Letter about 2022 taxes, 1099-K the reason. How do I proceed?

[Ghost Penguin]

Hello all,

  So I filled my taxes back in 2022 with no problem. Then later that year I got a 1009-K from PayPal. The amount is for $26,467.61. This obviously trigger an audit or something from the IRS as they now sent a letter saying I owe taxes that year.

My issue though…. This large amount looks great until you know the facts. It was sold under or right at the value of items. I was selling vinyls on Discogs to clear space out. I took my collection down from 5000 vinyls to 3813 vinyls.  Easy math even says they sold at $22.30 each. Thats if you ignore seller fees from Discogs themselves and shipping.  Each vinyl originally cost me easily $20 or more.  I’m completely at a loss what to do now as this letter says I owe around $3600 in taxes.  I was under the impression since I sold for under my original cost it wasn’t a problem.  Granted I guess the ITS just sees the large number, but still….

Can anyone please advise?  I would also like to add I have the 1099-K, but do not have access to Discogs any longer for my sales logs. I was using an old work email with an ex employer and lost access about a year ago.  I tried to contact Discogs and they just told me the accounts been closed and I was free to open a new one, which I have.  I feel hopelessly stuck atm. Do I simply revise my 2022 filing and add this? Or?..   :(

[rjs]

Follow the instructions in the IRS letter for how to respond if you disagree with the amount owed. Read the entire letter carefully and be sure to respond by the deadline in the letter. Do not include an amended return (Form 1040-X) or revised tax return unless the letter says you should.

The main point you have to make in your response is that all of the payments from PayPal were for personal items sold at a loss, so there is no taxable income and no additional tax is due. (You do not have to pay tax on personal items sold at a loss, but you cannot deduct the loss. It's just zero net income.)

What you were supposed to do was report the 1099-K on your tax return, with an offsetting entry to eliminate the income. If you didn't include it in your original tax return, you should have filed an amended return when you got the 1099-K. What the IRS sees now is $26,467.61 of income that was never reported.

Make sure you are clear about what year you are dealing with. You mentioned "2022 taxes" and "my 2022 filing," but you also said "I filled my taxes back in 2022." The tax return that you filed in 2022 would have been for 2021. You filed your 2022 tax return in 2023.

[rjs]

I assume that this is the first letter you have received from the IRS. If there were earlier letters that you did not respond to, you have a bigger problem and you probably need help from a tax professional.

[Ghost Penguin]

Yes.  my very first

[Ghost Penguin]

Also sorry if my reply isn’t clear. It’s for the 2022 tax year. That I filed in 2023. I see my mistake in my write up. I never filed anything because I just assumed it was PayPal records but I knew I didn’t make a profit so I wasn’t worried. Now I’m going to have to figure out how to prove this I guess. Thanks for your reply.