1099K IRS and Shipping Expenses

[trustgodforlife]

Has anyone been audited by the IRS regarding your 1099K? I recently was audited for 2017 and the IRS standpoint was gross receipts are income.  They wanted me to report the total from the 1099K and breakdown all costs from that total. I believed reimbursed shipping expenses should not be reported. However, the IRS stated that I should report these as expenses.  They also are assuming all paypal gross receipts relate to business.  I am curious what the Ebay community has experienced and how all are recording their reimbursed shipping costs.

[jayjaspersgarage]

Of course you include the gross receipts including shipping.  You offset all your expenses shown in the gross receipts by claiming them as deductions.  You also have your office space, warehouse space, the cost to heat and cool your office and warehouse, a percentage of your cell phone each month,  your vehicle expenses, parking when you go to venues to buy items to resell, office supplies, bridge tolls, a percentage of your vehicle registration, any books you purchase to use as reference items for what you sell and fifty other things most veteran home based business owners know about.

[nobody*s_perfect]

Look through IRS Schedule C and its instructions to get a better idea of how they want you to account for your expense.  When you purchase postage, that's an expense.

Just let go of the notion of "reimbursed shipping costs."  That's not how it works.   When a buyer pays you, that's all income. If a buyer pays you $25, that's all income regardless of whether it's $25 with free shipping, or $5 with $20 shipping, or $20 with $5 for shipping.   

[lacemaker3]

@trustgodforlife,

You're not expecting anyone here to contradict the IRS auditor, are you? The auditor is your best possible source for information like that. A tip: don't argue with him. It's OK to ask for clarification and explanations.

In addition to the great list of deductions posted by @jayjaspersgarage, if you don't have a dedicated office space, you can still deduct for inventory storage in your house or apartment.

Don't try to deduct for a "home office" unless you have a dedicated space that is never used for anything else but business. No video games or streaming for the kids or g'kids after hours. Nothing stored in the office that isn't part of your business. All of this is detailed in the Schedule C instructions, as @nobody*s_perfect mentioned.

However, inventory storage is not part of the "home office" and it DOES NOT need to be used exclusively for business. So, for example, if you keep your inventory in half of your basement (even if it is personal items that you haven't gotten around to listing yet), then you can deduct your home expenses (mortage, heat, utilities, insurance) on a pro-rated basis, based the square footage of the storage area as a percentage of your home's square footage. You do have to be reasonable about this. Don't try to say your entire basement is being used for inventory, if you have a pingpong table, or a man cave down there as well.

[caldreamer]

You need to have a good CPA help you this audit.   They can also explain how to setup your bookkeeping going forward and what expenses are deductible.

Good luck to you!

[oldwestgold]

I have used GoDaddy Booking for years. I handle about 500 eBay transactions a year. It integrates with eBay & itemizes all your income and expenses. Of course, you may have to make minor adjustments every month but this usually takes me less than 15 minutes. It even tracks eBay payouts, your bank acct credits, and debits if you have a dedicated checking acct as I do. Yes, there is a minimal annual subscription fee, but it is deductible. It also generates and prints out your Schd C and other tax documents. It is a time saver and will clearly provide document support to the IRS if needed. You do not need a CPA to track your business income and expenses and create your required annual tax forms with this product. I really don't know what I would do without it.