If you sell things on Ebay for less than what you paid for them, and you get a 1099-k from ebay, what do you do? Because there really is no profit, so why would you have to pay taxes?

[DawnC]

How your 1099-K is taxed depends on what type of income it is.   If you are running a business, it's self-employment and you can deduct expenses related to the income on Schedule C.   If it is hobby income, you can't deduct the related expenses.   If you are reselling personal items, like an online garage sale, you are only taxed if you sell the items for a gain, which is unlikely.   

[Opus 17]

This answer only applies to when you receive a 1099-K for online sales of personal items for less than you paid.  If some of the sales were for more than you paid, you need additional information and can't use this procedure.

The money is non-taxable but the 1099-K should be reported, because if not, the IRS may send you a letter.  You also need to have accurate records of your sales, showing purchase date and price (best guess if you don't know) and the selling date and selling price.  If audited, and the IRS is not satisfied with your proof, they can determine that the purchase cost was zero and all the proceeds are taxable.   Keep a spreadsheet, photos of the items, printout of the eBay listings, and so on, for at least 3 years in case of audit.

The IRS recommends reporting the 1099-K in this way.

1. report the proceeds on Schedule 1, line 8z; an

2. report your cost on Schedule 1, line 24z to offset the proceeds. Don't enter an amount higher than your proceeds.  Enter a description of "Form 1099-K personal item sold at a loss" for both lines.

Unfortunately, Turbotax does not implement line 24z, you can't enter information there to offset the 1099-K income.  Therefore, I have two other recommendations.

1. Use Turbotax's alternative procedure. (Copied below)

2. Use another software provider or find a tax pro who can report your 1099-K on line 8z and the costs on line 24z.

TurboTax's alternate procedure is here.  Essentially, you report the 1099-K as "other taxable income" so it gets reported, then you offset it by creating a new item of "other taxable income" that is equal to the 1099-K but negative, so it subtracts from and zeros out the 1099-K.  Note, this procedure should only be used if all your sales are personal items sold for less than thier original cost. 

1. Sign in to TurboTax and open (continue) your return
2. Select Federal from the left menu
3. In Wages & Income (Income & Expenses if you’re using TurboTax Self-Employed), scroll down to Less Common Income and select Show more
4. Select Start next to Miscellaneous Income, 1099-A, 1099-C
5. Select Start next to Hobby income and expenses
6. Answer Yes to Do you have hobby income or expenses?
7. On the next screen, enter the Total income reported on your Form 1099-K and select Continue. Don't enter any expenses.
8. Select Done on Love your dedication—here’s what we’ve got for your hobby
9. To deduct the cost of the items sold: while still in Miscellaneous Income, select Start next to Other reportable income
10. Select Yes on Any Other Taxable Income?
11. On the next screen, enter Form 1099-K in the Description field. Enter the total cost of the items sold in the Amount field as a negative number. Note that the amount can’t exceed the income reported on Form 1099-K.