Casual eBay Seller Getting Ready for Tax Year 2022 1099-K

[premmer]

I’m a casual eBay seller. Next year I expect to receive a 1099-K from eBay for ~$1400 in gross sales. After I deduct all sales related expenses which amounts to ~$500, I will net ~ $900.

I don’t itemize my taxes. I believe I can use 1040 Schedule 1 for both additional income per Part 1, Line 8z and adjustment to additional income per Part 2, Line 24z; both amounts would be entered in 1040-SR Line 10 and Line 26.

Is there a way to make these entries using turbotax Deluxe PC desktop software?

[Critter-3 · Accepted solution]

We will have to wait and see what the IRS is going to do about a lot of folks who are in your position ... they cast a wide net to catch the tax cheats and are going to catch  some honest folks along the way.  Watch for a ruling to come out later this year on how to handle this situation properly.

[mysticr]

If your Form 1099-K is for personal items sold, similar to having a garage sale, and you were not in a trade or business, the IRS allows you to also deduct the related expenses for the sale up to the amount of the sale.

If you do not need the self-employment section, you have two options to report Form 10999-K in TurboTax.

Both following options will report Form 1099-K and also zero it out on your return. This will mean you appropriately pay -0- tax on the non self-employed income.

For reporting Form 1009-K for personal items sold not associated with a trade or business, you have two options:

• Option 1 in TurboTax Premier or higher: reporting Form 1099-K as investment income
  1. Go to the search box and enter Investment Sales
  2. Select Jump to Investment Sales
  3. Select Other at the next screen, OK, what type of investments did you sell? and click Continue
  4. At Tell us more about this sale, enter in the name, such as Form 1099-K Personal Property Sales and the Payer's EIN and click Continue
  5. At Now we'll walk you through entering your sale details, under the first dropdown menu, What type of investment did you sell? Select Personal Items
  6. Answer How did you receive this investment with an option from the dropdown menu.
  7. Enter the Description. If you are uncertain what date you purchased the goods, select Something other than a date so that TurboTax will enter Various
  8. Next, enter your Sale Proceeds and an equal amount for the Total Amount Paid and click Continue. The description for the cost should include Cost of Personal Property
  9. Select None of these apply at Let us know if any of these situations apply to this sale and Continue
  10. Continue through the rest of the prompts 
  11. Select Add another sale to add the next Form received 
       
• Option 2 in TurboTax Deluxe or higher: reporting it via Other Miscellaneous Income is acceptable to the IRS.
  1. From the left menu, go to Federal and select the first tab, Wages & Income
  2. Add more income by scrolling down to the last option, Less Common Income, and Show more
  3. Scroll down to the last option, Miscellaneous Income, 1099-A, 1099-C and Start
  4. Choose the last option, Other reportable income and Start and Yes
  5. Enter the applicable description and amount and Continue
     • First, enter Form 1099-K as received. It is essential that the full amount be entered.
       • For a description, include Form 1099-K and Personal Property Sales
     • Next, enter an adjustment to reflect the cost of these items as an offsetting, negative amount up to the amount of the income.
       • For the cost description, include Form 1099-K and Cost of Personal Property 
       • In other words, if the goods cost you $100 and Form 1099-K was for $10 in sales, the maximum cost allowable would be $10.

Otherwise, Form 1099-K must be included in the self-employed section of the return. In the self-employed section, negative income cannot be reported. Self-employed persons must use the rebates option under income or report any offsets as miscellaneous expense.

For reporting Form 1099-K from self-employment with offsetting amounts that is associated with a trade or business you own and operate, TurboTax offers two self-employed options. From the Wages and Income section, go to Self-employed income and expenses and select Start/Revisit to begin with reporting Form 1099-K.

• Option 1: 
  • Report Form 1099-K as received in the COMMON INCOME section under Other self-employed income, includes 1099-K, cash, and checks
  • Report any cashback or rebates under LESS COMMON INCOME using Rebates and refunds, includes any income returned to customers
• ​​​​​​​Option 2:
  • ​​​Scroll down to EXPENSES and click in the lower left hand corner, Add expenses for this work
  • Scroll to Other miscellaneous expenses select the toggle, scroll to the bottom of the page and click Continue 
  • Enter a Description for your offsetting amount, such as Form 1099-K costs or Form 1099-K cashback rewards and Continue

[premmer · Accepted solution]

Thanks for your reply. As an experiment can you make the entries in “other income” and “other adjustment” categories to see if they are entered in Schedule 1 line numbers noted in my post? I don’t TurboTax software to try myself.

