How is everyone handling 1099-K forms on taxes?

[milkyway10024]

Hi: I hope this question is allowed. I'm doing my taxes myself and trying to figure out where to report the money I earned from eBay last year on the tax forms. I made roughly $4,000, give or take, but that's gross. It looks like IRS Schedule C but that's asking about business name and several other questions that don't apply. I don't have a business per se -- I just sell books and a few other things.  I also don't see a line on Schedule C for subtracting the cut that eBay takes. Thank you! Is there a simpler still-legal way to report it?  

[gamersbaystore]

I just use turbo tax, but of course there's costs involved with doing so. Turbo Tax will guide you through the process, tell where to input everything, its simple to use.

[dbfolks166mt]

Easy.

Schedule C on your tax return.  Put the $4000 you made as top income money.

Under that number, on the schedule, it will ask for deductions.

Subtract

The Cost of Inventory ................................................. $2000

Shipping and handling  ................................................   900

Utilities and rent .............................................................  1200

Repairs and maintenance ofc equipment    .............  150

Advertising and platform expense (Ebay fees) ......  750

Subtract all that from your 'income' and pay that huge tax bill of $0

You're numbers will vary, I'm sure, but you get the idea.

Zero it out.

And don't phreak out about having to prove it with documentation.

You know your numbers pretty close, in your head.  Use those approximate numbers. 

The IRS is a toothless giant, counting on their 'bad boy' reputation.  But they are like an old, bald arthritic gangster.  They only hunt 'rich people' because that's where the real prize is.

You are not rich. 

     A couple of cautions. First NEVER report inventory if you do not have to. Most small businesses and sellers qualify for the exemption. There are several things that raise red flags with the IRS deducting home office expense, i.e. rent and utilities, is up near the top of the list. 

[dbfolks166mt]

If you actually are working from numbers on a 1099K for 2023, then you had to of had a minimum of $20,000 in sales and 200 transactions.  Anything lower than that is not getting a 1099K for 2023 UNLESS your state has a requirement for one at a lower level and several states do have such a requirement.

     Maybe not I have gotten 1099-K's since 2020 from multiple third party financial processors and have never even come close to the $20K which is no big deal since I always claimed the income even before the 1099-K changes. Maybe the OP is simply trying to do the honest thing and pay the taxes on her income. 

You need to keep in mind that the amount reported on the 1099K is your Gross Receipts which is NOT the same as Gross Income.  1099Ks report the TOTAL amount of money that came INTO your Managed Payment account.

From those totals you need to subtract any refunds you issued buyers during the year. Then you move on to your COGS [cost of goods sold].  Selling fees, shipping, shipping supplies, costs of purchasing inventory, etc.

[dbfolks166mt]

     Others have already offered a ton of advice. I will add a couple of things. First if you use the Schedule C to report the income and expenses one of the important things you will have to do is declare the type of accounting you use. The two most common types are cash and accrual and both have their pro's and con's. I have always used accrual accounting simply because it is easier to do so. Revenue and expenses are both recognized at the time they are incurred regardless of any cash movement. If you are reporting inventory, which you should avoid if possible, you have no choice but to use accrual accounting.  Cash accounting can become complicated since revenues and expenses are recognized and recorded based on when the cash actually is received or when it is paid from your account. 

     I would advise talking to a tax professional on some tips and suggestions for doing your taxes. Most of the people on this forum can offer general advice but none know your specifics and that is not information you would want to share in a public forum. 

[area51bulldog]

How do you avoid reporting inventory? I use HR Block software and one of the fields to fill in ask what your starting and ending inventory is for the year.  Last was my first time filing so I made a best guess of what stock I had on hand was worth. 

[nobody*s_perfect]

The section on Inventories (p. 13)  might help:

https://www.irs.gov/pub/irs-pdf/p538.pdf

[chariot_badges]

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@asset_liquidators wrote:

No, that is bad bad advice. They don't only "hunt rich people". Matter of fact, it is easier for them to go after smaller people because they are counting on poor record keeping. I know of people that have been audited and believe me when I tell you their income was next to nothing and they got nitpicked down to every last dollar!

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Yes, and a dollar is all they got?

It you were an auditor, and you got to keep everything you 'found' in an audit, would you go after someone who's making $50k a year ... and take every dollar they have ... all $210.15 ??  And take monthly $50 payments?  Or would you find some rich guy and spend the SAME amount of time and effort and steal a quarter of a million?  And get paid today, because you can take that yacht, Lambo, house on the beach.  

The people who run our tax systems are evil ... but they're not stupid. 

