F&F and IRS income limits

[Landshark99]

FYI, I had 4 tickets for a concert that I could no longer attend that I had bought through Ticketmaster, they have the ability to let you sell your tickets with them. Once my tickets were sold, I was told I had to give them my IRS info if be chance I reached the $600 threshold, if I did not send the info they would not send me the funds from the sale, even though the tickets only sold for $400

 

[josiahg52]

So PayPal is not required to report your case (as you are way below the two thresholds as you quoted) to IRS but somehow it chose to report? Am I reading this correctly?

PayPal can do whatever they want. Currently, it's their policy not to report F&F transactions because it's not (shouldn't) be associated with income of any type. Just as easily, they could start reporting ALL positive transaction amounts regardless of their character and let the taxpayer "do the right thing" when doing their taxes.

If you don't have the receipts or proof of a transaction either in your email box or physical form, that's where you may run into issues. If you have proof of what you purchased the item for, then you won't have anything to worry about unless you get audited for some reason. The IRS isn't going to send someone to audit you if you sold $600 worth of goods and report $0 as income. It's not worth their time. If you're selling $10K worth of knives, maybe they'll give you the once over, but even then, how much income would you have made? Probably still not enough to send someone over to audit you.

You can take this information for what you paid for it, but my mother was an IRS agent for 30 years before retiring in 2020. I asked her these very same question since I've been selling a lot of my things (video games, etc.) that I found while cleaning up my basement.

My family says they might step up audits once the money doesn't roll in like they expect. To the IRS, this is a simple audit with a very narrow focus. Don't have receipts, pay up. It's not complicated. Who knows but I don't see this being a benign thing that wikk just be easy and go away.

 

[toker]

My family says they might step up audits once the money doesn't roll in like they expect. To the IRS, this is a simple audit with a very narrow focus. Don't have receipts, pay up. It's not complicated. Who knows but I don't see this being a benign thing that wikk just be easy and go away.

The government is always looking for money. I just can't imagine them wasting their time on the average person. Even if the average person sold $2000 worth of goods, how much of that would be income? Even if they made a decent profit of $1000, the taxable income of that isn't worth the few hours of an IRS agent's time or salary. They're currently so short staffed and backlogged that I can't imagine they'll be able to do this any time in the near future.

I filed for an extension last year and it still took almost 6 months for the IRS to send me my refund.

 

[7east]

So PayPal is not required to report your case (as you are way below the two thresholds as you quoted) to IRS but somehow it chose to report? Am I reading this correctly?

It seems to me that they didn’t report it, but they generated a 1099-K with $3,875 gross amount of payments on 12 transactions. Just checked.

Edit to add: I lost at least $500 or so on those transactions. Name of the game I guess.

 

[LMT66]

It seems to me that they didn’t report it, but they generated a 1099-K with $3,875 gross amount of payments on 12 transactions. Just checked.

Edit to add: I lost at least $500 or so on those transactions. Name of the game I guess.

If you received a 1099, so did the IRS.

 

[rampco88]

FYI, I had 4 tickets for a concert that I could no longer attend that I had bought through Ticketmaster, they have the ability to let you sell your tickets with them. Once my tickets were sold, I was told I had to give them my IRS info if be chance I reached the $600 threshold, if I did not send the info they would not send me the funds from the sale, even though the tickets only sold for $400

IRS info as in your full SS number?

 

[Landshark99]

IRS info as in your full SS number?

yes

 

[mikey488]

I don't know if those making F&F payments for their purchases realize that they have declared that the payment for product is a "gift" and it
could be implied that they do not have a cost in the new knife that was sent to them. No receipt for product, only cash sent.

I.M.O. , when it's time to let one go, you will be legally liable for the full tax since you declared the online payment as a gift.

 

[OMCHamlin]

I'm working on thinning out my collection, I'm not worried about having to pay income tax (which I wont because I dont make profit) I am just really concerned trying to PROVE what I paid for things. The majority of knives I own were bought second hand through paypal with no notes, and I've got hundreds of transactions in paypal. I have no idea where to start if I get a 1099-K.

Ditto, and therein lies the problem, proving all this stuff if the IRS wants to get nasty, say with a certain class of individual, they have just laid one hell of a burden on you, Joe Taxpayer. Even if they never bother you, you have added cost in tax prep fees as you've just added a whole subset of income forms that almost every tax program , preparer or accounting firm is going to charge you to process.

The issue is PROVING you aren't making money on the knives. Because once you have received more than 600.00 in g&s, they'll report that to the irs. Then you have to prove you didn't make any money on that sale. Which can be a problem for guys who's been collecting knives for years and never hung on to a receipt.

Like.... me...

