1099-k offsetting?

[JamesG1]

What is the nature of the 1099-K income that you are reporting?

When the original 1099-K is entered into the TurboTax software, you are presented with eight options.

For instance, the option Personal Item Sales leads to reporting the income on Schedule 8849 / Schedule D which should flow properly to the NJ tax return.  

Please clarify.

@Lbailey0 

[ltbailey0]

Thanks for the continued help.  The one that's giving me trouble is from PayPal and the nature of the transactions are actually for online gambling since I used PayPal to fund and withdraw.  To the extent I have anything taxable from a gambling perspective, I'm covering that with W2-Gs so this is erroneous income.  Based on this, I selected the last option Other --> Other.

I can confirm that for the 1099-K I received from eBay which relates to the sale of personal goods my offset seems to have carried through to the state return.  I selected the 'Personal item sales' option for this form and put in the offset in line with the first post in this series.

[AbrahamT]

Here's what you do

 For the K-1 income reporting, Personal income, then Less Common Income, then Prizes, Awards and Gambling Winnings, then update until you reach this screen

For the W2 G reporting, you'll take it one screen back like this;

 
 

And then finally, to back out the duplicate income Go into Less Common Income, Misc Income, Lets work on Misc income,, Did you receive Other Wages-answer Yes till you get to the screen Any Other Income, hit yes, then source of Other Income, Other, then in description enter duplicate income and put a negative for the duplicate income amount like this

P.S. The 60,000 is for illustration purposes only. Put the negative duplicate income amount as in your situation.

Best

[marti3td]

Did you ever get a response on how to offset online gambling transactions from PayPal through a 1099-K?

[DaveF1006]

Yes, there is a way but you will need to enter your 1099K a different way. Before I mention how to do it, there are a few ground rules.

1. You may only enter gambling expenses up to the amount of gambling winnings.
2. Gambling winnings are itemized deductions.  Depending on your filing status, your standard deductions are as follows.

• Single taxpayers: $12,950
• Married taxpayers filing a joint return: $25,900
• Heads of household: $19,400

if you have itemized deductions that exceed the standard deduction amount listed, you may itemized.  itemized deductions are for things like ome mortgage, state taxes paid, medical expenses the exceed 7.5% of your adjusted gross income, charitable contributions.  If you don't have any of these and if your gambling losses do not exceed the amounts i have listed, chances are you won't be able to itemize and claim your losses.  If you can however, here is how to enter your 1099K gambling income and claim your losses.       

1. Go to Federal Taxes tab ( Personal Tab in Self-Employed)
2. Click Wages & Income
3. Select I'll choose what I work on 
4. Then go to Less Common Income
5. Click Gambling winnings
6. When it asks if you receive the W2G say no
7. When it says let's Check for Winnings not on a W2G the nyou have two choices to make. Select either gambling or lottery winnings or prizes and awards. The losses are only deductible if you choose gambling.
8. Now you will enter the gambling winnings not reported on a W2G.
9. the next screen will ask if you have gambling losses in 2022. here you will enter losses that are equal or less than your gambling winnings.
10. If you entered your 1099 K elsewhere, you will need to remove it from that section and report it here., This is the only section where you can claim your gambling losses.
11.  Again, if you don't have enough itemized deductions for the year, leave your 1099K where it is because you won't be able to claim the losses.  

@marti3td 

[malukens]

First, let me say this work around works but you have to follow the directions carefully and understand the implications for audit purposes. This was a real challenge for me in TT Premier 2024, Windows version as there is a bug that prevents access to the 1099-K form using Step-by-Step. You can still go to forms view and search for 1099-K and access it there.

The ultimate goal is to report the eBay income via the 1099-K but then offset it so you have no tax liability. There needs to be a written record in your final tax documents to verify both, that you reported the 1099 income but also the offset. If you simply fill out the 1099-K and click the 1099-K Reconciliation line 2b, both the income and tax liability disappear BUT also the Schedule 1 reported income disappears too. That is bad since it then appears that you forgot to report your 1099-K income, you need to provide an audit trail in your IRS filing forms that show the income and the offset.

The "right" way to show that offset would be to enter it directly on Schedule 1, line 24z but that appears to be impossible in TT 2024. After the better part of 2 hours online with TT support, getting dropped and promised return calls, I reread this post and the light bulb went off. Here is how I (hopefully) solved my reporting and audit trail requiremnent.

1) Go to forms views and search for the 1099-K (I couldn't get it to come up in Step-by-Step)

2) Enter the info from the 1099-K but none in the "1099-K Reconciliation" section. This gets the income reported on Schedule 1, line 8j (where it belongs.)

3) Next, follow the post instructions to report the same income (as a negative number) in the additional income section of Schedule 1, line 8z. This certainly isn't elegant but it provides the IRS with an audit trail and proof that you reported the income and then offset it.