I have purposefully arranged my finances so that I can honestly say "You wanna sue me?  You don't need to, save the time.  I have everything I am worth right here in my pocket.  Do you want it?"  I bet there is nobody reading these words that needs to worry about an audit -- or you wouldn't be here.  You'd be on your yacht, Lambo - house on the beach. 

IRS may send you a letter (this counts as an audit, in their books) notifying you that they found an "error" and made a "correction" and that you need to pay $27.85 within the next 30 days to avoid future penalties ... pay it.  Just pay it.  You've been audited.

On average, the chances a taxpayer will get audited are just 1 in 333. In other words, the IRS only audits 0.3% of tax returns. And 74% of audits are done by letter.  That means that the chances of ever sitting across from an auditor and undergoing a real examination are about 1 in 111.

Odds of dying in a car crash?   1 in 100.

Odds of dying in an audit?   0

Don't be afraid.  Live.

[dbfolks166mt]

How do you avoid reporting inventory? I use HR Block software and one of the fields to fill in ask what your starting and ending inventory is for the year.  Last was my first time filing so I made a best guess of what stock I had on hand was worth. 

     I also use the HR Block software. As you are going through the process it will ask you if your business has an inventory. Simply answer no. As you move through the other sections you will get the following. Simply enter your cost of goods sold. This would be anything you purchased in 2023 provided you use accrual accounting. If you use cash accounting it would depend on when the cash was moved and that item was actually paid for. Anything you bought on a CC in the last month of the year could potentially need to be reported in your COGS for 2024. This can be where cash accounting can get rather messy. 

[mam98031]

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@shipscript wrote:

@milkyway10024 

As you can see from your 1099-K, eBay is required to issue that report because they are a payment processor. Thus, this is all about the payments that eBay receives for your benefit. With that in mind, also be aware that if a sale occurred at the end of December, and the buyer paid in January, eBay will include that transaction in that new year (this is not the same as the Payout date, which has no relevance here) . The same holds true for the other end of the calendar. This slight shift can make it a little difficult to reconcile your own accounting with eBay's 1099-K.

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@shipscript 

Ebay goes by Settlement date.  Or so it says on the Policy page.  Settlement date = Payout date.  The 1099K accounts for total money that came into someone's MP account and the Payout was issued [not received by the seller's bank] during the Calendar year.

What's included in Form 1099-K

As Form 1099-K is an IRS information return, it includes the gross amount of all reportable payments within a calendar year, based on when funds settle to eBay, not necessarily when funds are received by sellers.

This amount does not include any adjustments, for example, credits, discounts, fees, refunds, or any other adjustable amounts. This means that the gross amount on your Form 1099-K may not be the final reportable amount on your tax return. You should consult your tax advisor to determine how best to use the information on your Form 1099-K when filing your personal and/or business income tax return.

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

[mam98031]

@dbfolks166mt 

As I stated before, there are some states that have their own requirements for a 1099K, such as the OP ran into.

[mam98031]

Cash accounting is the method I've used since I started selling on line.  I have never reported any inventory on my Income taxes.

There is a hybrid of Cash accounting that can use reporting inventory too, but I stick to simple cash accounting.

There is also the Accrual Accounting method.

Pick one and stick with it.  Don't go back and forth, that will get you in trouble with the IRS.  I didn't give definitions of these types of accounting methods, but I can if someone needs it, or you can just go search the internet and get the definitions too.

[dbfolks166mt]

Cash accounting is the method I've used since I started selling on line.  I have never reported any inventory on my Income taxes.

There is a hybrid of Cash accounting that can use reporting inventory too, but I stick to simple cash accounting.

There is also the Accrual Accounting method.

Pick one and stick with it.  Don't go back and forth, that will get you in trouble with the IRS.  I didn't give definitions of these types of accounting methods, but I can if someone needs it, or you can just go search the internet and get the definitions too.

     Simplicity is not one of the advantages to cash accounting, especially with eBay, but more so with year end expenditures. 

[mam98031]

I simply disagree.  For me, Cash accounting is extremely easy.  There are options so that each person can pick what is best for them.  I picked mine, years ago and am completely satisfied with it.

[milkyway10024]

I'm the OP. Sincere thank you to everyone who has replied to this post. Your comments are all very helpful and appreciated and I also appreciate the suggestions and links.  It sounds like I should take another look at the Turbo Tax (or H&R Block) website and see about choosing one of their options to get some assistance, not only with this form but the rest of the taxes. I looked before but found the TT website confusing as I couldn't figure out the difference between the various versions to get. 

[dbfolks166mt]

I simply disagree.  For me, Cash accounting is extremely easy.  There are options so that each person can pick what is best for them.  I picked mine, years ago and am completely satisfied with it.

     There are pro's and con's to the different types of accounting and either works fine as long as the individual is consistent and fully understands the processes and applies it correctly.