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?
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.
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.
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:
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.
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.
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.
From the IRS link :
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:
AND
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.
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.
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.
@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.
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.
What are you selling? Your own "yard sale" items? Collectibles? Stuff you buy/obtain with the intent to sell?
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?
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.
@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?
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.
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.
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.
Most people seem to get this a bit mixed-up....
If you sell $600 on Ebay, you will get a 1099.
If you are not a business (like most casual sellers), then you must report this as hobby income.
Since the TJCA was passed, one cannot deduct any of the costs associated with the hobby...ergo, not "cost basis"...the entire sale is added into your AGI.
Of, there are issues such as safe harbor, etc, which the casual user aren't going to bother with.
The end result: if you sell just your good china on Ebay for $1200, you will owe tax on the entire amount.
Depending on one's outlook, you could see this as just fair...after all, the increased personal deduction under the TJCA is supposed to "cover" that. On the other hand, you could see this as government casting too wide of a net and unfairly penalizing small folks by paying tax on the china twice....once, when you paid tax on your income when you bought, and again when you sell it...
Just no. You don’t have taxable income on the sale of personal property unless you sell the property for more than your cost basis. This applies to garage sales where you sell for cash just as well as to eBay. It doesn’t become taxable income just because the payment processor sends a 1099.
You can’t deduct selling expenses, whether it is online transaction fees or the cost of renting a table for your garage sale. But your taxable income is your gain, not your gross proceeds.
The issue is how to report it on your tax return, and what kind of records you need to keep in case of audit. The rules about when payment processors must issue a 1099 do not change the fundamental definition of taxable income.
There is no need to confuse things any further.
The discussion seems to center around the issue of what is considered income. Is it gross receipts, or gross receipts less the cost of the items sold? IRS publication 17 discusses hobby income on page 73, but does not define it, only to say that you can't deduct expenses related to a hobby activity, unless you report them on schedule A, which is not allowed for most filers in 2021. As a practical matter, if you report less than the amount reported to you on form 1099-K, you may receive a notice from the IRS somewhere down the road assessing additional tax for income you did not report.
If you get a 1099-K for $600 or more and the income is not reported on the return somewhere then you will 100% get an IRS audit letter in the future where they will contend this is all SE income where you owe SE taxes on top of the federal taxes.
So until the IRS give some kind of guidance on this matter all we can do is wait.
Please provide a reference to your position on this...I would like to be corrected.
Everything I have studied on this from post-TJCA legislation agrees...deductions for "hobby income", which could be the selling of personal possessions, were removed and all proceeds are to be reported as income.
If a 1099k is issued, and one gets audited, I suppose you would be fine explaining that it was a one off sale.
@ThomasM125 wrote:
The discussion seems to center around the issue of what is considered income. Is it gross receipts, or gross receipts less the cost of the items sold? IRS publication 17 discusses hobby income on page 73, but does not define it, only to say that you can't deduct expenses related to a hobby activity, unless you report them on schedule A, which is not allowed for most filers in 2021. As a practical matter, if you report less than the amount reported to you on form 1099-K, you may receive a notice from the IRS somewhere down the road assessing additional tax for income you did not report.
Publication 17 Your Federal Income Tax
No one is disagreeing with the need to include some kind of report. The original question was how to report it (which we dealt with for 2021, and must wait and see for 2022), but there also seems to be a question of what exactly is taxable.
IRS publication 525 says:
Sale of personal items. If you sold an item you owned for personal use, such as a car, refrigerator, furniture, stereo, jewelry, or silverware, your gain is taxable as a capital gain. Report it as explained in the Instructions for Schedule D (Form 1040). You can't deduct a loss.
Pub 525 also says:
If you collect stamps, coins, or other items as a hobby for recreation and pleasure, and you sell any of the items, your gain is taxable as a capital gain. However, if you sell items from your collection at a loss,
you can't deduct the loss.
Ergo, the sale of personal items for more than your cost basis is a capital gain. You can't deduct selling expenses, but there is no rationale for claiming that the entire proceeds are taxable, even if you get a 1099. The trick is to prove it to the IRS.
There's also a Tax Court case I'm not going to bother looking up, involving someone with $20,000 of eBay sales who said it all came from personal items sold for less than the cost basis. The court agreed on principle that items sold at a loss would not be taxable income, but this specific taxpayer had no records to actually prove they were selling pre-owned personal items at a loss, so all the proceeds were determined to be taxable. Not because sales proceeds=income, but because bad record keeping=you're SOL. (The court also noted that since the taxpayer was an IRS agent, they had more reason than most to know better.)
@Critter-3 wrote:
If you get a 1099-K for $600 or more and the income is not reported on the return somewhere then you will 100% get an IRS audit letter in the future where they will contend this is all SE income where you owe SE taxes on top of the federal taxes.
So until the IRS give some kind of guidance on this matter all we can do is wait.
No one is disagreeing with the need to include some kind of report. The original question was how to report it (which we dealt with for 2021, and must wait and see for 2022), but there also seems to be a suggestion that the entire proceeds are taxable.
It's not.
@stevendingle54 wrote:
Please provide a reference to your position on this...I would like to be corrected.
Publication 525. Capital gains from sale of personal property. Page 35, example 39,
https://www.irs.gov/pub/irs-pdf/p525.pdf
You can't deduct expenses (shipping, advertising, etc.) but basis is not an expense.
@stevendingle54 wrote:
Please provide a reference to your position on this...I would like to be corrected.
OK, I looked it up.
In his decision, Judge Dean noted that taxpayers are obligated to report any gains from property sales, which means Orellana was obligated to track her cost or basis of the property sold, to show whether she'd had such gains. Generally, sellers of personal items on eBay get less for their items than they paid for them. But Orellana, representing herself in court, said she had no receipts for items sold. (emphasis added)
https://taxprof.typepad.com/taxprof_blog/2010/04/tax-court-irs-agent.html
For 2004 the RA determined that there were unidentified bank deposits of $8,402.48 and unreported adjusted gross receipts from eBay/PayPal of $22,260.65 for a total of $30,663.13 of unreported income. There was no reduction in gross receipts to account for petitioner's basis, if any, because there was no evidence with which to tie petitioner's purchases to her sales (emphasis added).
Go to this page, select the tab for "opinions" and search for the plaintiffs name "Orellana"
Here's some Treasury regulations
https://www.law.cornell.edu/cfr/text/26/1.61-6
(a) In general. Gain realized on the sale or exchange of property is included in gross income, unless excluded by law. For this purpose property includes tangible items, such as a building, and intangible items, such as goodwill. Generally, the gain is the excess of the amount realized over the unrecovered cost or other basis for the property sold or exchanged.
As a final comment, it's worth thinking about that a "hobby" of selling tangible personal property will look very different on a tax return than almost any other hobby. If you were an amateur photographer and sold photos, you could consider the frames as tangible property that has a cost basis, but the travel, printing, advertising, and everything else would be non-deductible expenses. If your hobby was performing as Santa Claus at holiday parties, then none of your expenses would be deductible. If your hobby is metal detecting, everything you find is taxable income and you can't deduct travel or any other expenses.
Because we are talking here about the sale of tangible personal property, you follow the rules for capital gains property, and your gain is proceeds minus cost (if you can prove it).