Casual eBay Seller Getting Ready for Tax Year 2022 1099-K

[Hal_Al]

@FlaSteve  Since you say "I intend to pay taxes on the entire amount"  "I am considering all to be profit and will therefore need to be reported on my 1040SR" and "Schedule C is a bit overboard"

In TurboTax (TT), enter at:
- Federal Taxes tab (Personal in  Home & Business)

 - Wages & Income

Scroll down to:

-Less Common Income

      -Misc Income, 1099-A, 1099-C

       - On the next screen, choose – Other reportable income  

       - On the next screen, click yes

       - On the next screen, you'll get blanks to enter the amount and a description. It will go on line 8z of Schedule 1 as "Other Income".  Possible description: eBay sales on 1099K

Even in this situation, you are allowed to deduct what you paid for the items sold and report only the profit. 

That said, for more specific  directions, you need to describe what you did to get this money.  As previously stated, if you're selling things for profit, Schedule C is usually the proper method. 

[Vanessa A]

To report your income from eBay click the following

• Federal
• Income and Expenses
• Scroll down to Less Common Income and click Show More
• Start next to Miscellaneous Income
• Start next to Other Reportable Income

[FlaSteve]

Isn't the total amount sufficient if not taking expenses etc ?

I don't need to itemize do I ?

I don't keep records of everything sold myself. Just the ebay records on site.

What makes the  Schedule C mandatory, if you're paying on the entire amount ?

Just want to make it easy on myself.

[Vanessa A]

If you are selling thing for profit and doing it as a business, you are subject to Self-Employment taxes.  These are calculated when you file Schedule C, but are not when you enter your income from eBay as a hobby or miscellaneous income.  So yes, if you are doing this as a business, you need to report it as such. 

[Hal_Al]

Q. Isn't the total amount sufficient if not taking expenses etc ?

A. Yes.  The IRS will be mostly satisfied that your paying tax on the gross proceeds rather than just the profit. But, there's still the risk that they will want self employment tax in addition.

Q. I don't need to itemize do I ?

A.  No, not on Schedule A (personal itemized deductions).  But you would deduct expenses and the cost of goods sold (COGS) if you file Schedule C.

Q. What makes the  Schedule C mandatory, if you're paying on the entire amount ?

A. If you have a profit seeking business, you are considered self employed and have to pay social security and medicare tax, in addition to income tax.  "Self employment tax" is how the self employed pay social security and medicare tax. 

So, it depends on what you are selling.  If you acquire stuff for the purpose of selling it, you're in business (Self  employed).  If you're just selling old stuff from around the house, you have nothing to report (unless you sell it for more than you paid for an item)

[FlaSteve]

My dvd collection, My baseball cards, books, cds, records and stuff that I would sell at a tag sale or at the flea market, personal property that I have amassed during the last 20 or so years, All miscellaneous income items. 

Make sense ? House cleaning not a business.

[Hal_Al]

None (except maybe the baseball cards) of that needs to be reported, as previously discussed.  It's only a "garage sale". 

You can just omit the 1099-K.  Or, use the workaround as described by mysticr.

Just reporting the total  income, on the 1099-K, is not necessarily the "easy way". Not only will you pay unnecessary income tax on phantom profits; you risk waving a red flag at the IRS about self employment. 

[Hal_Al]

Baseball cards, being  "collectables"; you could actually have a profit, on those items,  that needs to be reported.

The sale of collectables, at a profit (not a loss) is reported as an investment sale (similar to selling stock). 

[FlaSteve]

So, is a 1099k, similar to a 1099s for the sake of "reporting" purposes ?

[Critter-3]

Correct.

[Opus 17]

@FlaSteve 

The 1099K is a report to the IRS that certain transactions have occurred in a certain dollar amount. That’s all. It’s up to you how you report this. There is no legal reason to report it as taxable income if it is not, but on the other hand, the IRS will assume that all income is taxable unless you can prove otherwise.  

You first need to make a determination of whether you are a “hobby” or an ongoing business.  The IRS lists some factors to consider here.

https://www.irs.gov/newsroom/earning-side-income-is-it-a-hobby-or-a-business

If your selling activity is considered a business, you would report it on schedule C. You report your gross income and you deduct business expenses, such as eBay transaction fees, shipping, and the cost of your merchandise.  You will be expected to have accurate and reliable business records. You will pay income tax and self-employment tax on the net profit from the business.

If your selling activity is considered a hobby (like a garage sale) then you only owe tax if you have a profit. When you are selling used personal items, that is considered a capital transaction, because items of tangible personal property or capital property. That means that if you sell an item that you held more than one year it is a long-term capital gain and items you only less than one year or short term capital gains.

