PayPal 1099-K changes

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

  1. R. Totale

    R. Totale The Voice of Reason

    Asked and answered. There is no quick one or two sentence answer applicable in all situations. Suggest you read the instructions for IRS Schedule C. Available online in PDF.
     
  2. markshan

    markshan Forum Resident Thread Starter

    Location:
    Pittsburgh, PA
    I've been told, again I don't know anything, that the 1099 is added to your income. I've also been told that a schedule C can only be filled out by a business filer.
     
  3. markshan

    markshan Forum Resident Thread Starter

    Location:
    Pittsburgh, PA
    Well either it wasn't answered to my satisfaction or I'm just stupid. Either way, humor me. I'm not hurting anyone asking questions.
     
  4. Did that sound like it made any sense to you? Correct me if I am wrong, but whoever told you that wasn't an accountant.
     
  5. hvbias

    hvbias Midrange magic

    Location:
    Northeast
    You have to keep track of how much you bought the item for and how much you sold it for. Profit from the difference must be reported. You can of course deduct a whole bunch of stuff like the amount it costs in gas to go to the post office to mail the items, supplies, wear and tear on your vehicle, etc but my mom is a tax accountant and has seen well over a hundred people get audited for being too "creative" with their taxes. Once you're audited your filings will be scrutinized more thoroughly for the rest of your life.

    Just one clarification that this isn't a Paypal issue, the threshold from $20k down to $600 was part of "American Rescue Plan Act" bill, shorthand referred to as the Covid bill in order to drum up more taxes.
     
    bru87tr, giantleech and uzn007 like this.
  6. markshan

    markshan Forum Resident Thread Starter

    Location:
    Pittsburgh, PA
    I don't have any idea if it's right or wrong. That's why I'm asking.
     
  7. markshan

    markshan Forum Resident Thread Starter

    Location:
    Pittsburgh, PA
    No, I get that it's not PayPal's rule it's the irs's rule, PayPal is just how it happens to affect me personally.
     
  8. Gabe Walters

    Gabe Walters Forum Resident

  9. Gabe Walters

    Gabe Walters Forum Resident

    This happened to me this past tax year. Paypal reported income of over $7k in record sales to the IRS. It's a hobby, not a for-profit business. I prepared a spreadsheet showing what each item cost me, the shipping expenses and taxes paid on each sale, and my mailer/filler/packing tape expenses. Yes, I had to track all that info down, and yes it was a pain to find it and create that spreadsheet. But it was worth it, because on more than $7k in income, I only profited about $550, and much of that is taxed at the capital gains rate because I owned many of the items for longer than one year.

    Edit: I also tracked the Discogs, eBay, and/or PayPal fees for each sale. Once you tally everything up, selling records as a hobby is typically not very profitable.
     
    SimonSaysCake, bjlefebvre and hvbias like this.
  10. Combination

    Combination Forum Resident

    Location:
    New Orleans
    As of last year, Paypal was only reporting anything when the threshold of $20,000 + 200 transactions was reached, so how is that even possible?
     
  11. markshan

    markshan Forum Resident Thread Starter

    Location:
    Pittsburgh, PA
    The reason this thread relates to PayPal is because, as I understand it, the change was made because companies were paying contractors via PayPal to avoid having to pay taxes on that money. They called it the PayPal loophole.
     
  12. hvbias

    hvbias Midrange magic

    Location:
    Northeast
    +1, at best you have a little extra money to put towards other music you wanted more. Now I find even that a bit worthless for the amount of effort required seeing how much you can make in crypto for zero effort. Now this new $600 threshold on Ebay and Paypal makes it dig into your personal time even more.
     
    bru87tr likes this.
  13. Gabe Walters

    Gabe Walters Forum Resident

    It really sucks the fun out of the hobby.
     
    Quakerism likes this.
  14. Gabe Walters

    Gabe Walters Forum Resident

    Ask PayPal. They sent me a 1099-K, leaving me really no choice.
     
  15. Dillydipper

    Dillydipper Sultan Of Snark

    Location:
    Central PA
    Too bad we can't have a similar system in place as one does when declaring a Tax Loss on dumping bad stock.

    On the other hand, imagine the complexity, based on trivial profits and losses, and the hassle making this part of your hobby no longer fun. :rolleyes: (as Gabe just said...)
     