 

[shinyedges]

Ditto, and therein lies the problem, proving all this stuff if the IRS wants to get nasty, say with a certain class of individual, they have just laid one hell of a burden on you, Joe Taxpayer. Even if they never bother you, you have added cost in tax prep fees as you've just added a whole subset of income forms that almost every tax program , preparer or accounting firm is going to charge you to process.

Like.... me...

Me too

 

[rampco88]

yes

Ok. That whole third party thing turns me off. Being a victim of fraud, hacked through my phone and the criminals trying to open accounts in my name and with my info. I’m once bitten twice shy and don’t want to do anything to contribute to that happening again.

 

[rampco88]

And for those saying the IRS won’t go after the little guy; then why did the politicians knowingly set the threshold so low at a measly $600? I can understand $6,000. But $600!

And for one to think the IRS wasn’t involved in the decision making process is just flat out naive. I believe they are setting traps as so many people are still unaware of this new tax law.

 

[000Robert]

I don't know if those making F&F payments for their purchases realize that they have declared that the payment for product is a "gift" and it
could be implied that they do not have a cost in the new knife that was sent to them. No receipt for product, only cash sent.

I.M.O. , when it's time to let one go, you will be legally liable for the full tax since you declared the online payment as a gift.

It sounds like fraud to me. They could be opening themselves up to a nasty can of worms. I believe that I would just pay the taxes to the scumbags.

 

[Landshark99]

While I am not happy with the new rules and the $600 seems way to low, the intent was to try and collect on the income individuals are making in the GIG economy and not reporting it.

 

[jlauffer]

FWIW, I've been dealing with this since 2018 when I received a 1099K from PP and discovered that MA had enacted this for the 2017 tax year. Stopped selling for a couple years due to it, but then in 2020 and 2021 I exceeded the $600 again. So I have done this 3 times and knock on wood, no issues so far.

I use the H&R Block home software, and when I tell it that I have a 1099K it has me fill out Schedule C, which allows me to deduct the original amounts paid for items and expenses such as PP/ebay fees and shipping. Since getting hit with this in 2018, I have been keeping records of what I buy and sell, fees paid, shipping paid, etc. So I have been able to drastically reduce the taxable amount, but all 3 times, especially the first, there were items sold that I had bought long ago and didn't have the original cost. Yes the process is a bit of a pain, but to me it's worth it as it allows me to stay more involved in this hobby.

Don't know if things will change or be made more clear now that it has become Federal, but I plan to continue doing it this way until either the HRB software changes how it gets handled, or I'm specifically shown a different way to do it within the software (people have a lot of opinions, but that doesn't necessarily translate to a valid method within the software). Cuz I'm not going back to doing it manually, I'm not going to start paying a CPA hundreds to have them do it, and I'm not gonna switch to F&F.

 

[ajvail18]

IRS info as in your full SS number?

Then the IRS notifies your State where the "transaction" took place. Because they also want their cut.

 

[Jack O'Neill]

With all the nonsense I’ve seen on BF about this, I don’t think anyone has actually read what it says on PayPal’s website. So here it is:


“Internal Revenue Code (IRC) Section 6050W states that all US payment processors, including PayPal, are required by the Internal Revenue Service (IRS) to provide information to the IRS about certain customers who receive payments for the sale of goods or services through PayPal.

PayPal is required to report gross payments received for sellers who receive over $20,000 in gross payment volume AND over 200 separate payments in a calendar year. In order to help you understand these information reporting obligations, we have prepared the following FAQs. After reviewing the following FAQs, we recommend you consult your tax advisor to assess tax implications of Form 1099-K reporting.”

Just click ‘agree’ or whatever PayPal wants you to do and move on. They sent me 1099-K for last year and I had maybe $4k in ‘sales’ for maybe 20 or so transactions. I just ignored the form because I’m not required to file it and they aren’t required to report it.

that is last years news . It changed January 1st . 2022 ., Thank you Joe and crew

 

[madcap_magician]

If you sell something for same as purchased, you pay NO income tax (as long as you document paid vs sold amount on your taxes). If you sell for less than paid, you could claim the loss or the opposite if a profit was made.

Nothing has really changed tax wise, except this administration is choosing to have banks now report your incoming bank transactions that are less than the previous $10k threshold amount individual transactions to $600 for all yearly transactions. Government intervention into personal lives at the cost of the individual tax payer (bank expenses related to this reporting providing additional financial burden on the working man).

RE: "I won't do F&F! So now what?"
Plan on saving purchase and sales records to itemize on your tax docents (or expect to pay income tax on ALL sales). Remember situation when selecting what you vote for in future.

That's not entirely accurate. If you sell for less than you paid, you can only claim the loss against your other income if you are filing it as business or investment income. If it is hobby income or sale of personal items, you can only claim up to net zero income. It is tricky because filing business taxes as a sole proprietor on your personal tax return for what's basically a hobby in our case that might generate money can be done in multiple ways - as actual business income, as hobby income, as investment income, or as a sale of personal items. It is also tricky because with business income you could include fees and other expenses in your cost basis, but hobby income you can only include the cost of the item you're selling against the sale price.

