That is confusingly correct. You Must report gross income and show the gross amount received on your return. No problem subtracting cost to end up with a loss, but the gross income received has to be shown on the return. IRS requires gross income to be shown. They can/might/will match the 1099’s submitted to IRS by the payees and if that amount is not on your return they will send you a bill.
PayPal and 1099 that they will issue starting this year
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Another problem with this, that might be relevant to some of you, is that if you do taxes jointly your significant other will now know the scale of your ailment 
Another problem with this, that might be relevant to some of you, is that if you do taxes jointly your significant other will now know the scale of your ailment
Not if you don't let them see what they are signing.
Just a quick point that probably applies to the majority of people on here: just claim expenses equal to whatever the hell you want to claim to offset the 1099. Unless you make a significant amount, there is a next-to-zero chance of being audited. And even then, all you would have to do is show a piece of paper, even one you wrote yourself, showing the expense.
If this is your main livelihood, OK, different story, but if it is, well, you should have been claiming all of this already.
And if you are worried about the added value gained in turning around a knife that went up in value, well, I've got bad news for you: that was already taxable. But it was also pretty easy to avoid - and still will be. It's just an extra step.
If this is your main livelihood, OK, different story, but if it is, well, you should have been claiming all of this already.
And if you are worried about the added value gained in turning around a knife that went up in value, well, I've got bad news for you: that was already taxable. But it was also pretty easy to avoid - and still will be. It's just an extra step.
Think about all the people who are recording mileage for tax purposes. Most keep their records in a notebook or excel file. Both are acceptable documentation to the IRS. They don't need time date stamped photos of your odometer every time you get in the car. It's been about 20 years, but during my brief stint in accounting the IRS mainly just wanted to see some documentation and if you managed to actually get them on the phone regarding something like this I found them to be quite helpful and not that scary!
My plan, not any legal advice, is a running excel list of knives I've bought and sold with their prices. I'll attach that list to my tax form demonstrating a net loss, result is no tax on sales, but also not allowed to deduct the loss against normal income (because this isn't a business operation).
My plan, not any legal advice, is a running excel list of knives I've bought and sold with their prices. I'll attach that list to my tax form demonstrating a net loss, result is no tax on sales, but also not allowed to deduct the loss against normal income (because this isn't a business operation).
I don't make money on knives, it is a hobby, so I expect to pay for the privilege. Just don't want to pay high tax on the nonexistent profit. I guess ultimately we won't know until someone gets audited and the auditor doesn't buy the self reported expenses. Problem for another day I suppose.
You don't even send it in. You just indicate the numbers and you show the proof if the IRS gets bitchy. You don't send the IRS receipts for expenses or anything.
The mere existence of the IRS is scary enough for me. But that's probably a topic best left to another day.
Like I said, it's basically zero chance of being a problem. You just have to make sure you report the revenue from the 1099. Then simply indicate that your costs offset it. Donezo. There is, as stated, basically zero chance of getting audited and even if you do, there is basically zero chance of them denying that claim 4 years down the road. Finally, even if they DO decide you owe some tax, it's not criminal, you just pay it, perhaps with interest and maybe a max of 10% penalty. The key is just to report it.
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Holy cow, I wish our tax service was still that naive...car mileage data is checked (if they want) against a.o. ANPR cam data..
Good to know it is unlikely. My concern was to have to pay tax on losses plus interest and penalty 4 years down the road. If something like that happened I'd definitely not want to sell any again, the hit would just be too much to make any sense. Since it sounds like it is unlikely, I guess I'll take my chances. Now, what do I do about the other aforementioned, much more costly issue
Good to know it is unlikely. My concern was to have to pay tax on losses plus interest and penalty 4 years down the road. If something like that happened I'd definitely not want to sell any again, the hit would just be too much to make any sense. Since it sounds like it is unlikely, I guess I'll take my chances. Now, what do I do about the other aforementioned, much more costly issue
Just keep docs and always always always claim all revenue. Even if they are docs you write yourself, they count. I ran a business for over 20 years that was subject to the IRS. I claimed all kinds of deductions - as any business owner should. I had one control where they decided they didn't like one deduction I claimed to the extent that I claimed it. I wrote them a check - it was for one small thing over 3 years, and the tax on the income that was offset by that. Interest came out to squat (the IRS charges a very low interest rate) and they waived penalties. This was a deduction I took for 20 years, but remember, they can only go back 3.
