1099k for collectors items all sold at a profit - how to classify it using the different 1099-k "Type" options

[BetterCheddar]

I am anticipating a 1099k for sales of collectors items from a video game this year and have a few questions:

1. I guess first and foremost,  I was playing around in the 2022 online version of TT to see what the 1099-k reporting is like since I've never received a 1099-k before. Is it is possible that the Turbo Tax fields and options may change to more accurately reflect the types of sales/reporting/transactions that are likely to come in for the year based on the 1099-k rule change going into effect in Tax Year 2023? If not, my questions below are about how to make sure I'm reporting these sales accurately. based on current TurboTax options.

2. I've had these collectors items for over 5-10 years as part of a personal collection.  In the 2022 online version of TT, looking at the 1099-k Type options, I believe this would qualify as sales of personal items but TT seems to assume that personal items sales mostly involve items sold at a loss or no gain. I entered 0.00 in the field asking about "Proceeds for Items Sold at a Loss or No Gain," because that is accurate in this case, and this later prompted a 1099-b form that needed to be linked to the 1099-k.  I won't be receiving a 1099-b, so am I am confused by this.  The IRS guidance on 1099-ks for items sold at a gain includes filing a Schedule D and Form 8949. Is there someway to manually add these to a return in progress on TT? 

[rjs · Accepted solution]

There will very likely be changes in how 1099-K income is entered in TurboTax for 2023, and the IRS will be making changes related to Form 1099-K. I suggest that you wait until the 2023 software is available and see what it looks like then.

[Opus 17]

You need to report your income accurately, even if the default pathways in the program aren't right for you.  If there is not a good default pathway next season, come back here and we can help you deal with it.

Also be aware, sales of collectibles are taxed as ordinary income, not at the lower long term capital gains rate, although they are still reported on schedule D.  Personal items sold for a gain are taxable, but personal items sold for a loss are not deductible.  The 1099-k will probably report the total amount paid to you, so you will always need your own documented proof so you can report only the taxable gain, under the correct category, and not deduct losses, or accidentally report the proceeds as taxable.

[BetterCheddar]

I appreciate the responses.  I did some additional research today and found out there's some additional pending legislation that may further change reporting of 1099-k transactions, specifically.  So I guess I'll just have to wait and see if that changes things including how it's reported on TurboTax.  

[Opus 17]

@BetterCheddar 

No matter what happens with the tax forms, you can be prepared by keeping accurate detailed records of your transactions. You should have a list or a spreadsheet that includes the description of the item, how are you acquired it as best you remember, how much it cost, the selling price, and any associated selling fees. 

If this is an ongoing trade or business, with a clear profit motive, you may be required to file a schedule C to report this as business income. If this is a hobby, and you are not intentionally seeking a profit and you are not doing this as an ongoing or routine business, then you can treat it as a hobby. As a business, you can deduct other selling expenses like listing fees and shipping but you will pay self-employment tax. As a hobby, you can’t deduct any expenses, but you don’t pay self-employment tax. You should be prepared to defend your decision as to hobby or business if the IRS audits you. 

[BetterCheddar]

Not a business and not really a hobby either; I had a lot of extra expenses at the beginning of the year - I had a new HVAC system to pay off and a cat getting expensive cancer treatments - and quite literally needed the cash.  

[Opus 17]

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@BetterCheddar wrote:

Not a business and not really a hobby either; I had a lot of extra expenses at the beginning of the year - I had a new HVAC system to pay off and a cat getting expensive cancer treatments - and quite literally needed the cash.  

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Well, tax-wise, those are the two basic ways of handling the income, you were a business or this was occasional/not for profit/hobby activity.  You will have to choose one or the other when it is time to report the income.  You will also want a convincing explanation for why you chose that method, that you use in case you are audited. Here is some IRS guidance.

https://www.irs.gov/newsroom/heres-how-to-tell-the-difference-between-a-hobby-and-a-business-for-tax...

[BetterCheddar]

@Opus 17 I appreciate the additional information. 

[TomD8 · Accepted solution]

Here's how I'd report a 1099-K for the sale of collectible items:

1.  Go to "Income from Form 1099-K" in the Personal Income section.

2.  Choose "Personal Item Sales" as the Income Type.

3.  Enter the info from your 1099-K.

4.  If you want to report your cost basis as zero, do not check either box on the "Personal Item Sales" page.

5.  Click "Done" on the "Your 1099-K Summary" page.

6.  Then go to the Investment Income section.

7.  Click on "Stocks, Mutual Funds,..." button.

8.  On the next page you should see a line with your 1099-K payor's name.  Click the "Edit" button.

9.  On the "here's all the sales reported..." page, click "Add".

10.  Click on "I'll enter one sale at a time".  (Clicking "summary" doesn't seem to work for this purpose.)

11.  Enter the data for one of your collectible sales.  Write "Collectibles" for the description (without the quotes).

12.  On the next page, "Any of these less common items...", check the "Proceeds from Collectibles" box.

13.  Repeat the process until you've accounted for all your sales.  Be sure your total sales match the 1099-K reported amount.

This process should result in your sales being properly reported as Collectible sales on Schedule D and Form 8949 of your tax return.

[BetterCheddar]

I appreciate the response.  This seems like a reasonable way to enter sale of collectibles. 

I spoke with a tax expert at TurboTax and it seems what I think are collectibles are indeed not collectibles and are just general assets instead.  She informed me that Schedule D is the appropriate way to report these sales. I'm still going to work with a CPA at tax time to be certain.  Just wanted to close the loop on this in case anyone else comes here seeking advice on similar sales.