Report 1099-K eBay sales if no profit?

[rgunther04]

Hello - So i have a hobby of buying and selling sports trading cards.  The hobby is super hot right now I received a 1099-K from Paypal because i hit just over $24,000 in sales with around 250 transactions.  However, by the time I paid all the eBay seller fees, paypal fees, shipping fees, and then add what I actually spent to obtain all these cards and then re-sell; I have actually lost around $1,500.00 in total.   I dont know if this would be considered a small business but I was told in this case it is.  Do i need to report the full $24,000 on the 1099-K as eBay Sales on a schedule C, and then put all my purchases and merchant fees as expenses?  It would then show negative for Net profit in business income.   Not sure the proper way for entering this.

[KathrynG3]

Yes, the full $24,000 on the 1099-K as eBay should be reported. You have three options in reporting the expenses.

Option 1: Treat it like a business.

The full expenses could be reported if it really is a business, which would create a loss. Businesses reporting losses in more than 2 out of the last 5 years could be reclassified as a hobby by the IRS. 

Option 2: Report the income as an investment sale.

Then, claim the expenses as cost up to the amount of the sale.
​​​​​​​To report Form 1099-K as investment income in TurboTax Premier or higher: 

1. Go to the search box and enter Investment Sales.
2. Select Jump to Investment Sales.
3. Select Other at the next screen, OK, what type of investments did you sell? and click Continue.
4. At Tell us more about this sale, enter in the name, such as Form 1099-K eBay and the Payer's EIN and click Continue.
5. At Now we'll walk you through entering your sale details, under the first dropdown menu, What type of investment did you sell? Select Personal Items.
6. Answer How did you receive this investment with an option from the dropdown menu.
7. Enter the Description: Personal Property Sales. If you are uncertain what date you purchased the goods, select Something other than a date so that TurboTax will enter Various.
8. Next, enter your Sale Proceeds and an equal amount for the Total Amount Paid and click Continue.
9. Select None of these apply at Let us know if any of these situations apply to this sale and Continue.
10. Continue through the rest of the prompts.

Option 3: Treat it as a hobby.

If it is treated as a hobby, however, none of the expenses are deductible without itemizing deductions. 

For more information from the IRS, see: 

Hobby or Business? IRS Offers Tips to Decide

Distinguishing a hobby from a business

Question

How do you distinguish between a business and a hobby?

Answer

In making the distinction between a hobby or business activity, take into account all facts and circumstances with respect to the activity. A hobby activity is an activity not done for profit. This includes activities done mainly for sport, recreation, or pleasure. No one factor alone is decisive. You must generally consider these factors in determining whether an activity is a business engaged in making a profit:

• Whether you carry on the activity in a businesslike manner and maintain complete and accurate books and records.
• Whether you have personal motives in carrying on the activity.
• Whether the time and effort you put into the activity indicate you intend to make it profitable.
• Whether you depend on income from the activity for your livelihood.
• Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
• Whether you or your advisors have the knowledge needed to carry on the activity as a successful business.
• Whether you were successful in making a profit in similar activities in the past.
• Whether the activity makes a profit in some years and how much profit it makes.
• Whether you can expect to make a future profit from the appreciation of the assets used in the activity.

[rgunther04]

Thank you!

[Critter-3]

Option 2 ... personal sales ... if these are collectables then make sure to choose that option as they are taxed differently.  

[STK1]

I tried to follow the instructions by searching for "Investment Sales" in the search box, but no item with that name is presented for me to jump, so I can't follow the later instructions.

[FangxiaL]

After typing "Investment Sales" in the search box and hit the Enter key, then you can click on Jump to investment sales.

@STK1

[STK1]

NO, that does not work, at least not on TurboTax Premier on a Mac.

I spent an hour talking to TT folks before we discovered the only way to enter the required info, and that way does not correspond to ANY of the suggestions on the support website. Moreover, TT Premier has several places where it suggests one can enter 1099-K info, NONE of which are correct.

Maybe this work on Windows, but definitely not on a Mac!

[LeonardS]

It is important that you report the information on your 1099-K.  The IRS receives a copy of your 1099-K and will take action if you do not report the 1099-K on your tax return.

You will need to file Schedule C Profit or Loss from Business to report your eBay sales income on your 1099-K and your expenses, to include the cost of the items sold, to figure your net profit or loss.  

To enter your 1099-K on a Schedule C follow these steps:

1. Open your return.
2. Search for schedule c and click the Jump to link in the search results.
3. Answer Yes to Did you have any self-employment income or expenses?
4. Follow the on-screen instructions.
5. On the page titled, Your info, scroll to the bottom and click Looks Good.
6. Click on Form 1099-NEC on the page Let’s enter the income.
7. Click continue.
8. Follow the on-screen instructions.
9. Enter any relevant expenses to your business. 

If you are entering income from a 1099-K, remember that it reports the gross amount of the transactions. It doesn't include any adjustments for credits, refunds, discounts, or fees. You’ll have a chance to enter self-employment expenses in another part of your return.

This link How do I enter a 1099-K in TurboTax Online? has information that you may find helpful. 

[STK1]

Leonard,

My 1099-K is for selling used, personal items, and does NOT belong on Schedule C. Reporting it there that would confuse this income with my separate, business income, for which I received a 1099-NEC. 

So, the right answer is to report this as miscellaneous income, with a loss that offsets the sales. 

I spent over an hour on the phone with a clueless 1st tier Turbotax rep, before being transferred to a "tax expert" who wandered through various parts of the TT Premier interface before discovering the right way to report this income. There were several places in TT Premier that appeared to be appropriate for reporting 1099-K income, but every one of them was WRONG.

the software needs to be fixed!

[LeonardS]

You may report any items on your 1099-K that are not related to business activities such as payments to friends and family, coffee & donuts from the local store, payments to local stores, etc., as other income. 

 You will need to make two entries for your non-business items; one as a positive amount to show the personal items reported on the 1099-K, the second as a negative value.  This reports the personal 1099-K items and removes them from being taxable income. 

To enter your personal 1099-K items sign in to your TurboTax account if it is not open and follow these steps:

1. Select Income & Expenses.
2. Scroll down to Less common income and select show more.
3. Scroll to the line Miscellaneous Income, 1099-A, 1099-C, and check start.
4. On the page Let's Work on Any Miscellaneous Income scroll to the line Other reportable income and click start.
5. On the page Any Other Taxable Income select yes.
6. On the page, Other Taxable Income enter a description indicating Personal 1099-K and amount.
7. Select continue.
8. Select done on the next page

Repeat the above steps again this time in step 6 add the amount as a negative value

This will report your personal 1099-K items and remove them as taxable income.  Any remaining amount will be reported as business income.

[STK1]

yes, that's the correct answer. pity it took so long to get there :(