Paypal Tax form 1099-K Question(s)

[Dynamo of Eternia]

I have a question about the 1099-K form for anyone with experience with this.

Due to me having too much stuff, I sold several collectibles from my collection through some Facebook groups during the last few months of 2021, accepting payments through Paypal. Up until these last few months, for the most part I've never really sold anything before, so this is new to me.

Correct me if I am wrong, but my understanding is that tax does not need to be paid unless over $20,000 was made AND there were over 200 transactions. I only had a couple dozen transactions and my total amount made was FAR less than $20k. (I'm aware of the change to the $600 threshold for 2022 and forward, but I'm only concerned with the 2021 at the moment).

I received a 1099-K from Paypal for the money that I did make from these transactions. How does that work when filing taxes? I don't want to end up paying taxes that I shouldn't have to pay since I was below the threshold, but I want to make sure everything is properly reported so I don't end up having any kind of trouble with the IRS.

I've done some Google searching on this, and most "answers" that I've found seem rather vague and wishy-washy.

[UsernameMDM]

The law was changed. It's now $600.

Understanding Your Form 1099-K
https://www.irs.gov/businesses/under...ur-form-1099-k

Form 1099-K, Payment Card and Third-Party Network Transactions, is an IRS information return used to report certain payment transactions to improve voluntary tax compliance. You should receive Form 1099-K by January 31st if, in the prior calendar year, you received payments:

From payment card transactions (e.g., debit, credit, or stored-value cards), and/or
In settlement of third-party payment network transactions above the minimum reporting thresholds as follows:
For returns for calendar years prior to 2022:
Gross payments that exceed $20,000, AND
More than 200 such transactions
For returns for calendar years after 2021:
Gross payments that exceed $600, AND
Any number of transactions
Note: For transactions made after March 11, 2021, The American Rescue Plan Act of 2021 clarifies Form 1099-K reporting by third-party settlement organizations applies only for transactions for the provision of goods or services settled through a third-party payment network.

[Dynamo of Eternia]

As I mentioned in my first post, I know that the law was changed for 2022 and onward.

What that means is that anything that I sell THIS YEAR (2022) will be impacted by the change in the law.

Anything that I sold last year (2021) is under the old law (the taxes that we all will be filing between now and April will be for tax year 2021 and will be under the old law).

[anytimepally]

If it's reportable income, you have to pay taxes on it regardless of how much you made. That has not and will not change. What has changed is the threshold at which companies are required to inform the IRS.

$600 is far too low of a threshold, IMO, but the change is trying to cut down on tax cheats who should have been reporting this income all along. The reportability of the income is unchanged by the new law.

Basically if you made a profit, it's reportable. If you did not make a profit (sort of like an online garage sale), it's not reportable.

Here's a site with a brief summary: https://www.findlaw.com/tax/federal-...o-the-irs.html

[JVS3]

If it's reportable income, you have to pay taxes on it regardless of how much you made. That has not and will not change. What has changed is the threshold at which companies are required to inform the IRS.

$600 is far too low of a threshold, IMO, but the change is trying to cut down on tax cheats who should have been reporting this income all along. The reportability of the income is unchanged by the new law.

Basically if you made a profit, it's reportable. If you did not make a profit (sort of like an online garage sale), it's not reportable.

Here's a site with a brief summary: https://www.findlaw.com/tax/federal-...o-the-irs.html

anytimepally is 100% correct. Income is income, and it's up to you to report it.
It doesn't matter if a business or company or person sends you a 1099 or not. 1099s are basically a quick-check reference for the government. That's it.
So on auctions, if you made a profit over what you originally paid for the item, ANY profit even if it's a dollar, then it's up to you to report it.

[Brasco]

The one thing I’m confused about is if you sell something for a loss you don’t have to report it? Let’s say I bought a video game 5 years ago for $200 but sold it for $100. Also how would they expect you to prove what you paid for it?

[JVS3]

The one thing I’m confused about is if you sell something for a loss you don’t have to report it? Let’s say I bought a video game 5 years ago for $200 but sold it for $100. Also how would they expect you to prove what you paid for it?

Nope, you can't deduct the loss on personal items, including personal property (unless you turn the property into a rental: AKA turn it into business). That's the rub.

Is it fair? Hard to say. But, you buy personal items for personal use. The money you bought the personal item with was already taxed (or should have been taxed) as prior income. So if you were able to sell it and make yourself whole again? Good for you. If you took a loss? At least you got some back.
That's why items purchased for use over the course of business (not for pleasure) are deductible. They are used in the course of furthering business and aren't supposed to be for one's personal enjoyment.

