Pay pal and the 1099 k form

For us hobby or part time knife makers here is how it goes . You declare it a hobby and you pay the taxes on the money you made and you cannot deduct expenses or , you file a schedule 'C' profit and loss statement which the IRS then reconizes you as a business and you are responsible to pay social security tax for both you as an employee and as an employer total 12.4% of the profit also you will have to pay 2.9% for medicare tax , 2 more forms to file .
At this point it is just a guess which would cost me more in taxes in the end .
 
madcap_magician said:
This is at best a stopgap measure of unknown risk. I am pretty sure this workaround is going to be on the radar of both payment processors and the federal government. The IRS is about to get a lot more muscular, and even if, as it is likely, hiring up will take a while (especially since they'll be competing with a lot of private businesses and tax firms for the same talent), a lot of 'auditing' is simply done by computer algorithm, and I would bet that PayPal or the feds or someone else is figuring out an algorithm to analyze personal payments that are probably commercial in nature rather than personal.



I am thinking Schedule D, but we'll see when more guidance is released this year, hopefully.
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I read today that most of these new agents are going to be on the IRS police force . Read there hiring application .
 
Facebook Marketplace is now also requiring your tax info if you use their shipping and payment system. If you only do cash/local pickup or do shipping/payment outside of thier "in-house" system it is not but I suspect it is only a matter of time till that gets dialed back.

I am fine paying taxes on my business sales but still bugs me to be selling hobby and excess household clutter and get taxed on it.
 
The IRS uses 1099 forms to track business income. The 1099 K is to report online sales. If you get one, you will need to report this income, and the related expenses. If you are a sole proprietor; then, yes schedule C is for you.
In my almost 30 years as a CPA, I've never asked someone to NOT deduct expenses since it is a so called "hobby". If you have a business, then you have expenses, and if the IRS wants to argue it is a hobby, then they can have at it.
It is about your intent. Are you trying to make some hay? Oh yes we all are.
I buy and sell on ebay and mercari sometimes, not to make a living, but it is a business, and I deduct all my expenses. You will get screwed if you do not report the income. Just be sure to report your expenses. I don't make much, and sometimes I have a loss after I account for my COGS, and overhead, postage mileage, cell phone, internet etc....... you know what I mean. "Hobby" is a judgment call and I have never had the IRS argue it is a hobby. They don't have to, there are enough people that ignore the 1099 and don't report it, which keeps the IRS busy sending CP2000 notices to tell them that they did not report enough income, and here is your bill. Then the taxpayer panics. Just report the income AND expenses and sleep well, keep your money, and have fun.
 
So, in layman's terms, would you say that if one is 1. making a sale that nets less than $600 dollars total (per sale, that is, I can sell five $200 dollar knives and be fine?) and 2. Being paid via Friends and Family, you have relatively little to worry about?
Or, should I report the money via a 1099 K? Because I have no overhead, I have no expenses, I'm basically selling a few knives, some I will lose a few dollars on, some, I will make a few dollars on as I got them far below price, and I don't remember what each one cost. $450 is the absolute most I could make on a single sale.

I know that I might be overly cautious, but I am not trying to get into some big tax trouble because they think I am a business, and I'm afraid to sell a few knives, an Endura here, a PM2 there, for that reason. What a headache. I assume nobody is going to be searching up the original prices of the knives and comparing them against that, especially when it comes to a case of re-selling a used knife that you may have paid more than MSRP on?

I have never done any online selling, and all this can give one trepidations.
 
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ONeill said:
She said hire her for the 1st year then I would have copies of all the forms necessary and I could just follow them the following years . Not sure I will do that as she would be about $400.00 , I will see what my liability will be to the IRS when I get the 1099 k from PP . She also said that the SS taxes would be about 30% of the profit I made if I heard her correctly .

She said since my income is low that the extra tax from my knife sales may not be very much , the standard deduction may cancel it out . Guess it depends on what tax bracket I end up in .
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Just a note that business profit is calculated after deducting your expenses, including workshop area, grinders, etc., cost of using your car when you buy materials, internet costs, even your BF fees (marketing), etc. You don't have to be profitable, at least for a few years, for the IRS to consider your business viable.
 
ferider said:
Just a note that business profit is calculated after deducting your expenses, including workshop area, grinders, etc., cost of using your car when you buy materials, internet costs, even your BF fees (marketing), etc. You don't have to be profitable, at least for a few years, for the IRS to consider your business viable.
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Thank you sir , I was just hoping to keep things simple , not get into equipment depreciation and all that stuff . I will see how it goes this year and decide where to go from there .
 
ONeill said:
Thank you sir , I was just hoping to keep things simple , not get into equipment depreciation and all that stuff . I will see how it goes this year and decide where to go from there .
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It's not too hard, and - if you (or your wife?) have another income - you can actually save money; might well be worth the $400 that you have to pay your tax consultant.

I like your knives, BTW, would already have one if you'd make them a little larger :)
 
ferider said:
It's not too hard, and - if you (or your wife?) have another income - you can actually save money; might well be worth the $400 that you have to pay your tax consultant.

