1099k from managed payments

[mikhirs]

Hello, I just started selling about a month ago and am curious about the 1099k form that eBay managed payments will send in January 2022.  I'm in a state with a low limit, so I think I'll be getting one then.  Can anyone tell me what theirs from 2020 included?  For instance, did they count the sales tax e-bay collected, shipping, or seller fees as part of your income?  Or did they only count what your pay-outs amounted to?

Its still 6 months away, but  I'd like to be prepared.  I would really appreciate if anyone could let me know.

Thanks!!

[lacemaker3 · Accepted solution]

@mikhirs, 

A 1099K is a standard form from the IRS, and they are all filled out the same way to comply with the IRS rules.

The 1099K is used to report income received, so it includes the total amount of all payments to your account. That includes the purchase price, shipping and sales tax, even though the sales tax is deducted again immediately so that it can be remitted to the buyers' states.

No fees or expenses are deducted. Your payment processor can't know about all of your expenses, so you have to keep track of those yourself. It keeps the accounting and bookkeeping clear. Otherwise, if some fees were deducted but not others, there would be confusions and some taxpayers would probably deduct some expenses twice. It would be a nightmare for the IRS to try to detect that.

You need to keep your own records about all of your expenses. You may never be audited, but you have to be prepared, and part of qualifying to report as a business (which can save a significant amount of tax for you) is to keep good records, and run your business in a reasonable way to increase your profits. Even if you have a net loss, if you are keeping good records and can show you made good decisions and took steps to improve, then you file as a business.

For most small eBay sellers, especially those who are selling items from around their house (or mostly), filing as a business would be better because any "loss" from the business can offset other income (from a day job, retirement funds, pension, or a spouse who works outside the home). This can reduce the total amount of tax you have to pay, and/or increase your refund. If you don't have receipts to document the original purchase price from years ago, you can use the current value of the items, which is whatever you sold them for in the here-and-now. This accounts for depreciation while you owned the item, automatically. You can generate a very nice cash-flow this way, and use your personal items to fund the business in the startup phase, while you are working to establish sources for other items.

[luckythewinner]

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@lacemaker3 wrote:

@mikhirs, 

A 1099K is a standard form from the IRS, and they are all filled out the same way to comply with the IRS rules.

The 1099K is used to report income received, so it includes the total amount of all payments to your account. That includes the purchase price, shipping and sales tax, even though the sales tax is deducted again immediately so that it can be remitted to the buyers' states.

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"Form 1099-K does not include the sales tax when it is automatically collected and remitted by eBay."

https://www.ebay.com/help/selling/fees-credits-invoices/ebay-form-1099k?id=4794

eBay's 1099-K page seems to give a pretty detailed explanation of what is included. 

[mikhirs]

Thanks for the thoughtful reply.  Appreciate your taking the time to help me.  This cleared up a lot.

[mikhirs]

Thank you!  This helps me a lot.  

[dnasilver]

You will only receive a 1099K from eBay  if you reach 200 transactions and 20K in gross sales in January 2022. Starting Jan 1st 2022 is when the threshold is lowered to gross sales of $600 and eliminates transactions. Pretty much everyone will get one (1099K) in 2023 since $600 is a low amount. Depending on your selling situation will also decide what you get to write off (expenses). The last administrations great tax relief bill removed expenses from hobbyist and personal sale items. Not such a great bill for hobbyist and home type item sellers (garage sales type) You only get to deduct expenses if you are operate as a legal entity (business). The newest law just changed reporting amounts (1099K) for Market Places/Processors (which you should of already been claiming) with a start date of Jan 1, 2022. 

[mikhirs]

Thank you! 

[lacemaker3]

@luckythewinner, thanks for the correction!

[eleanor*rigby]

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@dnasilver wrote:

You will only receive a 1099K from eBay  if you reach 200 transactions and 20K in gross sales in January 2022.

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@dnasilver 

There are at least 11 states with a lower threshold for the issuance of a 1099-K form. The OP's state (Arkansas) is one of them.

@mikhirs 

[lacemaker3]

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@dnasilver wrote:

You will only receive a 1099K from eBay  if you reach 200 transactions and 20K in gross sales in January 2022. Starting Jan 1st 2022 is when the threshold is lowered to gross sales of $600 and eliminates transactions. Pretty much everyone will get one (1099K) in 2023 since $600 is a low amount. Depending on your selling situation will also decide what you get to write off (expenses). The last administrations great tax relief bill removed expenses from hobbyist and personal sale items. Not such a great bill for hobbyist and home type item sellers (garage sales type) You only get to deduct expenses if you are operate as a legal entity (business). The newest law just changed reporting amounts (1099K) for Market Places/Processors (which you should of already been claiming) with a start date of Jan 1, 2022. 