[Vanessa A]

It depends on what you mean by a casual eBay seller.  If you are selling your personal "yard sale" items (jeans you paid $50 for and selling for $10), then you don't need to report this on your return.  Just keep records for if things change later.  The IRS states  "separate reporting of these items is not required. However, you should follow the return instructions on the forms you are completing to report your gross receipts or sales. You should report items that qualify as a trade or business expense on the appropriate line item of Schedules C, E and F.." New Payment Card and Third Party Network Transactions

So, if you are doing this as a sideline business or selling your used items for a profit, like for example, going to yard sales, buying an item for $5 and selling it for $25, then you would need to report it on your Schedule C as part of your gross sales and expenses or schedule E as an investment. 

[Critter-3]

From the IRS link :  

I occasionally sell items on an Internet auction site. How do the payment settlement entity reportin...

If you accept payment cards as a form of payment, you will receive a Form 1099-K for the gross amount of proceeds for the goods or services purchased from you through the use of a payment card in a calendar year. Further, if you accept payments from a third-party settlement organization, you should receive a Form 1099-K from that organization only if:

• The total number of your transactions exceeds 200

AND

• The aggregate value exceeds $20,000 in a calendar year.

Effective for returns for calendar years beginning in 2022:
If you accept payment cards as a form of payment, you will receive a Form 1099-K for the gross amount of the payments made to you through the use of a payment card during the calendar year. Further, if you accept payments from a third-party settlement organization, you will receive a Form 1099-K from that organization only if the aggregate amount of payments for goods and services exceeds $600 during the calendar year.

[Opus 17]

Let's step back.

First, regardless of any forms, you only have taxable income if you sell items for more than you paid for them, or for more than your cost basis.  (Cost basis is usually what you paid for an item, but can be different for items that were gifted or inherited or previously used by a business.  Ask if you want more explanation.)

If you are in an ongoing trade or business, you report your business income and expenses on schedule C.  Being in an ongoing trade or business means you actively and regularly participate, you operate in a businesslike manner, you seek new business opportunities, and you have a profit motive.

If you are a "Casual seller" then you probably aren't involved in "ongoing trade or business" so any net income is hobby income, and you can't deduct expenses.   But remember, you only have income if you sell items for more than your basis.  

What you should always be doing, regardless of tax paperwork, is keeping accurate records.  You want to keep a list of the items you sell that includes a description, how you acquired the item and when, your cost, the selling date, selling price, and selling expenses.  

We don't know how the IRS will want taxpayers to account for the new 1099-K forms on their 2022 tax returns. If you keep proper records, and understand what is taxable and what is not, and whether you are a schedule C self-employed business or a hobby, then you will be prepared for whatever the IRS does. 

[premmer]

Thanks, your replay is quite informative. I’m not counting on any relieve from a disfunctional Congress.

The use of casual seller description should really be one-time seller. I don’t itemize deductions or operate a business, there forth, I don’t believe I qualify for use of Schedule A or C.  As I understand your reply, my 1099-K gross eBay-related sales must be reported as “hobby income” and no deductions/adjustment are allowed for cost of item, eBay selling fees, shipping costs, packaging and misc. expenses.  I do have very detailed records of the sales which amount to six transactions.  Please confirm or correct my understanding.

[Opus 17]

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@premmer wrote:

Thanks, your replay is quite informative. I’m not counting on any relieve from a disfunctional Congress.

The use of casual seller description should really be one-time seller. I don’t itemize deductions or operate a business, there forth, I don’t believe I qualify for use of Schedule A or C.  As I understand your reply, my 1099-K gross eBay-related sales must be reported as “hobby income” and no deductions/adjustment are allowed for cost of item, eBay selling fees, shipping costs, packaging and misc. expenses.  I do have very detailed records of the sales which amount to six transactions.  Please confirm or correct my understanding.

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You missed something, read the answers again.

Your gross sales are not reportable as hobby income.  You only have taxable income if you sell an item for more than its original cost.  Even if you are buying and reselling items for a profit (rather than selling used household items) your taxable income is only the difference in between the selling price and your cost.  If you are selling used items for less than the original cost, you won't have taxable income.

The IRS does not define a "casual seller."  Rather, the IRS defines "ongoing trade or business" and everything that is not an ongoing trade or business is a hobby, no matter if it is one or 5 or 10 times.  

If you are operating as a hobby, your taxable income is only your profit (the amount you sell items for more than their cost) and not your gross sales.  You track your profit per item and add the profits for the items you sold at a profit, but you do not subtract for the items you sell at a loss.

Let me try and create an example without being too complex.