    Quakerism likes this.
  16. glide

    glide Forum Resident

    Location:
    NY, NY, USA
    That is not accurate. Certain states, like Taxachusetts, have had the $600 threshold for a number of years now.
     
    bru87tr likes this.
  17. Combination

    Combination Forum Resident

    Location:
    New Orleans

    Since you brought it up, the $20,000 + 200 threshold is the case for 82% of the country. The 9 states below are the only ones with the $600 threshold:

    {Arkansas, Illinois, Massachusetts, Maryland, Mississippi, Missouri, New Jersey, Vermont, Virginia}

    So for the majority of people, it's not the norm.
     
  18. Gabe Walters

    Gabe Walters Forum Resident

    Well there you go. I’m in Virginia.
     
  19. kwadguy

    kwadguy Senior Member

    Location:
    Cambridge, MA
    If you get a 1099-k, and if you don't want to pay income tax on the full amount on the 1099-K, then you'll need to file a Schedule C to give a cost basis on that amount. If you made nothing at all, the cost basis would be >= the amount of the 1099-K.

    There's no way around this, but you don't need to hire an accountant. Schedule C is included with most tax preparation software.

    The 1099-K amount will list the amount of money that went into your account from the payment processor (PayPal, eBay, etc.). It will NOT deduct platform costs, returns, etc. So almost anyone who gets a 1099-K will NOT have made a profit of that entire amount and will want to use the Schedule C to provide a cost basis.

    Oh, and the requirement to pay taxes on that 1099-K amount does NOT depend on intent. If you bought music just to listen to, and years later were able to sell it for a profit, that's taxable. Intent has nothing to do with it.

    Collectables, which can include music in some circumstances, if held by more than a year before sale, are taxed at a flat long term collectables rate of 28%. That rate is NOT tiered for your basic income, so if you make almost nothing in basic income, but make a lot from selling rare records, those would be taxed at the full 28% rate. If you are in a high tax bracket already, 28% may be somewhat lower than your nominal tax rate, and so that's a win.

    If you are just a hobbyist, and you sold some music for more than you paid for it, but didn't sell stuff that would stand out in an audit as investment buying and selling, then you can probably get away with just declaring a simple cost basis for the 1099-K (on schedule C) and not breaking it into the partial collectable declaration.
     
  20. markshan

    markshan Forum Resident Thread Starter

    Location:
    Pittsburgh, PA
    I can imagine that people get pretty creative with that line of demarcation.

    Let's use a real world example. I have a copy of Dawes second album. I bought it new for probably around $30 though it's long enough ago that it's only a guess. It's listed as a hundred dollar album now, but mine is probably worth more as the whole band autographed it for me. It's NOT for sale, but if it were, would that be a collectable or just another item?
     
  21. kwadguy

    kwadguy Senior Member

    Location:
    Cambridge, MA

    Right. This is EXACTLY where it gets a bit arbitrary. You clearly did not buy the album as a collectible. But, eventually, it became one. Unless you got a forensic audit, this would likely be noise in a return, and there'd be no reason to deal with it.

    In contrast, if you bought a Beatles album for $500 and later sold it for $2000, that would almost certainly be deemed a collectible if anyone audited you, since, clearly, the original price reflected collectability.
     
    markshan and uzn007 like this.
  22. R. Totale

    R. Totale The Voice of Reason

    Should "are taxed" here be "can be"? I have sold items up to 500 years old for decades, and have never done anything apart from declaring the income derived from and the expenses incurred in doing so as regular merchandise on the bog standard Schedule C.
     
    giantleech likes this.
  23. kwadguy

    kwadguy Senior Member

    Location:
    Cambridge, MA
    Well, by saying are, I mean will be if you declare them as collectibles. Whether you declare them as collectibles, is between you and your accountant. And, the IRS if you happen to get audited.
     
  24. Dan

    Dan Senior Member

    Location:
    WNY
    We keep mentioning PayPal, but I would assume then any other direct payments/transfers to bank accounts, parties handing credit card payments on your behalf, would also be included.
     
  25. markshan

    markshan Forum Resident Thread Starter

    Location:
    Pittsburgh, PA
    I'm sure they would if I had any of those. I don't even have a credit card.
     

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