So why is the profit on the sale of a personal item something you have to report, when a loss is not something you can deduct? Because at that point, it's considered an investment sale. You were able to turn a personal item, that usually depreciates in value, into an investment opportunity and thus create a profit. And profit has to be reported as income, which is then subject to taxation.

As far as proof of profit on an item, it's up to you to provide the proof. Either by keeping receipts, or having some sort of record of sale, some sort of research showing original value, or some sort of appraisal showing appreciation.
A lot of people don't keep receipts on personal items to show value later on because a lot of people aren't necessarily making investments. So it then becomes subjective in nature as determining the original fair market value.
But if the IRS suspects profit, especially substantial profit, and you don't report that profit, you are leaving yourself open for an audit. And I can assure you the auditors at the IRS are good at what they do, especially the forensic accountants.

[FAKER II]

Basically if you made a profit, it's reportable. If you did not make a profit (sort of like an online garage sale), it's not reportable.

I am 100% fine with this as that has always been the law.

Here's the problem with how this now works with eBay/paypal. Suppose I buy a toy for $20. I sell it online for $25 plus the $10 it takes to ship it. PayPal reports to the IRS that I made $35 of taxable income when I really only actually made $5. Then it's on me to prove that I paid $20 for the item and $10 for shipping. That's a much bigger hassle than just telling the IRS I made $5. What if I bought that item at a flea market or a toy convention where there are no receipts? The nature of what we collect makes it virtually impossible to have receipts for everything. There's no way I'm selling more than $600 worth of stuff online in a year. It's just not worth the hassle.

[JVS3]

I am 100% fine with this as that has always been the law.

Here's the problem with how this now works with eBay/paypal. Suppose I buy a toy for $20. I sell it on online for $25 plus the $10 it takes to ship it. PayPal reports to the IRS that I made $35 of taxable income when I really only actually made $5. Then it's on me to prove that I paid $20 for the item and $10 for shipping. That's a much bigger hassle than just telling the IRS I made $5. What if I bought that item at a flea market or a toy convention where there are no receipts? There's no way I'm selling more than $600 worth of stuff online in a year. It's just not worth the hassle.

I'm confident that the IRS expects that to be the case a fair amount of the time. They are no stranger to the fact many auctions are for items that had a previous purchase price for the seller.

So even if PayPal reports your total sales revenue, it's unlikely to phase the IRS if your reported income from auction profit is less than that. They have a LOT of data at their disposal on various types of investment sale property.

Again, it's up to you to prove the amount of profit if the IRS comes calling. But that can be accomplished with research or fair-market estimates if you don't possess your original receipts.

[xTIMMYxCOREx]

You file another form for cost of goods sold essentially. I had to do it last year. It’s like a virtual yard sale. Some things were at a profit, some things were at a loss. They roughly netted out.

[JVS3]

You file another form for cost of goods sold essentially. I had to do it last year. It’s like a virtual yard sale. Some things were at a profit, some things were at a loss. They roughly netted out.

What's the significance of them netting out as far as taxation goes?

[Dynamo of Eternia]

What's the significance of them netting out as far as taxation goes?

I believe you can deduct the original cost of the item so that you only pay tax on the profit. It sounds like in his case, while some items may have sold for more than the original price, others sold for less, and in the end there wasn't much collective profit.

[JVS3]

I believe you can deduct the original cost of the item so that you only pay tax on the profit. It sounds like in his case, while some items may have sold for more than the original price, others sold for less, and in the end there wasn't much collective profit.

That's why I'm still not sure what the significance was of pointing that out, at least in terms of profit vs loss on sales. (I don't say that to be a jerk, so apologies if it sounds like that)

For the individual in terms of what you lost vs what you gained, that may be cool for your own personal notation and reassurances. But as discussed previously, the government doesn't care about the net when it comes to the overall losses on personal property vs the profit. You can't deduct those losses. All that matters is the items that created profit, and the amount of profit (final sale - original purchase price) which is then subject to taxation.

[unclassified]

The government is a scam. From now on sell fb marketplace cash and local pick up. Or flea market garage sale or toy show. I paid taxes on my merch. Why would I pay taxes again?

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[JVS3]

I paid taxes on my merch. Why would I pay taxes again?

You'd only be paying taxes on the profit. Which would be new money for you. Which would make it new income. Hence the taxes.

[xTIMMYxCOREx]

What's the significance of them netting out as far as taxation goes?

You only pay taxes on profit not revenue. If your revenue is roughly equal to your cost of goods sold then you owe no taxes.

[JVS3]

You only pay taxes on profit not revenue.

That is correct.
You pay taxes on profit for a personal item.
You do NOT deduct a loss from the sale of a personal item.

So that's why I was confused why you brought up how things roughly netted out. Because a person's losses on the sales of collectibles (a form of personal property) don't matter. A person only add up the profit on the collectibles that generated it, and then pay taxes on that profit. A person has to eat a loss when re-selling collectibles, as that loss is not deductible.