I like your knives, BTW, would already have one if you'd make them a little larger :)
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My retiement income is not to large so my tax liability is not to high now . Probably cost me less than the $400.00 fee to Monica . This yera should tell me .
Glad you like my knives , maybe next batch I will do a few larger hunters .
 
Hashishiin said:
So, in layman's terms, would you say that if one is 1. making a sale that nets less than $600 dollars total (per sale, that is, I can sell five $200 dollar knives and be fine?) and 2. Being paid via Friends and Family, you have relatively little to worry about?
Or, should I report the money via a 1099 K? Because I have no overhead, I have no expenses, I'm basically selling a few knives, some I will lose a few dollars on, some, I will make a few dollars on as I got them far below price, and I don't remember what each one cost. $450 is the absolute most I could make on a single sale.

I know that I might be overly cautious, but I am not trying to get into some big tax trouble because they think I am a business, and I'm afraid to sell a few knives, an Endura here, a PM2 there, for that reason. What a headache. I assume nobody is going to be searching up the original prices of the knives and comparing them against that, especially when it comes to a case of re-selling a used knife that you may have paid more than MSRP on?

I have never done any online selling, and all this can give one trepidations.
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As it is now if you sell f&f your sales will not be reported to the IRS and you will not get a 1099 K. If you sell G&S or through another digital transfer system and your cumulative sales under that system is $600 your sales will be reported and you will get a 1099k.
 
One thing to keep in mind is the a 1099 is simply a compliance tool the IRS used to have income reported to taxpayers. What I am saying is that regardless if you have a 1099 or not, if you have deposits into your checking account, then you need to be ready to explain what these are. If you are buying and selling regularly you could be considered to have business income. I know from experience you can have 20k+ plus in Ebay sales before you know it. Going F&F will keep it from being reported to the IRS, and yes under G&S paypal $ 600.00 will keep a 1099 out of your name going to the IRS.
 
Social Security rate for self employed is 12.4 % and Medicare is 2.9% for a total of 15.3 % on your profit. This is what send people into IRS problems, as you can add 15.3 % onto the Income tax you have to pay. This is why tracking your expenses are essential. These two taxes (SE tax and Income Tax) can be easily 30% total tax bill of your profit, that is likey what the tax person O'neill was talking to meant to say.
 
MickeyMac said:
Social Security rate for self employed is 12.4 % and Medicare is 2.9% for a total of 15.3 % on your profit. This is what send people into IRS problems, as you can add 15.3 % onto the Income tax you have to pay. This is why tracking your expenses are essential. These two taxes (SE tax and Income Tax) can be easily 30% total tax bill of your profit, that is likey what the tax person O'neill was talking to meant to say.
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That is the figure she mentioned , but for liability purposes she was hesitant to go into full detail . We have used her / known her and husband for over 20 years .
 
Selling a handful of seldom used household items a year, whether knives or blenders or jeans, does not make a business. That isn’t even a hobby. SOME people make a business of reselling, like antique and consignment shops but that is a small fraction of online sellers I imagine. Some of the solutions presented here for the enthusiast who sells two or three unwanted knives or other widgets a year are so needlessly complex as to be absurd. There has to be a better way. There needs to be a way to mark this sort of online sales on tax forms to differentiate from those with actual online businesses.
 
nbp said:
Selling a handful of seldom used household items a year, whether knives or blenders or jeans, does not make a business. That isn’t even a hobby. SOME people make a business of reselling, like antique and consignment shops but that is a small fraction of online sellers I imagine. Some of the solutions presented here for the enthusiast who sells two or three unwanted knives or other widgets a year are so needlessly complex as to be absurd. There has to be a better way. There needs to be a way to mark this sort of online sales on tax forms to differentiate from those with actual online businesses.
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There was, it was the transaction/dollar threshold.

But what makes you think that making things simple or giving infrequent sellers a break was one of the objectives of this change?
 
Oh I agree - laws are almost never made simple to understand or abide by. Then you get loopholes for the person trying to avoid them and the person trying to do the right thing gets snagged up Instead. That’s exactly the problem. I’m just saying that there were certainly people using Paypal etc. to collect income without paying taxes on it, which was likely the target of this, but the blanket rule is creating new confusion in its wake. It’s a real mess.
 
They ain't going to hire 87,000 new IRS agents unless they think that they can keep them busy making the gov money. And I don't think that talking to someone online will constitute being a "friend" in a court of law. I wish that more lawyers would speak up here on the forum, but I understand why they don't...$$$
 
Last year PayPal made me get a tax ID number if I wanted to continue using the service so I did. Eye opener for sure. For my situation I feel I fall under gig economy and therefore do not have to pay in quarterlies. Hard reality when I realized that for self employed business i have to pay 32 percent tax on income. My parents rely on social security so only felt it right that I should pay my taxes like a good boy.
 
If you make $100 at work, thats taxed. You paid taxes on $100. You buy a knife for $100, then later sell it for $90. You did not profit anything. You already paid the taxes on the money.
The problem is where and how is that shown.
 
115Italian said:
If you make $100 at work, thats taxed. You paid taxes on $100. You buy a knife for $100, then later sell it for $90. You did not profit anything. You already paid the taxes on the money.
The problem is where and how is that shown.
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And if you sell a gift? The gift that keeps on giving?
 
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