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Paypal 1099-k new rules


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The 20K and 200 sale rule is out the window this year with paypal. It doesn't matter how much you did through your paypal account. You will be 1099-K and sent to IRS.

This won't be an issue for most just fyi. 

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Still waiting on mine to show up as I'm over limits anyways. Anyone have theirs available yet?

Also, not seeing this on their site. Where did you get your information? Just curious why they made this change as it looks like the Federal rules are still $20k/200. 

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2 minutes ago, brickvoyeur said:

Still waiting on mine to show up as I'm over limits anyways. Anyone have theirs available yet?

Also, not seeing this on their site. Where did you get your information? Just curious why they made this change as it looks like the Federal rules are still $20k/200. 

Arcade forum I am on. Guys are getting the email with the form. They are freaking out too. It's just a hobby but vids are expensive, if you sell a few in a year you could be at 10k easy. Here is a copy of the email. 

2020 Form 1099-K available
To comply with IRS regulations, we've have issued a Form 1099-K for tax year 2020. This form summarizes the gross payments you received through PayPal for the sales of goods and services during 2020. Here's how to view and print your Form 1099K:
Business Accounts:
  1. Log in to your PayPal account and click Reports
  2. Click Tax documents
  3. Select the desired tax year
Consumer Accounts:
  1. Log in to your PayPal account and click Activity
  2. Click Statements and Tax documents
  3. Select the desired tax year
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More states lowered their reporting thresholds. 

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  • Vermont, Massachusetts, Virginia, and Maryland: $600 USD in gross payment volume from sales of goods or services in a single calendar year regardless of the number of transactions.
  • Illinois: $1,000 USD in gross payment volume from sales of goods or services in a single calendar year with at least 3 payment processed.

It's possible that the people reporting are in those states, but unaware of the changes.

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19 minutes ago, brickvoyeur said:

Still waiting on mine to show up as I'm over limits anyways. Anyone have theirs available yet?

Also, not seeing this on their site. Where did you get your information? Just curious why they made this change as it looks like the Federal rules are still $20k/200. 

I got an email from Paypal. I printed mine off already. It's listed with the total per month and it's interesting to see how it drops to zero in November and December due to Managed Payments. Should we expect to get on from Ebay as well?

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5 minutes ago, brickvoyeur said:

More states lowered their reporting thresholds. 

It's possible that the people reporting are in those states, but unaware of the changes.

You may be correct. OP is Virginia based. Thanks for the info. 

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I got mine and while I don't really sell much LEGO anymore, the total seems to account for ALL monies in, despite from where, so my figures are off by thousands.  Not sure how this will work on once compiled.

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39 minutes ago, brickvoyeur said:

More states lowered their reporting thresholds. 

It's possible that the people reporting are in those states, but unaware of the changes.

In IL and I got one as well.  Sold a little over 1K this year. 

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Yeah, I was surprised when I got the email from PayPal saying I had a 1099 ready. After researching why a bit I learned that VA lowered it's threshold for reporting to $600 instead of the federally mandated $20k.

I assume now that I will be receiving one from Ebay managed payments and Mercari as well

Time to start digging through receipts and shipping fees I guess. Also time to start tracking mileage driven to stores checking for clearance, to the post office and to meet up with buyers/sellers for local stuff.

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6 minutes ago, Shortbus311 said:

Yeah, I was surprised when I got the email from PayPal saying I had a 1099 ready. After researching why a bit I learned that VA lowered it's threshold for reporting to $600 instead of the federally mandated $20k.

