If I sell my Mom's estate jewelry online, and receive a 1099k from Etsy, is this considered to be self employment?

Possibly. It depends if you have decided to open a trade or business for reselling jewelry. If you are selling these items more as if it were an online garage sale, then these are personal property sales, instead.

If you are in a trade or business, report Form 1099-K as self-employment income & expenses in the Wages & Income section.

Otherwise, to report the other income, follow these steps:

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. Please note, items received from your mother's estate are now your property.
     • For the cost description, include 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.

There doesn't seem to be a way to enter the full 1099K amount and then adjust it.  You only enter the description and a taxable amount.  Did something change with Turbo Tax?

It is possible to enter Form 1099-K and then adjust it. But, this should be done in two steps, not one, depending on what type of income is being reported on Form 1099-K.

• If your Form 1099-K income is not from a trade or business, enter Form 1099-K as Less Common Income. Enter the offsetting amount as negative income. To do this in TurboTax, follow these steps:

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 if this is coming from personal items sold similar to selling items at a garage sale.
   • 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, but Form 1099-K was for $10 in sales, the maximum cost allowable would be $10.

• If your Form 1099-K income is from an intent to earn money from a trade or business, enter Form 1099-K in the Income section of your Self-employed income & expenses. Report the cost of those sales as an other miscellaneous expense for your business.

@klacombe

Thanks, I think I'm following you now.  In my case, I have a hybrid 1099-K.  A portion was from selling online with the purpose of income so that is entered as self-employed income and expenses.  The rest of the sales were selling personal items that I owned.  After selling through a lot of personal items the first half of the year I decided I could buy certain items to fix up and sell.  In my Less Common Income i'll need to list the full 1099-K and then offset the cost of those personal items plus all the business items already captured as business income.  That seems like the right way to handle a mixed 1099-K.  Is that right?

Thank you for the clarification. While your proposed solution will net correctly, the IRS will want to see an extra step.

Personal expenses are not allowed as a deductible business expense. If you listed Form 1099-K Cost of Personal Property as an expense, that would not be deductible. But, the income should not count against you.

Therefore, move the entire personal portion out of the self-employed section and offset it separately.

To move the personal items sold, follow these steps:

1. Enter the amount as Form 1099-K Personal Property Sales reported as Other Income in the Rebates and refunds, includes any income returned to customers section.
2. Follow the steps for reporting Other Income as a positive and negative:
   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 if this is coming from personal items sold similar to selling items at a garage sale.
      • 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, but Form 1099-K was for $10 in sales, the maximum cost allowable would be $10.

Then, only list the business expense for the business portion of Form 1099-K in the Other miscellaneous expenses section with the description Form 1099-K cost of goods sold or something similar. This expense category is just below Legal and professional fees when adding expenses.

See screen shots below for added guidance:

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Should I be entering the full 1099-K in both the Business portion and the Personal portion and then removing the other as you described?  Not my real numbers but if my 1099-K was $25k and $5k was from business and $20k was from personal, how would I enter this?  I do understand to only include expenses from the business side and not any from the personal side.

You can allocate the amount from the 1099-K however you want - the IRS doesn't "match" 1099-K income, but expects it will be reported in the appropriate place on your return.

If $5K was for business, just enter $5K in the General Income Category of Business Income. 

For sales of personal items (e.g. mother's jewelry), you can enter that as "Other reportable income" and, then enter an offsetting amount (negative number) for the cost basis of that jewelry. The cost basis of her jewelry would be its value on the date of her passing.

Reporting the income:

• Go to Less Common Income, Miscellaneous Income and Other reportable income (enter "other reportable income" in the Search Box and Select "Jump to other reportable income") 

• Continue to the screen "Other Taxable Income". Enter the description as "1099-K Sales" and the amount. These are NOT wages. 

Reporting the cost of items sold:

• Go to Less Common Income, Miscellaneous Income and Other reportable income (enter "other reportable income" in the Search Box and Select "Jump to other reportable income") 

• Continue to the screen "Other Taxable Income". Enter the description as "Cost 1099-K Sales" and the amount as a negative number. 

