still true. So far, I am hoping for the same message.
You also pay the self employment tax which is currently 15.3%.
I'll check again, but I'm not expecting to get one.
The 1099K is an "informational" tax form to let you and the IRS know what your gross receipts were from PP. There is no where on your tax form where you transfer this total like you would the info on a 1099 MISC (interest income) form. This gross on their 1099K includes your sales total and the total tax dollars PP processed through your PP account. Your reported sales will probably never match what is reported on the 1099K simply because PP does not process all of your payments. What is important is that the total sales income you report on your tax return should match or exceed what PP reports. If PP tells the IRS you had gross proceeds of $1200 and you reports gross sales of $1000, then you may have a problem.
I too report on schedule D as my coins are treated as capital investment assets. I use HR Block software and love it. As you know each sale gets entered on the tax form very much like a stock sale would.
While not as liberal as Schedule C when it comes to deductions, Schedule D allows you to deduct selling expenses for each item from the reported sale price before you enter the adjusted sale price on the form. In event of audit best to have proof of all these expenses. Depending on how you have set up your spreadsheet/record keeping, if you are including the sales tax in the sales price you begin with (the gross sale price) then turn right around and deduct it as one of the allowable expenses before determining the sale price you report. If you are starting with a sale price that is strictly your actual sales price and does not include sales taxes, then you simply deduct your other sales expenses without deducting the sales tax.
Bottom line, if you include the sales tax in your sales income for each item on the Schedule D then subtract it as an expense before recording your sales amount.
Disclaimer: I am not a tax professional, I speak from own research and my own personal experience.
The IRS publication linked fails to recognizes that investors also sell on ebay and also receive a 1099K.
Well it is income and it is taxable, especially since ebay told the IRS you earned it. If your Schedule D sales that you report do not match or exceed the gross reported on the 1099K you could report the difference as miscellaneous income on your 1040. This will allow you to do your patriotic duty of paying taxes owed and should satisfy the IRS computers that are looking at such things.
In many cases the gross on the 1099K is just a part of the filers gross income and should be used by the seller to make sure he has reported sales income that is the same or greater than what the 1099K shows.
One doesn't need a 1099K to report his sales correctly. But if he does get one he better makes sure he reports somewhere in his tax return at least the amount on the 1099K.
Got my first one also. I’ve decided to just put it where turbo tax tells me and pay tax on all of it since digging up records is more work than I want to do. That should keep them happy right ? It’s a one year problem I’m done selling 💩 on ebay.
Nice thread, thank you.
It really helps me understand what I need to do in 2021 to be prepared for next year.
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Checked again today. No 1099 but that's to be expected when you don't sell much.
You need to see a tax accountant. Beyond that this looks like a schedule c filing.
Most likely you could use schedule 1 line 8 with the reason given as 2020 PayPal 1099-K but you will be responsible for the gross amount. To take off selling expenses maybe schedule D and/or form 8849. Does the 1099-K break out any eBay or PP fees?
I'm in the same "first ever 1099-K" situation. Apparently Virginia is among the states that changed their threshold for 2020, too. So much of the total on my 1099-K is ebay and paypal fees and mailing costs (not to mention what I paid), and I don't consider myself a business. I've used turbotax for years. So whether it's Schedule(s) 1, C, D, or something else, I'll have to play around with it until I see that it accurately reflects the tax on my actual profit. I'll probably reload 2019 tax software and plug in some new numbers to see what I might expect this year.
Don't overlook the fact that with a schedule C filing, which establishes you as a business, your net profits are subject to a separate tax - the "Self Employment" tax for Social Security/Medicare. When you work for someone else, both you and your employer pay a 7.65% tax (yours through withholding from your paycheck). On income from "self employment"; i.e. running a business, your net profit is taxed at the full 15.3% rate (you being both the employee and the employer). You'll need to fill out Schedule SE, put the amount on 1040 Schedule 2, then it ends up on 1040 line 23.
I am not a tax professional. Hire one.
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The 1099-K is what PayPal paid the recipient. The PayPal fees aren't included you need to get eBay fees from your invoices.
I would think you could make a Schedule for schedule 1 Line 8 as follows:
Make sure you have documentation to support your numbers.
Don't forget that the sales tax eBay collects and remits for you is included in the gross that PayPal reports.
So do you keep track of individual coin sales on form 8949? You can get 14 entries on a page for 8949 so if you sell 500 coins you'd need about 36 pages. The 8949 makes a nice spread sheet in ts own right. This year I'll have maybe 20 short term completed stock trades.
For description of property I just put various. Date/s acquired various. Date sold would be the date of the last sale for 2020. Proceeds would be the gross sale of all coins sold as reported via a 1099. Cost basis would be my cost of coins plus selling fees and PP fees plus shipping and maybe any sales tax included in the 1099 gross total. I don't think it's > @djm said:
I was responding for the gent who said that he didn't want to bother digging up records and was just going to declare the whole amount as income. So it would go on sch 1 line 8 as other income with the notation I gave. I do the same thing with K-1 income from a trust altho I have to do a sched E Part III to explain the K-1 amount.
Otherwise if he can document cost of goods plus other costs he could use form 8949 with box B checked and just pass to sched D I think.
I was reporting my ebay sales as capital investment income on Schedule D with my paypal 1099K income being reported by me on the Schedule D. Big hassle with the IRS, they are looking for 1099K related income to be reported on Scehdule C so they sent me a tax bill for what was reported on the 1099K. While I finally found someone at IRS, after many hours on the phone, to agree that I did report the income on the Schedule D I decided to just start using Schedule C to avoid the hassle.
I wasn't intending to post that; thought I had saved some of that as a draft. I will be lumping my stock trades on the 8949 as various stocks acquired on various dates with the sale date being the date of the last sale for the year.
While you can lump your buy dates together as long as they are all short term or all long term holds I don't believe you are allowed to lump together different sell dates. The software will accept 'various S' or 'various L' for date acquired, but requires a specific date for 'date sold.'
That's how my accountant did it last year when he transferred the trades from the 1099-B over to the 8949.
Then it's very likely the software lumps them together after requiring individual sell dates. Software likely set up this way to prevent taxpayer from making a mistake with all the different 8949 sheet possibilities.