ebay sales and 1099k's
Sign Up

Why sign in to the Community?

  • Submit a question
  • Check your notifications
or and start working on your taxes
Announcements
TurboTax has you covered during Covid. Get the latest stimulus info here.
cancel
Showing results for 
Search instead for 
Did you mean: 
BDICK05
Level 1

ebay sales and 1099k's

Question on eBay sales

 

I have a store that I sell items through, eBay, I will get a 1099 form for taxes if I exceed 200 individual sales or $20, 000 gross in sales.

 

My wife also has an eBay store created under her identification, SSN, email, etc.

She should also get a 1099 if she exceeds the same totals as above.

Question:

If neither one of us exceeds the 200 sales and $20k gross limits and do not get individual 1099’s, but jointly would exceed the limits, do we have to claim the income on our taxes?

15 Replies
Opus 17
Level 15

ebay sales and 1099k's

If you file a tax return for any reason, you must report all of your income. If you have self-employment income, such as from eBay sales, of more than $400, you are required to file a tax return and report all your income, regardless of whether or not you get tax paperwork.

 

When you have a small business, you are required to keep accurate and reliable business records of all your income and expenses and report it on your tax return, even if you don’t get any forms or paperwork from your clients or customers. In your case, each spouse will have a separate business and schedule C in their name that reports their particular income and expenses.

 

how much income you have depends on what you are buying and selling. Your taxable income is the difference between the money you receive and the cost of the items. You can also subtract selling expenses such as selling fees, credit card transaction fees, and shipping.  If you are only selling used household items for less than you originally paid, you won’t have any taxable income. But you will still have the burden of proof, if audited, to prove the original original cost of the items.

 

(I read a tax court case involving an eBay seller who made $20,000, and claimed that it was all used clothing and used household items. Because she did not have any records to show the original cost of the items, the tax court  ruled that the entire $20,000 was taxable income. You do not necessarily need a receipt for a 30-year-old piece of furniture, but you need reliable business records that describe the property you are selling, including as much as you can remember about how you acquired it and what you paid, so that you can prove your case if you are audited.)

 

If you are buying items and selling them for more than the price you paid, then of course you have taxable income and will be required to file your return and pay taxes. 

 

 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
BDICK05
Level 1

ebay sales and 1099k's

My understanding was that if your selling personall items, the 200 items and $20K limit applies and you do not have to pay tax on it. i.e. like a Graage sale. Otherwise why does that trip the 1099k form sent out by PayPal etc.

 

Thanks for the insite.

Opus 17
Level 15

ebay sales and 1099k's

There are no limits or exemptions to paying income tax. You must report and pay tax on all of your taxable income.  

 

I don’t know why the IRS set the limits that they did on 1099-K forms.  This is a relatively new form that was created after the rise of third-party payment processors.  Presumably, someone who receives a lot of third-party payments is of interest to the IRS because the payments could be taxable income. However, not all third-party payments are taxable income. You could receive a 1099K as a result of a go fund me campaign in which all of the money is non-taxable gifts. You could also receive a 1099K as part of a go fund me campaign where you promise to do something of value in return for the money, such as make a new product or service, in which case it is taxable income.  Simply receiving third-party payments or getting a 1099K does not make it taxable income. What makes it taxable income is what you did to get the money.

 

Now in the case of eBay or garage sales, if you are only selling used items, you will usually not have taxable income.  That is because the sale of personal property is considered a capital gain or loss depending on whether you sold the item for more or less than you paid for it.  If you buy a fancy dress for $100 and later sell it for $20, you have a capital loss. If you buy a comic book for 10 cents and later sell it for $100 you have a capital gain.  When buying and selling personal items, you cannot deduct capital losses from your income but you must pay tax on your capital gains.  (The amount you paid for an item is called its cost basis, and if you sell for more than the cost basis, you have a gain; if you sell for less than the cost basis, you have a loss.   There can sometimes be adjustments to cost basis, and cost basis is different if you receive an item as a gift or inheritance, but counting the purchase price as the cost basis is the simple case for most items.)