As a hobby, your gain is the increase in value over the price you originally paid. You pay income tax on any gains, and you cannot deduct losses for item sold less than you originally paid. You also can’t deduct related expenses, such as transaction fees and shipping.  You can report the sale of capital gains property on schedule D and pay less income tax than regular income, because the long-term capital gains rate is lower than the regular income tax rate.  

However, once again, the IRS will be looking to see that you have reliable records of the items that you sell.  You should at least make a spreadsheet of the items that you sell with the approximate purchase date, the approximate purchase price, and the selling date and selling price.  Make your most reasonable guess if you don’t have the actual proof.  

If everything you sold was sold at a loss, then you don’t have to report the 1099K as income. But, try to have some kind of record to show the IRS in case they send you a letter asking for more information. If you can’t prove that you were selling items at a loss, the IRS has the authority under the law to consider part or all of the income to be taxable.  If you sold some items at a gain and some items at a loss, you can report the items that you sold at a gain even if it does not equal the total of the 1099K. And again, if the IRS send you a letter asking for more information, give them the best information you have and hope they accept your explanation.

But you do want to create this spreadsheet as soon as possible, and as close as possible in time to the actual sales. You may also want to download and print or make PDFs of your auction site listings before they expire and vanished from your sales history.  Records that you keep at the time are considered to be more reliable than something that you make up from memory after you get an IRS letter.

The shortest answer I can give is that you need to  

1. Decide if this is a business or a garage sale.

2. Pay tax only on items that you sell for more than you paid for

3. keep records.  

[FlaSteve]

All understood. I have also referred to the Tax Tips link you sent. I can't say my endeavors are hobby or business.

Here's the scenario that I am sure many may encounter.

In selling a good or service, where labor and materials produce the end result, who determines the value of said labor (ie. my labor to create or produce the end product) ? This is VERY important in addressing the potential for a business or hobby model. 

I realize this is NOT an ebay board, I believe they will be biased, and I have a better chance of getting a better answer here. I'll cut to the chase, I market a product that is the direct result of my labor and materials, the product in and of itself is a gift, and I am charging a fee for my labor and materials only. My listing is written exactly as such. So in the real world I am exchanging labor and material for an amount that the buyer will pay.

Business, hobby, casual sales ? The end result is created on demand. What do you think ?

I am thinking that I won't be doing any more ebay.

Thanks again,

Steve

[Opus 17]

"In selling a good or service, where labor and materials produce the end result, who determines the value of said labor (ie. my labor to create or produce the end product) ? This is VERY important in addressing the potential for a business or hobby model. "

That's the free market, right?  It's all pretty much intangible.   I can sit two people down in front of a blank canvas with some paint.  One person (my grandmother) paints a picture that's nice but probably only worth $20 in a thrift store.  Another person (let's imagine the son of a famous politician) can sell their painting for $500,000 to an anonymous foreign not-at-all-shady buyer.  It's mostly intangible.

Or, avoiding sarcasm, I bought a small wooden table at a craft fair that certainly cost more than the cost of the raw wood.  The seller sets his price based on perceived value, what others are charging, and ultimately, whatever the market will pay.  If his prices are too high, he goes home at the end of the craft fair with a full load of unsold goods.   Put another way, if it takes 10 hours to make a table but the market will only pay $50, then the market is setting the value of his labor at $5/hr, and he either accepts that, or he finds something more profitable to sell.

You seem to have changed from selling garage sale type items to selling some kind of handicraft or product.   From an income tax point of view, if you sell for more than the cost of your materials, that's taxable income.  It is not relevant to know how much of that income came from your time and how much came from other market intangibles.  And you can't "give away" the materials and only charge for labor.  Your taxable income is the difference between your selling price and your cost of materials and that's that. 

Then, whether it is a business or hobby would be determined in the ways described above, and you go on from there.

[jar3737]

Hello, I was reading through these questions and answers, and wanted to ask a question based on my recent ebay sale. I have child hood gifts that became highly valuable, so I decided to sell them on ebay in 2022. I sold one item for $14,000, and few others to total $14,500. Do I need to pay income taxes on this? Ebay did reach out for my tax info to send me the 1099-K. Thanks for your help

[Opus 17]

@jar3737 

If you sell an item for more than you paid for it—or in the case of a gift, for more than the giver paid for it originally—you have a taxable gain.

You can report it on schedule D as a capital gain transaction, because tangible personal property is considered capital property and you get a lower capital gains tax rate (except for collectibles that you hold and sell for the purpose of increasing value, in which case they are taxed as regular income).  

you can go to the section for sale of stocks, bonds, and other property and enter the item as a sale of property that has increased in value. You will need to know or at least a guess the approximate purchase date and purchase cost. It won’t link directly to the 1099K, but if the IRS sends a letter asking about the 1099K, you would tell them what you did and how you reported it.