I assume now that I will be receiving one from Ebay managed payments and Mercari as well

Time to start digging through receipts and shipping fees I guess. Also time to start tracking mileage driven to stores checking for clearance, to the post office and to meet up with buyers/sellers for local stuff.

a good practice for sure. the odds of you getting audited has to be pretty small in the grand scheme of things. the issue for folks now being 1099'd would be if they look back at prior years earnings and see that someone wasnt reporting.

i saw this, so don't anyone panic

Quote

Overall, the IRS audited 230,340 tax returns in 2019, which was 0.15% of all tax returns filed that year. Source: IRS 2019 Data Book table 17a

 

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3 hours ago, donehoarding said:

a good practice for sure. the odds of you getting audited has to be pretty small in the grand scheme of things. the issue for folks now being 1099'd would be if they look back at prior years earnings and see that someone wasnt reporting.

i saw this, so don't anyone panic

 

While this may be true at the Federal level, your state may not be so kind, especially if they're strapped for cash.  My guess/experience is states are more likely to be more proactive in making sure they get their share. 

Edited by lazuli16
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So, going through and trying to get all of my numbers for tax time, but I have run into a few speed bumps that I was hoping some here may be able to help with.

1. When you sell a GWP how do you figure the item cost? Do you make it a % of the cost to get the GWP or say that it cost you $0 and factor the entire cost into whatever set(s) you bought to get it?

2. Bricklink costs. A LOT of my sales this year were from used lots that I had to order pieces from Bricklink for to complete before selling. Are these costs considered materials or just added to the cost paid for the item itself? Which leads to my next question...

3. How do you prove costs paid for items purchased locally (off of FB, OfferUp or Craigslist) with cash? I have just been taking screenshots of the listing with the price on it, or if I get it cheaper than list price screenshots of the conversation where final price was agreed upon. Should I start asking sellers to sign a receipt each time I make a local cash purchase?

Thanks in advance for any and all help with these questions!

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5 minutes ago, Shortbus311 said:

So, going through and trying to get all of my numbers for tax time, but I have run into a few speed bumps that I was hoping some here may be able to help with.

1. When you sell a GWP how do you figure the item cost? Do you make it a % of the cost to get the GWP or say that it cost you $0 and factor the entire cost into whatever set(s) you bought to get it?

2. Bricklink costs. A LOT of my sales this year were from used lots that I had to order pieces from Bricklink for to complete before selling. Are these costs considered materials or just added to the cost paid for the item itself? Which leads to my next question...

3. How do you prove costs paid for items purchased locally (off of FB, OfferUp or Craigslist) with cash? I have just been taking screenshots of the listing with the price on it, or if I get it cheaper than list price screenshots of the conversation where final price was agreed upon. Should I start asking sellers to sign a receipt each time I make a local cash purchase?

Thanks in advance for any and all help with these questions!

1. I list everything as price paid on my receipt. A GWP is $0, so I list it as such. Simpler when you have a receipt actually showing the price paid.

2. I would consider them material costs. A separate column in your spreadsheet seems ideal for tracking.

3. That's a very good question. All you can do is track it in your spreadsheet/tracking document like everything else. I highly doubt any non-electronic payment would be considered proof, as you could sign something yourself. The only way you would ever be required to account for this would be if you received an audit. Your detailed tracking log would be about as much as you could provide.

Has anyone here on the small-mid scale actually been subject to an audit based on their sales? 

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Greetings new Tax Payers, and those who were surprised by a 1099.

The worst part of the Schedule-C is the inventory portion on your initial filing in Part III... especially if you've been under the radar and not exactly reporting in previous years. Your buddy BV doesn't judge you. 

image.png.bba8f5ec9edd533382bfa12ba4390bda.png

Essentially, you put the purchase price of the items you sold as part of Line 22 "Supplies (not included in Part III)".

Here is an oversimplified idea of where things go on the Schedule-C, when it comes to online sales. If you're in the 1099 "surprise" group, and this is your first time filing a schedule-C, these are the basic lines you may fill out. You likely won't be filling out much other than this, unless you were actually running a business, but not reporting it. 

image.png.ae68f1215294d2e87046dbd1daf789ce.png

 

I would be highly surprised if more states did not start lowering the reporting threshold to capture more tax dollars. Just like the online sales tax trickled in from state to state... this will as well. Better to get familiar with this ahead of time, than to have it crash on you. 

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The irony of this thread starting as I've been going over this anxiety attack past 3 days and was wondering why no one posted about this haha.

So here is my situation and maybe someone will get some help from this. 