Now, if you are only selling used personal items, you will probably always be selling for less than you paid (less than the cost basis) so you don’t have taxable income.  If you don’t have taxable income, you aren’t required to report it.

 

But, because of the requirement for third-party payment processors to issue 1099K forms, you may be required to report your eBay business on your tax return even if it is only to declare that you made no profit and had no taxable income, just so that the IRS has documentation of that fact to go against the 1099K.  In order to do this, you will need to have some kind of written record of what you bought and sold so that you can demonstrate to the IRS, if audited, that the sales proceeds were less than your cost basis.  The tax court case I mentioned involved someone who claimed that they were only selling used items. I think the court was skeptical of this claim because of the dollar amount involved, but regardless of the court’s skepticism, the taxpayer is required to maintain these records and have them available if audited. Because the taxpayer did not have the records proving the cost basis of the items, the IRS ruled that the entire amount was taxable.

if you had a garage sale where you sold used personal items that originally cost you $10,000 in total, and you received $2000; and at the same garage sale you bought lemons and sugar for one dollar and sold cups of lemonade totaling $10; then technically, you have an $8000 capital loss on your personal belongings which is not deductible and you have nine dollars of taxable income from selling the lemonade.  The IRS is busy enough to not worry about this kind of thing and most of the time they’re smart enough to not worry about it.  But once you go on eBay and trigger a 1099K, you are going to have to report that on your tax return and you are going to need to have records.

 


The bottom line is that if you are only selling used items for less than your cost basis, the proceeds are never taxable income even if you get a 1099K. But if you get a 1099K, you will have to report the business on your tax return which means you will have to have records showing that you did indeed sell the items for less than their cost.  On the other hand, if you are selling items for profit (for more than you paid, whether these are personal items or some other wholesale business you’ve established), then you are required to report your income and pay taxes even if you don’t get a 1099K.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
Oscar222
Level 2

ebay sales and 1099k's

I received a 1099k from Paypal because I sold over 200 things on EBay.  Most were for just a few dollars.  Where do I report the income from these sales on my 1040?  Then where do I report the expenses?  Some of the money on the 1099k include what the customer paid me for the postage so my postage is an expense.  These are all items that I sold from my home - like a garage sale. 

Thanks!

LenaH
Employee Tax Expert

ebay sales and 1099k's

Your 1099-K from PayPal would be reported through a Schedule C on your tax return. On your schedule C, you can enter both your income and expenses

 

To access your Schedule C in TurboTax, you can follow these steps:

  1. Open your return.
  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.

 

 @Oscar222

Oscar222
Level 2

ebay sales and 1099k's

Thanks so much!

Oscar222
Level 2

ebay sales and 1099k's

As you suggested, I added the income on Schedule C and also did listed expenses (postage, eBay fees, PayPal fees, etc.)  Where do I account for  the original cost of the items?  Since this is like a garage sale, the items I sold are various used things from around my house.  I did purchase them at some point in the past but have used them so the value is far less than what I purchased them for.  Presumably I should not end up with a profit since I purchased them to begin with.  

Thanks in advance for your help!

@LenaH 

Opus 17
Level 15

ebay sales and 1099k's


@Oscar222 wrote:

I received a 1099k from Paypal because I sold over 200 things on EBay.  Most were for just a few dollars.  Where do I report the income from these sales on my 1040?  Then where do I report the expenses?  Some of the money on the 1099k include what the customer paid me for the postage so my postage is an expense.  These are all items that I sold from my home - like a garage sale. 

Thanks!


If these are all items sold for less than their cost, you don't have to report the income at all.  But, if audited, you will be expected to be able to prove that you sold the items for less than cost.  Proof might include a written inventory of the items you sold, with the original cost and purchase date noted or estimated, and the selling price noted as less than the purchase price. 