In the case of a hobbyist buying and selling knives: claim the revenue on your return, and claim your expenses. Just be sure that you do, in fact, have the receipts to back it up. And by "receipt" - you can literally write down on a cocktail napkin "spent 650 on a used Denka today" sign it, date it, and it's technically valid. Even better, of course, is to have the actual paypal notifications or venmo or whatever the kids use these days. But it's not required. Cash is legal tender, after all, and it comes with no receipts by default, so writing up a memo yourself is legal. They MIGHT chuck it out, but it's really unlikely assuming you are talking about reasonable amounts of money. Like if you buy and sell 5K in knives a year, even if they don't believe you, they aren't going to bother actually auditing you - it's not worth it even if you have no cost basis to show. The IRS doesn't audit people to make 500 bucks.
applepieforbreakfast
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This is the most sane advice in this thread.
Profits are not per item, they are for everything for a year I believe. So if you make too much then just sell your car for a loss and buy another and you are good for the year right? Maybe start paying rent/mortgage via paypal so you have negative cashflow for the year.
Profits are just revenues minus expenses. For a hobby, not a business, you can't take losses that apply to other income, and you can't apply other income to it.
Here, all you'll basically need to do is write in an expenses (if you bought it same year) and a cost basis line (if not) on the form, to offset the revenue shown on the 1099. Just make sure that you have some justification to what you claim, in the microscopic chance you get audited. Just do NOT forget to list the 1099's revenues on your tax forms. The IRS will receive the 1099 directly from PayPal, so you don't want them to screw you.
Wasn't that @marc4pt0, aslo doesn't he still owe us the story?
xxxclx
Award-winning geese
An Illustration of the Modern United States Tax System
It's not a tax increase. Taxpayers are required to report profit on anything they sell; the fact that PayPal is now required to submit 1099 forms on sales exceeding $600 does not change that. What it does is make it harder to hide those profits.
The motivation for this tax code change (as I understand it) was to address the apparently significant issue of contractors paying subcontractors via Paypal to avoid taxes. Hobbyists buying and selling items using Paypal got caught up in this.
Since I'm new to the quality kitchen knife arena, it won't be an issue for me buying and selling knives. I'm a knife buyer not a seller. But I'm also a vinyl record geek, and buy and sell dozens of lps annually, sometimes flipping them to support my "habit". That is going to require a lot more record keeping in order to minimize taxes on my Paypal transactions, and will be impossible in cases where I no longer have a receipt for the lp.
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chefcomesback
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If they want to make it like business than claim your knife purchases as assets for business purposes. You will sell mostly with a loss , so no profit reported there
Never mind. Best not discussed here.
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Problem is if you declare a business you have to get a business license, pay sales tax, etc. It is idiotic beyond believe. I know what they were trying to do, but to set limit at $600 is ridiculous.
I get what people are saying when saying if you make profit you should pay taxes, I agree. The question is not about that it is about making sure you don't pay taxes on losses because of incorrect accounting.
What is going to happen to your average joe that gets a paypal document for selling old household stuff on ebay with no ledger? If they go to a tax preparer they will likely tell them to pay income tax on full revenue because there is no ledger.
Tax the poor, that solves everything.
Meanwhile politicians don’t want to expand the budget for tax investigators for high dollar complex schemes. That is bad if supporters have unnecessary investigations. If you sell your unused shoes on ebay they’ll throw the book at you.
Tax the poor, that solves everything.
Meanwhile politicians don’t want to expand the budget for tax investigators for high dollar complex schemes. That is bad if supporters have unnecessary investigations. If you sell your unused shoes on ebay they’ll throw the book at you.
AGGGGH! How TF do I report the 1099-K in TurboTax? (Using Premier.) This is driving me up the f-ing wall. You'd think they'd have figured this out, but all the online advice I see is inaccurate and conflicting.
Update: I gave up trying to do it some other way and just kept clicking “other” till I got to a place where you can list like whatever for income, and then just made two line items, one for $2976 and one for -$2976, labeling them as the relevant income and expenses. Tax returns = game of chicken. Reminds me of 10 yrs ago when I was partly subsidized by a government grant (NSF), and noone at the NSF would give me any guidance about how to report the earnings, just that I should. It’s like they were just trying hard not to have to deal with it. You’d think a governmental agency would know how to file taxes…
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Gov't departments are NEVER good at telling you how file taxes, they never have to do any...
