Casual eBay Seller Getting Ready for Tax Year 2022 1099-K

If your Form 1099-K is for personal items sold, similar to having a garage sale, and you were not in a trade or business, the IRS allows you to also deduct the related expenses for the sale up to the amount of the sale.

If you do not need the self-employment section, you have two options to report Form 10999-K in TurboTax.

Both following options will report Form 1099-K and also zero it out on your return. This will mean you appropriately pay -0- tax on the non self-employed income.

For reporting Form 1009-K for personal items sold not associated with a trade or business, you have two options:

• Option 1 in TurboTax Premier or higher: reporting Form 1099-K as investment income
  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 Personal Property Sales 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. 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. The description for the cost should include Cost of Personal Property
  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 
  11. Select Add another sale to add the next Form received 
       
• Option 2 in TurboTax Deluxe or higher: reporting it via Other Miscellaneous Income is acceptable to the IRS.
  1. From the left menu, go to Federal and select the first tab, Wages & Income
  2. Add more income by scrolling down to the last option, Less Common Income, and Show more
  3. Scroll down to the last option, Miscellaneous Income, 1099-A, 1099-C and Start
  4. Choose the last option, Other reportable income and Start and Yes
  5. Enter the applicable description and amount and Continue
     • First, enter Form 1099-K as received. It is essential that the full amount be entered.
       • For a description, include Form 1099-K and Personal Property Sales
     • Next, enter an adjustment to reflect the cost of these items as an offsetting, negative amount up to the amount of the income.
       • For the cost description, include Form 1099-K and Cost of Personal Property 
       • In other words, if the goods cost you $100 and Form 1099-K was for $10 in sales, the maximum cost allowable would be $10.

Otherwise, Form 1099-K must be included in the self-employed section of the return. In the self-employed section, negative income cannot be reported. Self-employed persons must use the rebates option under income or report any offsets as miscellaneous expense.

For reporting Form 1099-K from self-employment with offsetting amounts that is associated with a trade or business you own and operate, TurboTax offers two self-employed options. From the Wages and Income section, go to Self-employed income and expenses and select Start/Revisit to begin with reporting Form 1099-K.

• Option 1: 
  • Report Form 1099-K as received in the COMMON INCOME section under Other self-employed income, includes 1099-K, cash, and checks
  • Report any cashback or rebates under LESS COMMON INCOME using Rebates and refunds, includes any income returned to customers
• ​​​​​​​Option 2:
  • ​​​Scroll down to EXPENSES and click in the lower left hand corner, Add expenses for this work
  • Scroll to Other miscellaneous expenses select the toggle, scroll to the bottom of the page and click Continue 
  • Enter a Description for your offsetting amount, such as Form 1099-K costs or Form 1099-K cashback rewards and Continue

Let's step back.

First, regardless of any forms, you only have taxable income if you sell items for more than you paid for them, or for more than your cost basis.  (Cost basis is usually what you paid for an item, but can be different for items that were gifted or inherited or previously used by a business.  Ask if you want more explanation.)

If you are in an ongoing trade or business, you report your business income and expenses on schedule C.  Being in an ongoing trade or business means you actively and regularly participate, you operate in a businesslike manner, you seek new business opportunities, and you have a profit motive.

If you are a "Casual seller" then you probably aren't involved in "ongoing trade or business" so any net income is hobby income, and you can't deduct expenses.   But remember, you only have income if you sell items for more than your basis.  

What you should always be doing, regardless of tax paperwork, is keeping accurate records.  You want to keep a list of the items you sell that includes a description, how you acquired the item and when, your cost, the selling date, selling price, and selling expenses.  

We don't know how the IRS will want taxpayers to account for the new 1099-K forms on their 2022 tax returns. If you keep proper records, and understand what is taxable and what is not, and whether you are a schedule C self-employed business or a hobby, then you will be prepared for whatever the IRS does. 

I'm sorry if this has already been offered, but what I've come up with...  it's not in complete conformance with the IRS instruction to use Schedule 1 lines 8z and 24z, but with the web version of TurboTax, I can't get it to work.  Short of the 1099-B or the Schedule C ,or the Desktop version (overriding lines) techniques, each of which have their own drawbacks, here's the next best thing that should work:

"After removing any other instances of personal sales 1099-K's from your return, go to Wages and Income -> Less Common Income -> Miscellaneous Income (109-A-, C, etc).  Enter a line with the Description "1099-K income from sale of personal items" and then then amount (ex, $2500). Continue from there and then you will get the "Other Miscellaneous Income Summary".  Click "+ Add another Miscellaneous Income Item" and you will be presented with another item for Description and Amount. Enter as Description: "Cost of 1099-K Goods Sold", and then for the amount "-2500" (negative $2500). These two items will be listed on your return, documenting that you have taken care of the 1099-K, and then if there is any question why you backed out that income, it should be self-explanatory if anyone goes to look at it that it is removing the income from that item!"

It seems really, really simple to go this way, and it does not incur an upgrade to Premiere or Small Business, all other things being equal.  Good luck! -btd