Many thanks to the original author and hopefully this will help others get through this challenge.

[leland-king]

if I want to offset personal items sold I check the amount box1a is to high  and then enter what’s in box1a? 

[KrisD15]

If the 1099-K reports online sales, and ALL the sales sold at a loss (or had no gain) which is a weird way of saying that none of the sales made a profit, don't adjust on that screen, select "personal sales" for the type of income, and then select "All items were sold at a loss or had no gain."

That should be the end of it if ALL the items did not make a profit. 

If EVEN ONE item sold at a profit, you would select the other option "I sold some items at a loss or no gain" (which is a weird way of saying "at least one item sold for a profit") and enter the amount of the sales that DID NOT make a profit. 

Next, you would enter the sale or sales that did make a profit in the investments section.

@leland-king 

[malukens]

leland-king,

There are two reasons to file a tax return: 1) report your income, 2) pay your taxes.

If you take a bunch of personal property that you purchased more than a year ago and sell it on eBay, then you will have received "payments for personal property sold at a loss." So, the first step is to report the 1099-K income on YOUR tax return.  It needs to show up somewhere on Schedule 1, the IRS suggests line 8J.  Next you need to offset that income, as you simply converted capital assets into cash at a loss, so you don't have to pay taxes on it.  Again, the IRS suggests that you do that by entering the amount of income from "payments for personal property sold at a loss" in Schedule 1, Line 24J.  Sounds simple and it would meet both requirements stated above.

Here is the problem, regardless of how you classify the income on the TurboTax 1099-K, it will never enter the offset on Schedule 1, line 24J.  Worse yet, if you check box 2b (payments for personal property sold at a loss) on the TT 1099-K form, "1099-K Reconciliation" section, your entry on line 8J, or 8Z DISAPPEAR!!!!  Now you haven't met the first requirement stated in line 1, "report your income".

You can play games all day long with different revenue classifications on the 1099-K and the corresponding destinations (e.g., Sch D long term capital gain) but none of them will properly capture the reported income and offset it so you don't incur additional taxes. 

THIS IS A TURBO TAX LIMITATION AND PROBLEM THAT HAS BEEN IN THE PROGRAM SINCE AT LEAST 2022!

The best solution I could find to satisfy both requirements at the top of this post was to:

1) Classify the 1099-K income as "Hobby Income".  That enters it on Schedule 1, Line 8J meeting requirement 1.

2) On Schedule 1 click on the line 8Z field, which opens the 1040/1040SR Wks, then click on line 8Z again, which takes you to the "Other Income" worksheet.  There you can enter a note (i.e., 1099-K Sales of personal items at a loss" and then enter a negative number equal to your 1099-K income.  This way there is a clear audit trail to show that you did report the income and that it is not taxable!

It would be so much simpler if Intuit/Turbo Tax would do this automatically using line 24Z but that option isn't available, hence the plethora of workarounds that have been debated and posted over the last two years since eBay income thresholds have come down to where virtually every personal selling personal property gets a 1099-K.

I should also mention that the last time I was on the phone with TT support trying to get them to explain how to get Schedule 1, line 24Z to populate properly, the support person tried to convince me to pay $60 for Live Tax Advice.  I assured them that I didn't need Live Tax Advice, I needed TurboTax to properly report and record 1099-K income.

[leland-king]

@malukens  is there anyway we could sharescreen and u could kinda walk me through?

[leland-king]

so when i add my 1099 k it asks:

Which type of income is your 1099-K for? (gross on 1a on 1099k forum is 30,000k BTW)

i choose Hobby income?

do i check or uncheck the box This amount in box 1a is too high or includes some personal transactions.

where do i find this Schedule 1  line 8J at??

@malukens 

[DawnC]

What platform (desktop or TurboTax Online) are you using @leland-king ?    If you have any items that sold at a gain, reporting it as hobby income without entering the investment sale will underreport your income.   What does the $30K income represent?   Is it all personal items sold at a loss?   Or was the income for something else?   Self-employment, capital gains, and ordinary/hobby income are all taxed differently.    If you can provide some details, we can help you get it reported correctly.  

• How do I enter a 1099-K for self-employment income?
• How do I enter a 1099-K for personal item sales?
• How do I enter a 1099-K for hobby income (ordinary income)?

[leland-king]

TT Deluxe, im on my PC

PALPAY sent me the 1099k

all personal items sold at a loss

[leland-king]

do i enter anything here on the 1099k?

[KrisD15]

That box is for things like sending birthday money gifts to friends. 

Things that have nothing to do with income, just things you might have used a payment app for. 

If a friend paid for a pizza that you both shared and then you sent them $10 for half the pizza, you would enter 10.00 here.