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:
- Go to the search box and enter Investment Sales.
- Select Jump to Investment Sales.
- Select Other at the next screen, OK, what type of investments did you sell? and click Continue.
- 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.
- 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.
- Answer How did you receive this investment with an option from the dropdown menu.
- 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.
- Next, enter your Sale Proceeds and an equal amount for the Total Amount Paid and click Continue.
- Select None of these apply at Let us know if any of these situations apply to this sale and Continue.
- 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.