I did in fact go over 20k this year (400 transactions) (located in Cali) and I got the 1099k notification via PayPal two days ago. Now, I calculate my Gross income on my own spreadsheet and I was off by like 3k from what PayPal reported so that frustrated me and I went into a deep dive of WHY I was off. 

The most frustrating part was PayPal's weak excuse for a report generation. It exports out your transactions and gives you the total of each transaction AFTER they take their fee, which obviously makes no sense in calculating gross income. So essentially, you cannot QC their own numbers. So I called PayPal to yell at them for this, and their answer was "change your PayPal account to a business account"

I ended up doing that and, wow, it unlocked A LOT more data to work with. Anytime you download itemized transaction reports now, it has a dedicated column for "gross". I know this may be redundant or useless for some of you, but for first time-rs looking to QC numbers with their own spreadsheets, I highly recommend changing your PP account to a business account as it unlocks a lot more data for you to play with.

 

Now for my question, and yes this is my first rodeo with this: 

Filing as hobby vs business. Now I know, the IRS's official statement on deciding between the two, but I wanted to run some things by here:

Hobby - you can only report eBay fees, PP fees, and shipping costs - that is all right?

Business - you can report eBay fees, PP fees, and shipping costs + cost of item, mileage, plus much more.

 

What if I am not planning on doing this volume again? Is there any strength in choosing to file as a hobby? Also are there any added certificates you need to have to file as a "business" that they are going to make me apply for? Do both use a schedule C, or is that only if you file as a business?

 

Thanks!

 

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There is no "file as a hobby" option. You either take advantage of all the deductions, or you don't.

Before the tax reform in 2018 there was a "miscellaneous deduction" section on the Itemized Deductions form. This line no longer exists. The IRS would love for you to claim the income without the deductions. You are welcome to put the income on the 1040 and eat taxes on the full sale price.

You don't have to have an actual registered business to file a Schedule C. Most people selling on eBay do not have a business. You file the Schedule C to deduct all your fees so you only pay taxes on the profit made.

Edited by brickvoyeur
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14 minutes ago, brickvoyeur said:

There is no "file as a hobby" option. You either take advantage of all the deductions, or you don't.

Before the tax reform in 2018 there was a "miscellaneous deduction" section on the Itemized Deductions form. This line no longer exists. The IRS would love for you to claim the income without the deductions. You are welcome to put the income on the 1040 and eat taxes on the full sale price.

You don't have to have an actual registered business to file a Schedule C. Most people selling on eBay do not have a business. You file the Schedule C to deduct all your fees so you only pay taxes on the profit made.

AH! thank you, that was the push I need.

Thats some relief knowing a schedule C doesn't require a registered business.

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1 hour ago, brickvoyeur said:

Greetings new Tax Payers, and those who were surprised by a 1099.

The worst part of the Schedule-C is the inventory portion on your initial filing in Part III... especially if you've been under the radar and not exactly reporting in previous years. Your buddy BV doesn't judge you. 

image.png.bba8f5ec9edd533382bfa12ba4390bda.png

Essentially, you put the purchase price of the items you sold as part of Line 22 "Supplies (not included in Part III)".

Here is an oversimplified idea of where things go on the Schedule-C, when it comes to online sales. If you're in the 1099 "surprise" group, and this is your first time filing a schedule-C, these are the basic lines you may fill out. You likely won't be filling out much other than this, unless you were actually running a business, but not reporting it. 

image.png.ae68f1215294d2e87046dbd1daf789ce.png

 

I would be highly surprised if more states did not start lowering the reporting threshold to capture more tax dollars. Just like the online sales tax trickled in from state to state... this will as well. Better to get familiar with this ahead of time, than to have it crash on you. 

This is great, thank you. Obviously, line 4 would be filled in. This makes things more clear for me. I was hoping to just deduct ALL of my costs this year, including all of my new LEGO purchases. Am I correct in that I can only deduct the items that I sold? I spent more this year buying than I made so was hoping to not have taxable income. I am guessing that ain't gonna work...  :)

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