Great discussion - very helpful for my situation. If I have business expenses that don't go specifically with an individual item:

shipping and wrapping supplies,

mileage to ship,

items such as weight scales, polish and repair tools,

gift boxes and tissue,

bank fees,

and state DBA fees,

do these go onto a schedule C for the DBA OR

should they get allocated onto the basis somehow?

Thanks!

No, definitely plug these expenses into your Schedule C.  Don’t allocate.

@HHT

Thanks. So Schedule C would work out to be a net loss each year, but that wouldn't matter as I am reporting all those capital gains. (It will take me several years to sell the stuff from several family members and estates.) 

OR should I consider reselling additional non-personal items or created items so that the Schedule C is positive and not considered a 'hobby'. 

Appreciate the help!

You must look at your facts and circumstances to decide if you are actually in the business of buying and selling.  The IRS rule for determining if an activity is engaged in for a profit is whether they show a profit three out of every five consecutive years.  They will also see if this activity is engaged in for your livelihood, which just means whether this is contributing to that purpose.

It is either a business enterprise or it is the sale of personal property and reported as investment sales.  It's not clear from your statement what is creating capital gains.  Losses from the sale of personal property is personal use as well.  If it is personal use property then losses are not allowed under investment sales.

Any income received for services or goods is taxable.  You have to decide if it's a hobby or a business for tax purposes. Review this page from IRS:

• Business or Hobby?

Key elements:

1. A hobby requires you to report the income you received and under the current tax law, Tax Cuts and Jobs Act (TCJA), no expenses are allowed to be used to reduce the money collected even if you itemize deductions.
2. A business allows you to deduct the costs necessary to obtain the income.  The law explains that 'you must be engaged in the activity to produce a profit'.  The test under IRS is that you must show a profit three out of every five consecutive year.

Please update if you have more questions and one of our tax experts will help.

@HHT

Thanks - I think I mostly understand the business versus hobby difference. From the initial post, I am selling items that I would have considered 'personal items' - either I purchased them for myself, they were gifts to me or they were unsold and unwanted from a family estate.  Have not purchased any of the items specifically for resale, but a few I 'collected'. 

I have to file periodic state sales tax forms, I have a state DBA, and I do intend to benefit from the money from my sales. I definitely will have a profit from nearly every single item. I have devoted significant time every week to this effort for marketing, restoration, packaging etc. I have general expenses that are directly attributed to this effort, but not to a single item. This first year I do not have a 1099, but I will have a 1099 in the future. This effort will take several years and turn a net profit each year. However, if the capital gains go to one schedule and the unallocated expenses go to a Schedule C, then the Schedule C might have a loss each year.

Thanks for your advice!

Thanks - I think I mostly understand the business versus hobby difference. From the initial post, I am selling items that I would have considered 'personal items' - either I purchased them for myself, they were gifts to me or they were unsold and unwanted from a family estate.  Have not purchased any of the items specifically for resale, but a few I 'collected'. 

I have to file periodic state sales tax forms, I have a state DBA, and I do intend to benefit from the money from my sales. I definitely will have a profit from nearly every single item. I have devoted significant time every week to this effort for marketing, restoration, packaging etc. I have general expenses that are directly attributed to this effort, but not to a single item. This first year I do not have a 1099, but I will have a 1099 in the future. This effort will take several years and turn a net profit each year. However, if the capital gains go to one schedule and the unallocated expenses go to a Schedule C, then the Schedule C might have a loss each year.

In brief, though these seem to be 'personal' items, I think that I'm operating a business for profit and will definitely generate one over the next several years.

It's important to determine which activity you are engaged in.  You either have a sale of investment or you have income from a business but not both for the sale of the same items.  If you believe you have a business then all of the income from the sales go on Schedule C, self employment.

The tax law would not uphold a capital gain transaction of investment property with expenses on a Schedule C for the same items. You are either conducting self employment or you are selling investment property or possibly a hobby.  It sounds more like you think you are considered self employed.  Just be sure to enter the income on Schedule C and not as investment income.  

Thank you so much. Your explanation -  "The tax law would not uphold a capital gain transaction of investment property with expenses on a Schedule C for the same items." makes complete sense. I did not find that explanation elsewhere in the community or at the IRS. I was going in circles because these seem to fit the definition of 'personal items'.  It is my work that is making these items 'profitable', so the self-employment Schedule C route seems the best fit. Thanks again - this is a great help.