PayPal 1099-K in Massachusetts

[billythekid16]

I live in Massachusetts and received the 1099-K from PayPal for the amount of under $860 last month. I know the state changed the 1099-K reporting to anything over $600... Do I report the $860 in my state tax forms or (since I am not running a business) not at all?

I presume I do not need to report it on my federal taxes form (I am filing a 1040EZ) since I did not meet the $20K threshold.

[partial*eclipse]

The state and the IRS don't care whether you consider yourself to be a business.

You must report the $860 on a Schedule C, and then you can enter the various deductible expenses (eBay and PayPal fees, postage, etc.) to arrive at your net profit. This will then transfer to Schedule SE to determine how much self-employment tax you owe.  Your Schedule C (and SE if applicable) will attach to your 1040 as well as to your state return; you might not be able to use 1040EZ this year.  

The $20K threshold has nothing to do with your tax obligations; that's the threshold above which PayPal must send a 1099-K to the account holder and to the IRS.   You are supposed to report your eBay profits regardless of the amount. That is why the states have started imposing lower thresholds than the federal one; they realized how much tax evasion was going on and they want that income to be reported.

If you haven't been reporting your eBay income, don't be surprised if you get audited for past years.

[centexcompsvcs]

Also, you will not be able to  use  the  1040EZ form, as you are required to submit a Schedule C.  Most likely, the next simplest form  (1040A) may work for you.  

[billythekid16]

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@centexcompsvcswrote:

Also, you will not be able to  use  the  1040EZ form, as you are required to submit a Schedule C.  Most likely, the next simplest form  (1040A) may work for you.  

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From what I looked up, because the 1099-K is involved, the 1040 form must be used.

After looking over Schedule C, is it okay to leave line A blank, where it wants you to name your "Principal business or profession, including product or service..."?  Because I cannot figure out what to call myself here...

I was also thinking about possibly using Schedule C-EZ instead of C for simplicity, but noticed no one here (so far) is recommending that.

[thenobletuckylife]

Afternoon,

My advise is to purchase and use the Turbo Tax Home & Business addition.

I have been in business since 1978 and have been using this program since it came available years ago and it uses a step by step tutorial that will explain/suggest/guide you through many many questions that you haven't even thought about yet.

Tax day is coming soon...need to move quickly on this.

Mr C

[partial*eclipse]

Yes, you can use C-EZ.  I believe you are required to enter something in line A; I use "eBay sales" and category 454111.

EDIT: I also recommend TurboTax.  Not only is it user-frendly, but it will carry over stuff for you from one year to the next, making things VERY efficient!

[luckythewinner]

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@billythekid16wrote:

I presume I do not need to report it on my federal taxes form (I am filing a 1040EZ) since I did not meet the $20K threshold.

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Your presumption is wildly inaccurate. 

The 20K  threshold determines whether PayPal is required to send a 1099K - not whether you are required to report the income. 

The presence or absence of a 1099K does not in any way detemine whether the income is taxable or not. And if I got a 1099K, you can be sure I would include it on my taxes - I don't need a red flag to get me audited. 

And if you have not been reporting your eBay income from past yours, you probably don't want to get audited either 🙂

[geyser.bayer]

I got a Paypal 1099-k for MA residents early this year too, however, I recently checked IRS Get Transcript Online at https://www.irs.gov/individuals/get-transcript, I did not see my 1099-K there. Under "Wage & Income Transcript”, it lists all the W2 and 1099s (1099-INT, 1099-DIV, 1099-R etc.) that IRS has on file for you, but the 1099-k is not there. I had a 1099-k issued by Uber (for less than $100) a few years ago, and that 1099-K is there.

On Paypal official web site, I found this:

https://www.paypal.com/us/smarthelp/article/i-live-in-vermont-or-massachusetts%2C-what-are-the-form-...

"Will my income be reported to the IRS?
The IRS reporting thresholds at the federal level haven’t changed, and US account holders whose payments exceed both US $20,000 in gross payment volume from sales of goods and services in a single year and 200 separate payments for goods and services in the same year are reportable.  If your account didn’t reach the federal reporting thresholds, but did reach the revised state reporting thresholds, reporting would only be issued to Vermont or Massachusetts, as applicable."