[Dice]

One of our members Synthalus mentioned this in another thread:

Come 2022 only fans willing to help a few other fans out to "sell" things staying under $600 for the entire year or saving every receipt, shipping etc. and doing extra tax work to show no profit was made. Starting this year it has become a whole lot more difficult due to the american rescue plan introducing the $600 tax rule.

Do you guys think this might actually make it easier for people to find figures? I'm wondering if it becomes non-profitable to re-sell average figures maybe we'll have less scalping?

As a guy who has been majorly helped out by members here when it came to my collection, I'm not sure how I feel about how it will affect collectors.

[JVS3]

Do you guys think this might actually make it easier for people to find figures? I'm wondering if it becomes non-profitable to re-sell average figures maybe we'll have less scalping?

As a guy who has been majorly helped out by members here when it came to my collection, I'm not sure how I feel about how it will affect collectors.

Absolutely not. Unless a seller is purposely trying to engage in tax invasion with their reporting, I have no idea why any honest reseller would try to keep their actual profit under $600.00 for the year. Because, as stated above, it doesn't matter if you made less than $600 in profit on eBay. You still need to report whatever profit you made, even if it's $1.00.

If the IRS randomly audits someone, or has a suspicion of bad reporting and decides to audit as a result, they will find out about past sales from 3 years ago, or further back if they see discrepancies on all 3 years and decide to dig further back (up to 10 years of returns in the most severe audits). They won't have to dig very deep. And anything that wasn't reported will come back to haunt the person being audited, and they will owe taxes on whatever past unreported income the IRS uncovers plus penalties & fees.

[Dice]

Absolutely not. Unless a seller is purposely trying to engage in tax invasion with their reporting, I have no idea why any honest reseller would try to keep their actual profit under $600.00 for the year. Because, as stated above, it doesn't matter if you made less than $600 in profit on eBay. You still need to report whatever profit you made, even if it's $1.00.

Absolutely not it will be easier to find figures? Or absolutely not we won't have less scalping?

I understand what you're saying beyond that but we all know there are millions of us selling and buying things online that we're not reporting to the IRS. I don't see most scalpers as organized individuals, able to maintain profit and keep up with what taxes they'll owe. So I was thinking it might make scalping decrease.

[JVS3]

Or absolutely not we won't have less scalping?

There won't be less reselling.

I don't see most scalpers as organized individuals, able to maintain profit and keep up with what taxes they'll owe.

If someone is organized to take photos, make an auction listings, and handling shipping of multiple packages, then they should be organized enough to report profit on a tax return.

[Dice]

If someone is organized to take photos, make an auction listings, and handling shipping of multiple packages, then they should be organized enough to report profit on a tax return.

Haha I'm thinking of the guy who took a pic with his phone and listed a NES Classic before he even left Best Buy.

Now keeping up with receipts and sales for a year and knowing/budgeting how much money you'll owe? That's got to be a task that takes some real organization. MY scalpers I'm familiar with are not that good

[JVS3]

Haha I'm thinking of the guy who took a pic with his phone and listed a NES Classic before he even left Best Buy.

Now keeping up with receipts and sales for a year and knowing/budgeting how much money you'll owe? That's got to be a task that takes some real organization. MY scalpers I'm familiar with are not that good

LOL! Fair enough. Based on that, I agree that not all reseller's are on the same page.

[unclassified]

That is correct.
You pay taxes on profit for a personal item.
You do NOT deduct a loss from the sale of a personal item.

So that's why I was confused why you brought up how things roughly netted out. Because a person's losses on the sales of collectibles (a form of personal property) don't matter. A person only add up the profit on the collectibles that generated it, and then pay taxes on that profit. A person has to eat a loss when re-selling collectibles, as that loss is not deductible.

How would they know what our profit on an item is? We.coukd lie and say we only made 12 bucks or 2 bucks on an item. And some things we don't remember what we paid or actually paid more than what it sold for. How's that work?

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[JVS3]

How would they know what our profit on an item is? We.coukd lie and say we only made 12 bucks or 2 bucks on an item. And some things we don't remember what we paid or actually paid more than what it sold for. How's that work?

They have many years of many people reporting the purchase price of similar items. But ultimately it falls on you to find the value. And if they don't agree with your estimates, they will come back and say otherwise and possibly charge you penalties on top of the difference. Which is why it's strongly recommended to report original market values if you purchased it at retail, fair market values if you purchased it on the aftermarket, or at least very good estimates based on research. A person does not want to be dishonest as I think it'll be very hard for them to lie to an auditor's face if they are ever subject to an office audit or, worse yet, a field audit.