Item	Date acquired	Cost	Date sold	Selling Price	Profit
DVD player (purchased for home)	2012	$250	2022	$25	$0
Used DVDs	2012-2020	$500 (approx)	2022	$50	$0
DVD player (purchased at garage sale to resell)	2021	$10	2022	$20	$10
Costume jewelry (mine, purchased or gifted over the years)	1990-2010	$1000 (approx)	2022	$100	$0
Costume jewelry (purchased at estate sale to resell)	2022	$100	2022	$250	$150
Total				$445	$160

In this example, eBay would issue a 1099-K for $445 in gross sales, but your taxable income would only be $160.

As of 2021, there are two ways you could deal with this on your tax return.  We don't know if the IRS will create a new procedure for 2022 or not.

Also, this has nothing to do with schedule A.  If you were a business, you could deduct your expenses on schedule C.  If this is a hobby, you used to be able to deduct your expenses as a miscellaneous itemized deduction on schedule A subject to the 2% rule, but that deduction was eliminated in the 2017 tax reform law. 

[Vanessa A]

What are you selling?  Your own "yard sale" items? Collectibles? Stuff you buy/obtain with the intent to sell?

[premmer]

I though the eBay gross sales amount noted on their 1099-K had to be entered as “hobby income” amount.  My profit is 64% of 1099-K amount which is subject to taxes. I’m confused, I just can’t enter my profit amount, 64% of 1099-K, as hobby income without account for the remaining 36% can I?

[premmer]

I sold six orders of a health-related product and that is the end of my eBay selling venture given the recent change in tax laws.

[Opus 17]

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@premmer wrote:

I though the eBay gross sales amount noted on their 1099-K had to be entered as “hobby income” amount.  My profit is 64% of 1099-K amount which is subject to taxes. I’m confused, I just can’t enter my profit amount, 64% of 1099-K, as hobby income without account for the remaining 36% can I?

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As I said, your income is determined by the selling price and purchase price of the individual items.

If you have received a 1099-K for 2021, there are two ways to report the correct income.  I will give the details below.  

If you are worried about 2022, we will have to wait and see if the IRS changes the procedure.

For 2021, you have two ways to report the correct income.

A. Leave the 1099-K off your return.  Enter your correct income as hobby income.  (You could also enter it as short term capital gains on schedule D.)  Print your return and file by mail, instead of e-filing.  Attach a copy of the 1099-K and a written statement explaining the situation, how you calculated the taxable amount, and showing that you reported your taxable gains in the correct place.

B. Enter the 1099-K as-is.  Then, go back into the hobby income section and enter a new item of income with a descriptive label (maybe "Ebay items sold at a loss") and enter a negative number that will offset the gross sales.  For example, if your gross sales were $1000 and your actual profit was $600, you would enter the $1000 1099-K and then enter -$400 (negative $400) as an offsetting adjustment.  That way your taxable income nets out to $600 that you determined is taxable.  This procedure will allow you to e-file.  The IRS may send a letter asking for a more detailed explanation, so keep records of your sales and how you calculated your taxable income for at least 3 years after filing. 

[Critter-3]

That is the current issue ... the IRS has conflicting regulations on this matter that need to be resolved for the non business sellers of personal use property at a loss.   The lowering of the bar for the issuance of the 1099-K has an unintended consequence that needs to have allowances made for it.

The current rule that all 1099-K income of $600 or more should be reported on the Sch C or Sch D  is in direct conflict with the rule that the sales of personal use items sold at a loss are not reported on a tax return ... they are not income and the loss is not deductible.  There have been "workarounds" used in the past  but it would be nice to get proper guidance from the IRS ... hopefully they will address this by the time the 2022 returns are filed next year. 

If you are in an ongoing trade or business, you report your business income and expenses on schedule C.  Being in an ongoing trade or business means you actively and regularly participate, you operate in a businesslike manner, you seek new business opportunities, and you have a profit motive.

If you are a "Casual seller" then you probably aren't involved in "ongoing trade or business" so any net income is hobby income, and you currently can't deduct expenses.   But remember, you only have income if you sell items for more than your basis.  

What you should always be doing, regardless of tax paperwork, is keeping accurate records.  You want to keep a list of the items you sell that includes a description, how you acquired the item and when, your cost, the selling date, selling price, and selling expenses.  

We don't know how the IRS will want taxpayers to account for the new 1099-K forms on their 2022 tax returns. If you keep proper records, and understand what is taxable and what is not, and whether you are a schedule C self-employed business or a hobby, then you will be prepared for whatever the IRS does. 

[premmer]

Thank you, your reply is understood.  To clarify, my question deals with 2022 tax year exceeding the $600 limit, not 2021. Yes, I understand Congress may make changes but if they don't I believe I have the details to deal with it.  All this to save $114, I'm really getting frugel  in my old age.