PayPal 1099-K changes for 2023*

Discussion in 'Marketplace Discussions' started by markshan, Aug 23, 2021.

  1. FloriduhBoy

    FloriduhBoy Well-Known Member

    Location:
    SW Florida
    I think it was removed because it would have been a nightmare for all parties.

    ebay had letters you could send your rep in Congress.
     
    ETSEQ likes this.
  2. quicksrt

    quicksrt Senior Member

    Location:
    City of Angels
    Yes, I think so as well. It's one thing to start collecting taxes on smaller businesses, but $600 point was just an insanely low threshold someone had thought up over their morning coffee and went into work - decided yeah we will go with that. Or someone did not have their coffee and left off the additional "0" and it was to be $6,000.00 limit.

    Something went way off here, and I'm glad they caught it.
     
  3. kwadguy

    kwadguy Senior Member

    Location:
    Cambridge, MA
    In MA we have had to deal with the $600 point for a couple of years already, and this will be year #3. It's coming for everyone else. Because politicians never met cash they didn't like the color of.
     
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  4. ivan_wemple

    ivan_wemple Senior Member

    This is how I've always done it. I name my business "Online Garage Sale". I set my basis equal to my sales amount so that my net business income is ZERO. That's it.

    If you purchased an LP for $10.00 and sold it for $30.00, the IRS cannot legitimately expect to tax you on your $20 profit. Why? Because if you purchased a couch five years ago, for $1000, and sold it a garage sale, this year, for $300, you cannot legitimately claim a loss of $700. For personal/household goods, it goes both ways.

    Just fill out the forms to reconcile the tax documents that get reported and you should not have an issue with this approach. Ignoring the form completely is a good way to stir things up, though.
     
  5. kwadguy

    kwadguy Senior Member

    Location:
    Cambridge, MA
    The cost basis is total cost basis

    So if you make money on some things and lost it on others, you total cost basis could be greater than or equal to the net proceeds you received. In which case your taxes would be zero.

    However, for many people, the cost basis isn't going to be greater than or equal to what they sell stuff for, particularly if they're selling collectibles.

    If you claim a cost basis that is greater than or equal to your 1099 k amount, you probably have a much greater chance of being scrutinized by the IRS.

    If the IRS decides to actually do an audit, and you have claimed a cost basis equal to the amount on the 1099 k, and you can't demonstrate any realistic possibility that that's true, then you get in trouble.
     
    Last edited: Dec 26, 2022
  6. ivan_wemple

    ivan_wemple Senior Member

    Half true. If your cost basis is *greater than* your sales proceeds, then you will have net negative income and a claimable loss.

    That is the entirety of my point. The IRS doesn't want to lose money because you sold a bunch of CDs for $3 and paid $13.99 each. If audited, this would be disallowed (just like the couch I mentioned). By the same token, they cannot reasonably expect you to pay extra taxes because you sold the CDs for $25 each.

    I highly doubt it. Especially for a few thousand in annual sales on the Hoffman forums (for example). The IRS will want to ensure that my 1099-K income was addressed/accommodated in my tax return. It is. They will pay more attention to a claimed business loss than they will to a net gain of zero. I don't claim a loss.

    My approach is not suggested for someone raking in tens of thousand of dollars in sales, on collectibles, as a bonafide business. But for hobbyists around here, as most of us are, I wouldn't expect any scrutiny on reconciling reported sales income with an equal cost basis. The IRS is simply not interested in the proceeds of your "garage sale", for reasons I've already covered (most people lose money when they re-sell personal stuff, and the IRS will not allow claims for those losses).

    I will assume the tiny risk of being questioned on this practice to save myself the trouble of saving/gathering/recreating receipts for every CD I sell in the classifieds (and possibly paying taxes for those sales when I can't claim a loss on the perfectly fine couch I sold last October). I think one of the issues that most of us have is that we have no record of cost basis, anyway.

    I also live in a state (VT) where the $600 reporting threshold has been implemented for several years. It takes me 5 extra minutes to do my taxes and I don't bother with receipts (I can't, in most cases ... they are long gone). I'm not losing any sleep for fear of an audit.
     