 

You can either leave the income off or add the 1099 in the "other income" section (not a schedule C) and then adding a negative item of other income to cancel it out with the reason "used items sold for less than basis" or something.  Or, leave the 1099 off entirely, print your return and file by mail, and attach a copy of the 1099-K and a written explanation of why the money is not taxable (don't include the detailed proof-save that for later if asked.)

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
Opus 17
Level 15

ebay sales and 1099k's


@Oscar222 wrote:

As you suggested, I added the income on Schedule C and also did listed expenses (postage, eBay fees, PayPal fees, etc.)  Where do I account for  the original cost of the items?  Since this is like a garage sale, the items I sold are various used things from around my house.  I did purchase them at some point in the past but have used them so the value is far less than what I purchased them for.  Presumably I should not end up with a profit since I purchased them to begin with.  

Thanks in advance for your help!

@LenaH 


I'm curious about this as well because this is not inventory so it's not really cost of goods sold.  These are capital sales that would be reported on schedule D, not schedule C, and as each item is sold for less than the purchase price, this will show a large deductible capital loss.  Since the schedule C will show expenses and no income, and schedule D will show a loss as well, this could create a large deduction against other income.  But, losses on sales of personal property are not allowed, and this is pretty clearly not an ongoing trade or business if the taxpayer is not acquiring new inventory. 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
DawnC
Employee Tax Expert

ebay sales and 1099k's

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.

 

 

Where do I enter investment sales?

 

If this was yard sale type stuff, just keep records of the items and as long as you did not have any personal gains, you don't have to report.  Keep detailed records in case of an inquiry.  @Oscar222

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
teresamorgan0301969
Level 5

ebay sales and 1099k's

Hello, @Opus 17 @DawnC @LenaH 

I did not get a 1099 or a 1099K (i was under the $20,000/1000 items triggers but, was not sure how the different shipping methods (buyer paid, seller paid), eBay fees, and Paypal fees factor in all of my eBay sales were processed via PayPal, so I can see the amounts there.
Thank you,
Teresa M.
Opus 17
Level 15

ebay sales and 1099k's


@teresamorgan0301969 wrote:

Hello, @Opus 17 @DawnC @LenaH 

I did not get a 1099 or a 1099K (i was under the $20,000/1000 items triggers but, was not sure how the different shipping methods (buyer paid, seller paid), eBay fees, and Paypal fees factor in all of my eBay sales were processed via PayPal, so I can see the amounts there.
Thank you,
Teresa M.

If you are operating a business, you are expected to keep accurate records of your income and expenses, and report and pay taxes, even if you don't get tax paperwork from your clients or payers.  In the case of something like eBay sales, you would report your gross sales amount as gross income, and the various expenses (listing fees, transaction fees, shipping) as business expenses.

 

If you are only selling used items for less than you paid for them, you may or may not be operating a business, as defined by the IRS.  If you don't report it as a business, you should still keep accurate records for at least 3 years in case of audit. 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
teresamorgan0301969
Level 5

ebay sales and 1099k's

Thank you so much. 

FHH11
New Member

ebay sales and 1099k's

I am 84 years old and am selling my life's accumulation of stuff, mostly electronic or sailboat equipment made in the 1930s,40s, 50s, 60s and 70s and associated with my ham radio and sailing hobbies..  I have no records of actual purchase dates or amounts for much of this stuff.  All told, this stuff is being sold at a loss, and in some cases at a great loss.   I had no intent to be a business do not expect any profits, only losses.  Nor did I want to throw the stuff in a landfill.  Nor did I intend to have to buy a Turbo-tax upgrade to get a Schedule C.   Can I avoid Schedule C by showing the income as Miscellaneous Income, attaching the Schedule K and including a reasonable  explanation that I am not in a business and that the Ebay sales were sold at a loss?

Dynamic AdsDynamic Ads
v
Privacy Settings