1099-K from PayPal

[thyname]

It looks like I am getting a 1099-k form from PayPal for the first time. I sold a lot of audio items last year, stereo components, cables, all used, while upgrading my audio and home theater systems, and swapping things around.

Obviously I am not a business, not in this for profit, and did not make money, lost money. It’s just a hobby, a costly one.

I am guessing I have to report this with my taxes. However, the form only has the gross proceeds from PayPal, not my original purchase price. How do I deal with this? Any particular section on Turbo Tax to enter these?

[LenaH]

Depending on whether you classify this income as a hobby or a business, will determine where in TurboTax you will enter your earnings. The IRS has guidelines for what is a business and what is considered a hobby. In addition, any losses incurred each year will be treated differently depending on what this income is classified as. If an activity is a hobby, losses from that activity may not be used to offset your other income.

The first step for you would be to determine whether this is a side business or a hobby. Although it appears from your description of the activity that it is a hobby, please review this IRS fact sheet to help you further evaluate your situation: Business or Hobby?

If you have determined this to be a business, you would enter your earnings and expenses on a Schedule C. To access these fields in TurboTax, complete the following steps:

1. Open your return in TurboTax.
2. Search for Schedule C with the magnifying glass tool on the top of the page.
3. Select the Jump to Schedule C link in the search results.
4. Select Yes to the question Did you have any self-employment income or expenses? 
5. Follow the on-screen instructions to complete your Schedule C.

If you have determined this to be a hobby, complete the following steps:

1. Open your return in TurboTax.
2. Search for Other Income with the magnifying glass tool on the top of the page.
3. Select the Jump to Other Income link in the search results.
4. Select No to the question Did you get a 1099-MISC?
5. Scroll down to Miscellaneous Income under Less Common Income and click Start.  
6. Click Start next to Hobby income and expenses. 
7. Follow the on-screen instructions to enter your data. 

[thyname]

I appreciate your reply, thank you very much for taking your time!

Is there a specific place to specifically put a 1099-K info in there under “other income”?

As far as I have read, typically a 1099k is reported on a sch c for sole proprietor or single memebr llc or business returns.

I just want to make sure there is a spot to input info from the 1099k to a 1099k input form. My worry is it does not show as a 1099k which the IRS receives and cross checks to make sure I have reported on my return.

[ColeenD3]

Since you determined that this is not a business, follow the steps below to enter your income as other income. You will not be able to take expenses unless you enter it on Schedule C as a business.

• Federal Taxes
• Wages & Income 
• Less Common Income select Start (or Update) for Miscellaneous Income.... 

[thyname]

But this is not income. I sold stuff, used stuff, that I had paid way more money originally when new. How can I possibly pay tax on full sale price of sale of something without being able to put the cost basis, what I paid for them brand new?

[WendyN2]

Regarding the potential taxability of your sales, this is what I found in doing some poking around...

Tax Information Reporting For Online Sellers

Reporting My PayPal Sales On My Tax Return

As a tax professional, given that you have stated that you are really basically using PayPal to get paid just as if you were selling at a yard sale, you still will need to report this income (if more than 200 transactions in a year or total proceeds exceeding $20,000 for that year) on your personal tax return. Having said that, it is far more beneficial for you to report this "income" on a Schedule C versus "Other Income" because that way you can then deduct any/all expenses related to selling those items. MYbanktracker has some useful tips on what all you can deduct for these purposes. In addition, you can also list the cost of the items in total as "Inventory" available for sale. It is certainly not the traditional way, however, that is the "how-to" when you aren't really a business but use PayPal to get paid.  

[thyname]

I am very hesitant to file this as Schedule C, as I did not do this for profit, and I am not a business.

Do you happen to know if I can deduct my expenses (I.e cost of original purchase) under “other” income items, under “hobby”? Or is this subject to the 2% AGI limit? I am not looking to get any tax refund on this, simply looking to NOT pay any taxes on something I made no profit on.

Thanks!

[DawnC]

You cannot deduct your expenses for a hobby, you would need to use Schedule C to do that.  But if you are not doing the activity for profit, the income should not go on Schedule C.   If these are personal items that you did not make a gain on, you are not required to report them.  In this case, just keep detailed records in case the IRS questions the unreported amounts from the 1099-K later.  

Most of the time, personally-owned stuff like cars, appliances, clothing, furniture, and other household items decrease in value after the initial purchase. If you later sell them, it's almost always for less than what you paid, so there's no gain to report. There's also no loss. The IRS won't let you deduct losses on personal items.

Here's an example: you purchased a vintage nut grinder for $5 in 1972 and recently sold it on eBay for $75. You'd have to report the $70 profit as an investment sale.  If you have gains on personal items, report the income and basis amounts under Investment Sales.

Related Information:

• Where do I enter investment sales?

[thyname]

I am not sure how that “investment” part comes in play here. These were not investment. Personal items for Audio and Video. Stereo system and home theater stuff. Amplifiers, cables, stuff like that.

It sounds like the best course of action is to do nothing on this. Just keep records of original purchase, which I have. Correct?

[DawnC]

That is correct.  You would only use the investment section to report personal items you sold for a gain.  If these are personal items that you sold at a loss, just keep detailed records, but you are not required to report those sales or income.  I understand you have the 1099-K and the IRS may question you about it.  However, as long as you have the records to show these were payments for personal goods (like at a yard sale) that you did not make money off of, you will be fine.   

[Izzy1703]

So I am understanding that if we receive a 1099K from paypal that we don't have to include it on our taxes if the price we sold the items for was less than the original purchase price.  Is this correct?  This 1099K form is very confusing as turbo tax doesn't really have a place for me to report it.

[Hal_Al]

Q. So I am understanding that if we receive a 1099K from paypal that we don't have to include it on our taxes if the price we sold the items for was less than the original purchase price.  Is this correct?  

A. Yes. It's that simple.

Q. This 1099K form is very confusing. Why doesn't  turbo tax have a place for me to report it?

A. A 1099-K can be for any number of reasons, the most common being business and hobby.   You are expected to know why you got the money (and the form) and enter it in that place in TurboTax, if it even needs to be entered

The Government rules on expanded 1099-K reporting are new this year.  We don't know what the IRS is going to do with them (they will be overwhelmed).  

But the bottom line, for now, is: there is no specific place on the tax forms to account for a  1099-K. For a detailed discussion, see this other thread here, in the forum.

https://ttlc.intuit.com/community/taxes/discussion/i-sold-some-personal-items-on-ebay-and-received-a...

[thyname11]

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@Hal_Al wrote:

Q. So I am understanding that if we receive a 1099K from paypal that we don't have to include it on our taxes if the price we sold the items for was less than the original purchase price.  Is this correct?  

A. Yes. It's that simple.

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Where do you base this answer on? Any official source / link from IRS? Thank you

[Hal_Al]

Q.  A 1099K from PayPal does not have to be reported on our taxes if the price we sold the items for was less than the original purchase price.  What do you base this answer on?

A, The general discussion here in this forum (see previous link provided), particularly the fact that there is no 1099-K entry point in TurboTax.  

Q.  Any official source / link from IRS?

A. Not yet. But the IRS will eventually discovered the can of worms they opened