However, the 1099-k I received in mail is in normal IRS 1099-k format, and it did say "This is important tax information and is being furnished to the IRS".

If you are an MA or VT residents and have received a 1099-K this year, but did not meet IRS threshold, could you also check the IRS transcript online and see if your 1099-k is there?

Thanks! 

[the*dog*ate*my*tablecloth]

Why does it matter? You have to report any income anyway. Your taxes aren’t due or not due dependent on whether you get a 1099.

[myboardid]

To ALL of you who are selling here, you need to understand that the minute - the second - that you sell one single item that is not a used or unused household item, used or unused personal item or personal clothing that you have worn (or not) and no longer want (so that you are selling it for less than you paid for it), you ARE a business and you owe taxes on your profit. 

There is NO minimum amount that can be profit that is not taxble on either the state or the federal level. 

[geyser.bayer]

It does matter because not all 1099-k income is subject to tax or reporting, see example 2 and 4 below. My transactions fall into those categories, however if PayPal did send my 1099-k to IRS, I will still report the no-need-to-report income just for the sake of avoiding audit or any unnecessary checkup or letter from IRS, since it’s small amount to me.

So anybody can verify my original question, I appreciate in advance.

https://www.mass.gov/service-details/frequently-asked-questions-about-1099-k-notices-from-third-part...

Since I received a 1099-K notice, does that mean I owe tax? What do I need to do?

It depends on whether the payment was income that is subject to tax. Form 1099-K is an informational document. You should use the information reported in conjunction with your other records to determine whether it’s taxable income and to determine your correct tax. Here are four examples:

1.  Mike works part-time as an independent driver for hire, and, over the course of a year, receives income of $9,789 via a TPSO.  The $9,789 should be included when calculating gross receipts for his income tax return.   He may be able to deduct certain business expenses. 
2. Meghan is downsizing her home and sells furniture on an auction site for $5,000. The original purchase price of the furniture was $9,000.  The $5,000 IS NOT subject to tax or any reporting as it is a function of selling personal items at a loss.
3. Mario, a full-time accountant, also has a hobby selling hand-painted holiday decorations on an auction site.  He sells $3,268 worth of decorations over the course of the year.  That $3,268 amount should be included when calculating gross receipts for his income tax return.   He may be able to deduct certain expenses. 
4. Molly goes to dinner with her 14 graduate school classmates to celebrate the end of the term.  She pays for a $1,500 meal on her credit card and her classmates reimburse her for the expense via a peer-to-peer payment system, totaling $1,400.  That $1,400 IS NOT subject to tax or any reporting as it was not payment for goods or services, but simply reimbursement.

[nobody*s_perfect]

But if Meghan doesn't report her $5K, along with her $9K COGS for a net loss, how is the state supposed to know that was a loss and not reportable? They can say it's not reportable, but if you don't report it, they're likely to come asking about it.  So I agree with your strategy, that she should submit a Schedule C just to avoid later audit hassles.

[geyser.bayer]

In this case, Meghan cannot report it as a loss since it is not considered a business and should not submit a schedule C. She bought the furniture for self use, not for profit, and she has already used and enjoyed the furniture for the past years, so she has lost nothing. However, there is possibility that IRS may question her about the income, if IRS gets a copy of the 1099-k. That's why I asked folks who live in MA and VT and got a 1099-k early this year to verify if the 1099-k was indeed sent to IRS.

[the*dog*ate*my*tablecloth]

Whether or not they sent it last year, as the first year of low value reporting, has no bearing on whether they will send it for this year.

Unless you're planning to amend your 2017 tax filing?

[sg51]

If you don't report the low value 1099-k,

Most of the time, the IRS will take no action.

When the IRS does take action, most of the time it will be an inquiry, sometimes with a bill assuming the entire amount was profit.  You can answer the inquiry, and usually quickly make peace with the IRS.

In rare circumstances, an audit could be stimulated, but not just for a low value 1099-k.

Keep in mind: only profits are taxable.

Non-taxable income is not required by law to be reported at all, although it might be best to explain if the IRS so requests.