  7. kwadguy

    kwadguy Senior Member

    Location:
    Cambridge, MA
    Nope. Unless you claim you are running a business, which means you also pay self-employment, and are a prime target if you claim no income, then you would claim this as hobby income. You cannot claim a loss on hobby income. You can claim cost of goods and remove the costs that were specially charged to list and deliver those goods (eBay fees, PayPal fees, shipping). You can't deduct home office, depreciation, a physical storefront or anything else of that nature if it's a hobby. That's life. Complain to your elected politicians.

    You can never, ever get a net tax credit for 1099k income. The best you can do is pay nothing. And if you pay nothing, you'd better be able to broadly justify paying nothing. If you are claiming thousands of dollars in 1099k income and declaring a $0 profit year over year, that's DEFINITELY going to raise a red flag.

    If you bought an album in 1970 for $4 and sold it today for $25, you would actually have lost money based on inflation. But, sorry, the IRS wants tax on that $21 profit.
     
    ETSEQ likes this.
  8. ivan_wemple

    ivan_wemple Senior Member

    You missed my other point. The IRS is not going to care about claiming no *net* income on Schedule C if the 1099 is for a few thousand dollars and was in fact issued by PayPal (I call my "business" a "garage sale" for a reason ... to underscore the implication that I'm selling household odds and ends). There is no self-employment tax because there's no net income.

    They might ... but they would not pursue the $21 if they understood the nature of the transaction (because it is not materially different than selling a 5-year-old couch and losing $700 on it).

    You seem to disagree with me on what raises "red flags" with the IRS. Okay then ... we disagree. According to you I'm a "prime target." I'm pretty sure they're not looking for me ... I'm not hard to find.
     
  9. ivan_wemple

    ivan_wemple Senior Member

    See here:

    https://www.cnbc.com/2022/12/16/how-to-handle-1099-ks-for-personal-venmo-or-paypal-payments.html

     
  10. ivan_wemple

    ivan_wemple Senior Member

    Disregard. My search and post was hasty, and the article actually pertains to personal payments mistakenly documented as business payments on the 1099-K.

    The Schedule C strategy for zeroing out business payments (with basis or expenses) for "garage-sale-like" income is something that was discussed in great detail on financial forums (like bogleheads) when the PayPal reporting laws changed for certain states, about five years ago. I doubt a financial planner would go "on record" suggesting such an approach but I think it holds up to scrutiny for low levels of "garage-sale-like" income (where the intent of the selling motivation is to get rid of extra stuff, not to run a profitable business). YMMV.
     
  11. ETSEQ

    ETSEQ Forum Resident

    Location:
    Frederick, MD
    I will probably regret talking tax law on this forum, but what you are saying here is not consistent with the position of treating your eBay/Discogs revenue as "business" income on Schedule C rather than "hobby" income.

    If you want to treat your eBay/Discogs sales as business income for tax purposes (to maximize your ability to take deductions and zero out your revenue), then you shouldn't be trying to signal that your intent is "not to run a profitable business." That's exactly the opposite impression you want to give. For example, see this page on the IRS website that explains "What's the difference between a hobby and a business? A business operates to make a profit. People engage in a hobby for sport or recreation, not to make a profit."

    Therefore, calling your business a "garage sale" business on Schedule C seems like a bad idea. It calls attention to the fact that the purpose is NOT to make a profit, which is bad if you are going for Schedule C treatment. It would be better to call it something more businesslike, or at least more neutral.

    Of course, you could always just treat this as hobby income and figure out what you are allowed to deduct as "cost of goods sold." Deciding which treatment is better and more appropriate is complex. But you want to be consistent.

    (And yes, I am aware that the 1099 threshold issue has been pushed off for another year).
     
    markshan likes this.
  12. quicksrt

    quicksrt Senior Member

    Location:
    City of Angels
    When PayPal does issue a 1099k, does it include all income originally given to you, or is it minus the PP fees they subtracted from your income, which you never saw? The state tax they subtracted from your income whhich you never saw, and the Discogs fees they took out and gave to Discogs, which you never saw?
     
