1099-K from PayPal enter it in hobbies or schedule c, which is best or does it matter?

[User9726]

I have a normal 9-5 Job and sell on ebay items i no longer use for a loss. If i enter the income shown on the 1099-k from paypal in hobbies i actually get a refund. If i enter it in Schedule c i owe money that is without any deductions.

Schedule c has the advantage to deduct things but i do not understand how to do so in my case. For example i bought a $1500 camera lens on Amazon and sold it on ebay for $700.

Is that something that can be deducted? As most of my buying and selling is camera equipment if so how do i enter it?

In Schedule c it ask me what my accounting method is not sure since it is paypal, i click other then type in paypal then enter the income on the 1099-k and check mark the 1099-k box.

After that i get business expenses, cars, trucks, assets and depreciation, all other expenses, home office expenses.

Thanks for the help.

[DavidD66]

If the intent of your buying and selling activity is to make a profit, you should file using Schedule C, which will allow you to deduct all of your business expenses, and deduct a loss if applicable.  Your accounting method would be the Cash method.  I would enter all of the items you purchased for sale as Inventory Purchases in the Cost of Goods sold section.  You beginning and ending Inventory value would be zero.  You could also list under "Other" as something such as Items Purchased for Resale.  You will get the same result either way.

You might want to consider upgrading to TurboTax Live, You can  "Get expert advice and a final review—Connect live on your screen with real tax experts or CPAs for on-demand tax advice and even a final review of your return to guarantee it’s done right."  For more information go to: TurboTax Live

[User9726]

I'm not trying to make a profit, i only sell a item to help offset the cost of the newer item or the updated model. 

If i did not want to bother with schedule c can i claim it as a hobby? I only sell around 10 items on ebay a year but camera gear is expensive.

I'm not sure what would qualifies as a business expense in my case. The internet, my computer, the printer used for the shipping. Seems like a hassle.

Thanks!

[JohnW152]

Please see the excellent guidance provided by Employee Tax Expert KathrynG3 here for accomplishing what it appears you want to do.  She has two posts in the link that should be helpful.

Under recent tax law, while hobby income must still be included in your gross income, hobby operating expenses aren't deductible.  But your cost of goods sold can still offset hobby income directly.

See the Employee expenses and other miscellaneous deductions subject to the 2% limit dropdown in the TurboTax Help article Which federal tax deductions have been suspended by tax reform? for more information.

[User9726]

Do i need the receipts of the things i buy and sell later for a loss to deduct them?

[LenaH]

Yes. You should always keep receipts, bank statements, invoices, and any documentary evidence that supports your income, deduction, or credit on your tax return. 

In addition, most tax supporting documents should be kept for at least three years.

For IRS Record Retention policies, please see How long should I keep records?

@User9726

[User9726]

What if i do not have the receipts what would i do then?

[DawnC]

Beginning in 2018, miscellaneous itemized deductions are no longer deductible and therefore no hobby expense is able to reduce hobby income.  If you are reporting hobby income, you won't be able to offset the income, even if you itemize deductions.   No receipts would be necessary if you are not taking and deduction.  

If you are taking a business deduction and you don't have some kind of receipt or substantiation of the expense, the IRS could disallow the deduction if you were to receive an inquiry regarding the expense or deduction. 

Keep records if your hobby becomes more of a business than a recreational pursuit. Business owners typically use Schedule C to report profits and losses and to deduct a broad range of expenses not available to hobbyists. The IRS might consider your hobby a business when any or all of the following apply:

• The things you do to run your hobby-business, like hiring knowledgeable employees and advertising, point to your intent to make a profit.
• You earn your livelihood from the hobby.
• You've made a profit for at least three of the past five years.
• You hope to make a profit from some of your business assets down the road, like animals for breeding.
• You've made a profit from a similar hobby in the past.

Because the responsibility is on you to show that your hobby-business is entitled to business tax breaks, keeping detailed records will come in handy in case of an IRS tax audit

@User9726