PayPal 1099-K changes

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

  1. markshan

    markshan Forum Resident Thread Starter

    Location:
    Pittsburgh, PA
    uzn007 likes this.
  2. R. Totale

    R. Totale The Voice of Reason

    Shouldn't change anything, if you were reporting your eBay income as prescribed by law up to now.
     
    giantleech likes this.
  3. markshan

    markshan Forum Resident Thread Starter

    Location:
    Pittsburgh, PA
    It changed from 20k to $600. I don't have eBay income. I'm referring to the PayPal transactions I do here.
     
    bru87tr likes this.
  4. R. Totale

    R. Totale The Voice of Reason

    Shouldn't change anything, if you were reporting your income received through Paypal as prescribed by law up to now.
     
    giantleech likes this.
  5. markshan

    markshan Forum Resident Thread Starter

    Location:
    Pittsburgh, PA
    I am prescribed by law to report buying a record for $20, deciding I don't like it and selling it for $15?
     
    bru87tr likes this.
  6. Combination

    Combination Forum Resident

    Location:
    New Orleans
    You have to dig deeper - there are some threads around here which discuss this stuff (and provide some links) in much greater detail.
     
  7. R. Totale

    R. Totale The Voice of Reason

    IANAL, but for as long as I can remember (certainly 30+ years) you should be reporting annual net profits over $400 on Schedule C. Lots of interesting reading on those tax instructions.
     
  8. markshan

    markshan Forum Resident Thread Starter

    Location:
    Pittsburgh, PA
    There isn't any profit in the scenario I presented, but PayPal will now report that as income on a 1099-K if it happens enough times. That's why I'm trying to figure out what I need to do about it.
     
    uzn007 likes this.
  9. glide

    glide Forum Resident

    Location:
    NY, NY, USA
    Move to New Hampshire or another income tax-free state.
     
  10. markshan

    markshan Forum Resident Thread Starter

    Location:
    Pittsburgh, PA
    Dude, it's the IRS.
     
    bru87tr and showtaper like this.
  11. Michael

    Michael I LOVE WIDE S-T-E-R-E-O!

    when does this new policy start? The $600.00 that is? when will they be mailing the 1099-K?
     
  12. markshan

    markshan Forum Resident Thread Starter

    Location:
    Pittsburgh, PA
    It starts January. The first ones will go out with your 2022 tax documents.
     
  13. Bradd

    Bradd Now’s The Time

    Location:
    Chester, NJ
    It’s effective for the 2022 tax year and thereafter.

    Yes, you are supposed to report all miscellaneous income but I’m sure that unless you received a 1099 many probably didn’t. Even if you are a small seller those days are over.
     
  14. tribby2001

    tribby2001 Forum Resident

    OK, I buy a limited numbered edition SACD for $35. 3 years later I sell it for $75. I also sell an ordinary CD I bought for $16 and sell it for $3.50. Then I sell a cassette from 1975 for $4.00. Etc... Do I start a ledger for the accountant I need to hire? Are his fees deductible?
     
    bru87tr likes this.
  15. markshan

    markshan Forum Resident Thread Starter

    Location:
    Pittsburgh, PA
    Oh, it's worse than that. Unless you establish yourself as a business you can't deduct the costs, just pay on the proceeds (at least as I understand it, I am hoping I am wrong).
     
  16. glide

    glide Forum Resident

    Location:
    NY, NY, USA
    And? If you live in a sales tax-free state, how much do you think you have to pay in taxes on a 1099-K?
     
  17. lv70smusic

    lv70smusic Senior Member

    Location:
    San Francisco, CA
    Again, this has nothing to do with state income tax or sales tax. It is federal income tax so it doesn't matter which state you live in.
     
    giantleech and uzn007 like this.
  18. glide

    glide Forum Resident

    Location:
    NY, NY, USA
    So if I am an individual, selling used CD’s where the transaction is handled by PayPal, at a loss, that is now considered “income” by the IRS? I find that incredibly hard to believe.
     
  19. markshan

    markshan Forum Resident Thread Starter

    Location:
    Pittsburgh, PA
    Considered is the wrong word. Reported is correct. It is reported to the IRS as income. I am trying to figure out how to let the IRS know that what is being reported as profit might not actually be profit. That's kind of what this thread is about.
     
    bru87tr and glide like this.
  20. glide

    glide Forum Resident

    Location:
    NY, NY, USA
    Does PayPal still have a designation for "individual" and "business" accounts? Because it seems like the loophole they are attempting to close centers around contractors.
     
  21. markshan

    markshan Forum Resident Thread Starter

    Location:
    Pittsburgh, PA
    The IRS doesn't care what PayPal designates. The feds are requiring them to report and they will be reporting.

    The loophole does center around contractors, but we hobbyists will be collateral damage. That's why I need to figure out how to best handle it.
     
    bru87tr likes this.
  22. uzn007

    uzn007 Pack Rat

    Location:
    Raleigh, N.C.
    The news story here is that it will now be reported to the IRS if the total is > $600. Whether you owe taxes on it is between you and your accountant, but the IRS will expect you to account for it on your tax return if it is reported on a 1099.
     
  23. markshan

    markshan Forum Resident Thread Starter

    Location:
    Pittsburgh, PA
    Yes, but I don't have an accountant.
     
  24. A 1099 is only a document indicating payments have been made and makes no claim as to whether or not there was any profit or earned income associated with the payments for the recipient. It is up to the recipient to know whether or not the payments resulted in sales profit or earned income. If there is income associated with the payments, federal and possibly state income must be reported and any taxes paid. No net income from sales means no tax due. Even if you are not a business you can certainly deduct cost of the items sold and any costs to sell and ship, file a Schedule C if you have net income from sales.

    All sales can be reported on the Schedule C, not just PayPal collected sales or sales resulting in a 1099, the tax due will be based on all sales during the tax year, net income, not 1099 totals reported. Maybe some of you are making a profit each year and not reporting it, you are the ones this reporting law change will affect. If you are losing money each year selling unwanted music and that continues, you will not have any tax due as a result of this change if you maintain accurate records.

    If you do require an accountant to take care of the new law change, any fees will be deductible on the return if you make a profit. A net loss will probably not be deductible from earned income.

    Of course contact your accountant or hire one if you are worried about this change.
     
  25. uzn007

    uzn007 Pack Rat

    Location:
    Raleigh, N.C.
    I was using that as shorthand for "depending on your specific financial situation and tax return." Chris Gerhard explained it better than I could, in the post just above this one.

    It looks like the tl/dr is that if you expect to be sent more than $600 in revenue via Paypal in 2022, you will need to start keeping records (and receipts) for how much you spend on your hobby.
     
    bru87tr likes this.

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