I was thinking this^. It's called "capital gains tax", and it's worth reading up on. I know about it only in terms of buying and selling houses.

With houses anyways (and various other valuables), it works like this- say you buy a house for $100K, and you sell it for $200K, you don't have to pay taxes on the full $200K, you only have to pay taxes on the profit ($100K). And Spey is correct about not having to pay if you break even on the sales or if you lose money. However, there are other important details, like for example, you have to own the item for a certain amount of time before you sell it. But this is why people hire accountants and tax experts, to figure out all the details of the tax laws.

In regards to avoiding PayPal and similar invasive options, there's always USPS money orders. I see a lot of people selling knives online who only accept money orders. If I were going to sell knives online that's what I would use. It's not as convenient, but you don't have to let anyone (PayPal, etc) get up in your business.

I was thinking next year I am going to pay for the live help TurboTax and figure out whether I should report the PayPal 1099 as investment income or try for business income or just do hobby income. I was leaning toward investment income because that seems to have the best cost basis vs. record hassle.

I'm no expert on this, but when it was being discussed on the watch forums many were noting that hobbies are taxed differently. They were saying that income from the sale of an item can be taxed, and how much you paid for it was irrelevant. In other words, if you sell a knife for $700 and you paid $600, you're on the hook for $700 worth of income because expenses from hobbies cannot be deducted. That seems backwards to me, and I haven't researched it myself, but that's what many were saying.

Expenses from hobbies can't be deducted in excess of the actual cost. If you report as hobby income, you can still have it be net zero, you just can't use net losses from hobby income to offset your other income and reduce your adjusted gross income like you could if you were treating it like a business.

Notice the word Businesses AND the over 200 transactions a year totaling over 20K. I don't know about you guys, but this does not apply to me.

"How much do you have to sell to get a 1099 from PayPal?

Payment processing services, such as PayPal, are required to issue a 1099-K form to the IRS for reporting the sales of their customers (businesses) who receive more than $20,000 in a single year AND who conduct more than 200 transactions."

The reason all the internets have been in a tizzy about this is because this is new for tax year 2022 as a result of the last 'stimulus' bill. You're looking at outdated information.

 

[nbp]

I’ll just reuse the meat of my first post on this topic since I still have the same thoughts, questions and concerns. Haha.

First, I get the crux of the rule and do believe people operating businesses should pay their owed taxes, including gig workers who get paid through Paypal or similar (the likely main target of this legislation). And I think sellers of items should use G&S when selling with PP. I am a small business owner (not knife or sales related) and work hard to follow the laws, including keeping meticulous records with Quickbooks and paying a CPA to file my taxes. Heck I even do my best to add up my untaxed online purchases and report them on my state return.

I even suppose it’s fair to pay some tax on used personal items we buy and sell later for a profit. But most of us only lose money, as pointed out many times here, and proving that is the major hassle of this situation. For those saying to just keep receipts, I guess that is the best we can do but even that raises questions. The added complication is proving what PP transactions are even for when there is no info assigned to them about what is being sold. If you bought second hand, there’s almost no way to prove what you paid for an item. Even if you buy all new things and save all your BHQ and KSF and SMKW receipts to show what you paid for items (I save all my order confirmation emails at least) how do I even prove that those things are the things I sold? If PP sends out a 1099 that simply says 5 transactions for $900, who is to say what those things were? Coulda been knives or baseball cards or donuts or used socks! Maybe the buyer enters very detailed info about the sale in the notes when sending money that you could somehow print off later but most times it just says “Funds from nbp on BF, thanks!” or something similar. Casual sales like ours via PP do not have much info included at all. I see it being quite difficult to correlate these records. Any old random five purchase receipts that equal more than $900 would satisfy the requirement to show a loss for an audit, right?

And if this is to be enforced I would fully hope next year’s paperwork would have a couple simple lines for 1099K income and original cost of personal items sold, to eliminate all this confusion. Most of us are just selling our used items occasionally to make room for a new purchase and all this nonsense about filing as businesses or investments to cover 2-3 sales a year is absurd.

 

[Heirphoto]

And for those saying the IRS won’t go after the little guy; then why did the politicians knowingly set the threshold so low at a measly $600? I can understand $6,000. But $600!

And for one to think the IRS wasn’t involved in the decision making process is just flat out naive. I believe they are setting traps as so many people are still unaware of this new tax law.

The little guy is the one most easy to catch with an audit as they are more likely to make mistakes or not fully understand the requirements (like many posting here).

On the Paypal website if you go to the Help link and type 1099K into the search box and look for the "will Paypal send a 1099K" it will show you the new $600 limit.