Hello Patrick,
To answer the first question you don't fill out the 1099-K, you will receive a 1099-k from Ebay showing how much money you received from them.
There are 2 ways to report the income.
- If it is a hobby then the income is reported on schedule 1 for the full amount of the 1099 no expenses allowed to be taken
- If it is a business then it would be reported on a schedule C (self-employed income). You would report the 1099 as income and then deduct the expenses you have against making that income. You would pay self-employment tax on the net profit.
Here are a few helpful links
https://turbotax.intuit.com/tax-tips/small-business-taxes/when-the-irs-classifies-your-business-as-a...
https://turbotax.intuit.com/tax-tips/self-employment-taxes/4-tax-tips-for-money-making-hobbies/L89qz...
https://turbotax.intuit.com/tax-tips/self-employment-taxes/beginners-tax-guide-for-the-self-employed...
For question 2 should you get audited the IRS will want to see receipts or a resonable and constistent explaination ( appraisals, pictures and pricesof similar items bought) on how you determined the cost of the item
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