  13. Quakerism

    Quakerism Monk

    Location:
    Rural Pennsylvania
    I worked under the assumption that they don’t separate the fees deducted and what enters your account in payment for services rendered counts as income toward the $600 ceiling.

    I just viewed the issuance of a 1099K as a tool I didn’t want the taxing authorities to have available - so I limited activity under the threshold.

    I also considered the record keeping required when declaring a business was onerous, actually forcing me to invent something that didn’t exist and took all the joy out of my collecting hobby.

    I still submitted to what I considered fair taxation last year and prior years on my hobby activities. This I felt I could honestly defend in the unlikely event a challenge was made.

    This was my choice but there are several ways to skin the cat. I’ll proceed with the same game plan this coming year -
     
    markshan likes this.
  14. kwadguy

    kwadguy Senior Member

    Location:
    Cambridge, MA
    All income. No corrections for fees, returns, or anything else. Just gross proceeds into your account.

    Example: You sell at item for $600 including shipping on eBay. You receive

    $600 into PayPal. From that eBay and PayPal fees will get deducted.

    Customer returns the item. You refund the customer $600. You lost 2.9% to PayPal fees (not refunded), plus shipping both ways (not refunded). You bank account is now $30-40 lower than it was at the start of the process.

    The IRS would get a 1099k for $600.
     
    Last edited: Jan 1, 2023
  15. quicksrt

    quicksrt Senior Member

    Location:
    City of Angels
    Ok, this makes sense in the old relationship eBay had with PP, as well as the current relationship between Discogs and PP. But the new way eBay handles payments, PP does not forward the cash to the seller. Ebay accepts the payment using their own system, or (if the buyer insists on using PP) accepts a PayPal payment (sent by the buyer), and runs it through their system, deducts fees, and anything else they desire, and then forwards the remainder to the seller.

    So are you saying money that came directly from ebay to the seller, still gets a 1099k from PayPal (even if the seller has no PP account)?

    I ask this because I plan on diversifying my sales over various platforms this year depending on what the 1099k threshold will be. EBay with no PayPal account linked is still a valid seller's venue I am assuming, in fact, eBay would like sellers to disconnect from PP once and for all. EBay in my understanding is now like Amazon, with their own payment system that pays into your bank account (no middleman), except they have not cut off buyers from using PP when they insist.
     
    FloriduhBoy likes this.
  16. kwadguy

    kwadguy Senior Member

    Location:
    Cambridge, MA
    No, in the case of the new eBay processing system, all the fees will be deducted by eBay--PayPal won't issue a 1099k for stuff that goes through eBay, even if the buyer paid with PayPal through eBay..

    But other than that, it's similar: If you sell something for $600, they you trigger the 1099k (if you are subject to $600 trigger)--even if eBay then subtracts listing/final_value/processing fees.
     
  17. dasacco

    dasacco Senior Member

    Location:
    Massachussetts
    Forgive me if this has been answered in this thread already..

    I sold nothing in 2022, partly because of this $600 rule. I understand that $600 rule no longer applies for 2022 but does it apply in 2023?

    I know I'm responsible for over $600 for my MA state taxes - can't escape that one.
     
  18. Combination

    Combination Forum Resident

    Location:
    New Orleans
    At least for now...

    [​IMG]
     
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  19. kwadguy

    kwadguy Senior Member

    Location:
    Cambridge, MA
    If you live in MA, the payment processor (PayPal/eBay/Amazon) is required to issue a 1099k if you GROSS more than $600.

    Once that's issued, you have to declare it on your FEDERAL tax return, and you'll be responsible for both Federal and state taxes on it.

    It's not MA-state-taxes-only in MA. It just means that the rule everyone else is going ballistic about is already the rule in MA.
     
    dasacco likes this.
  20. dasacco

    dasacco Senior Member

    Location:
    Massachussetts
    Thanks for these. I think if I do sell anything in 2023, I'll make sure it's less than $600 worth.
     
    Swordsandchains likes this.

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