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It is quite easy for "home type item sellers (garage sales type)" to meet the requirements for filing as a business. You don't need to register an LLC or anything like that, to operate as a sole proprietor (a business owned by a single person).

The main requirement is to make a "good faith effort" to run your activity as a business (with the intent to make a profit), and file a Schedule C with your business income and expenses. This means:

• keeping good records
• making business decisions and taking steps which ought to improve your profit (even if you don't make a profit)
• the IRS understands that many businesses go through bad stretches, especially when they are starting up

The main benefit of registering as a business is stated in the name of the simplest type of business; LLC = Limited Liability Corporation. If you form an LLC, then if you get sued, the risk of liability and loss is limited to the business assets in most situations. A creditor probably would not be able to take your personal assets as they are separate from those of the LLC. Most small sellers (especially those who are selling former personally-owned items) would not have very many business assets at any point.

To file as a business, you just need to fill out Schedule C with your income tax form. It's quite easy to do with tax software. As long as you are keeping good records, you will have all the information you need to do it, and it's just a matter of answering questions in your tax software.

[dugoldstuff]

Part of the reply is not accurate.

While if you sell a former personal possession for a loss you owe no tax on it, you cannot, however, deduct the loss from the sale of former personal possessions to "offset other income."

You deduct business losses though, but for said example, you would then have to prove that the former personal possession, used by you for years, WAS a business item expressly purchased for resale, and sold at a loss. So good luck with that.

These boards are not the best places for advice. Read IRS documents instead, or check many legal advice sites on the web, such as NOLO, "Taxes When You Sell Things Online"

[varebelrose]

"You will only receive a 1099K from eBay if you reach 200 transactions and 20K in gross sales in January 2022. Starting Jan 1st 2022 is when the threshold is lowered to gross sales of $600 and eliminates transactions"

That is only true on the Federal level. Many states lowered them significantly for 2019/2020. I live in Virginia and had one from Paypal for 2020. Significantly to note, I was not notified by Paypal that I had one, I heard about it here, looked at my PP account, and sure enough there was one there that I had to download. No email or snail-mail 1099K or even a notification. I never heard about the state law change previously, either.

I bet a LOT of people never saw it.

[eleanor*rigby]

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@dugoldstuff wrote:

These boards are not the best places for advice. 

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Just a reminder of the OP's questions:

"Can anyone tell me what [their 1099-K form] from 2020 included?  For instance, did they count the sales tax e-bay collected, shipping, or seller fees as part of your income?  Or did they only count what your pay-outs amounted to?"

[lacemaker3]

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@dugoldstuff wrote:

...

While if you sell a former personal possession for a loss you owe no tax on it, you cannot, however, deduct the loss from the sale of former personal possessions to "offset other income."

...

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This is true. In this case, you have a "capital loss" and capital losses are not deductible, and cannot be used to offset other income.

However, if you have gross income associated with the sale, then you need to have a record of the expenses (including the original purchase cost) associated with the income, because if you are audited, you will need to be able to prove that the income was offset by expenses and was actually a capital loss.

If you are audited and you cannot document the expenses associated with the income, then the IRS will tax the income as a capital gain. This is not good for the seller, because they really had a loss, but because they didn't keep records of the purchase price and other expenses, or report the income, they may be taxed on the sale as though it was a gain.

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@dugoldstuff wrote:

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You deduct business losses though, but for said example, you would then have to prove that the former personal possession, used by you for years, WAS a business item expressly purchased for resale, and sold at a loss. So good luck with that.

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This is not accurate. In the situation being discussed, the individual can gift the item to the business (which they own), with transfer of possession taking place at the time of sale (when the item is sold by the business). The fair market value of the item, at the time the business took possession of it, is the price the item was sold for. Then the basis of the item (the cost of acquiring it for the business) is the fair market value of the item, and this is used as the cost of acquiring the item when calculating the cost of goods sold by the business on the Schedule C.

This is a good illustration of why it makes more sense, financially, for many or most small eBay sellers to operate as a business rather than as a hobby, or not to report the transactions at all. 

[dugoldstuff]

Yeah, like I said. It's a lot more complicated than you originally made it out to be: You can't just "deduct" a loss of a former personal possession sold for less than you paid for it years ago, as you state is possibl