Bad Paypal 1099

[ToxicBot11]

This article states explicitly that personal items sold at a loss do not qualify.

Taxes on Venmo, Cash App, PayPal: Do You Need to Report That Money?

The IRS made a late rule change to reporting on income from payment apps, but you still may need to pay taxes on it.

www.cnet.com

I'm still not sure what we're supposed to do when filing though.

Read further: "However, you may be required to show documentation of the original purchase to prove that you sold the item at a loss."

 

[PeteyTwoPointOne]

The problem here is the 1099. The IRS will get that from PayPal as an example. They are not going to ignore those. Additionally they plan to hire more staff. Then the burden of proof receipts etc falls on you. They are not going to take your word for it. Finally, why do you think they made the threshold such a nominal amount ....$600????

^^^My point exactly!^^^ Once you're 1099'd...welp, that's when the fun begins!

I'm sitting out of Paypal et. al. as methods of payment for the next year or two < needed a break anyways > to see how all these experts make out.

 

[3D Anvil]

But to understand the reporting threshold change, "third party network transactions" must be defined. A technical explanation of section 9674 of the American Rescue Plan Act, from the congressional Joint Committee on Taxation, refutes the Facebook post's claim that the provision applies to personal reimbursements or the occasional selling of goods. It explains that third party network transactions only apply to "commercial transactions" which "only include transactions for the provision of goods or services (e.g., personal gifts, charitable contributions, and reimbursements are not included)." The explanation goes on:

For example, an individual who has registered for a mobile payment service and uses such a service to reimburse friends or relatives for expenses, or on occasion sells a used item to another person, would not be engaging in transactions that are subject to reporting requirements. However, if that individual were to register with such mobile payment service for the purposes of engaging in commercial transactions, such as regularly carrying on a trade or business through use of that service, the mobile payment service would be required to report under the provision.

Watson also clarified the Facebook post's claim that a peer-to-peer payment system user would have to provide receipts to the IRS to avoid being taxed for transactions:

Typically, one does not need to 'provide the IRS with receipts' when reporting net earnings on a tax return, though that could happen if the IRS requests information through correspondence or a more formal audit. Of course, it is a best practice to keep those types of records such as expense receipts in case the IRS does inquire on how a taxpayer arrived at their reported taxable income.

Fact Check: There Is NO '$600 Tax Rule' For Personal Payments On Cash App, PayPal, And Other Peer-To-Peer Payment Organizations | Lead Stories

Do users making personal payments on peer-to-peer payment systems like Cash App and PayPal have to follow a "tax rule"...

leadstories.com

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My take is that, unless you are an actual dealer and have a business PP account, you don't have to pay tax on these transactions and I wouldn't report them on my tax return. BUT, I would keep all receipts for items sold with my tax return in case the IRS asks about it. In that case, you would tell the IRS that you sold the item(s) at a loss, and here are my receipts to prove it.

 

[Thomas Linton]

The Sixteenth Amendment to the Constitution, ratified in 1913, provides that “[t]he Congress shall have power to lay and collect taxes

on incomes, from whatever source derived, without apportionment among the several

States, and without regard to any census or enumeration.”


“26 U.S. Code § 61 - Gross income defined

(a)General definition

Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:

(1)Compensation for services, including fees, commissions, fringe benefits, and similar items;

(2)Gross income derived from business;

(3)Gains derived from dealings in property ….”

 

[jlauffer]

The problem here is the 1099. The IRS will get that from PayPal as an example. They are not going to ignore those. Additionally they plan to hire more staff. Then the burden of proof receipts etc falls on you. They are not going to take your word for it. Finally, why do you think they made the threshold such a nominal amount ....$600????

^^^My point exactly!^^^ Once you're 1099'd...welp, that's when the fun begins!

I'm sitting out of Paypal et. al. as methods of payment for the next year or two < needed a break anyways > to see how all these experts make out.

Yep. I'd much rather do what I've been doing (Schedule C) than ignore the 1099 and see what happens. That seems like a surefire way to get audited.

 

[Random Dan]

Read further: "However, you may be required to show documentation of the original purchase to prove that you sold the item at a loss."

I did read that. Sounds like you should save all records in case you are audited but you don't need them when filing.

 

[craytab]

This article states explicitly that personal items sold at a loss do not qualify.

Taxes on Venmo, Cash App, PayPal: Do You Need to Report That Money?

The IRS made a late rule change to reporting on income from payment apps, but you still may need to pay taxes on it.

www.cnet.com

I'm still not sure what we're supposed to do when filing though.

Right....no one is saying you are required to pay taxes on items sold at a loss. The problem for many is the hassle involved in proving you sold items at loss. In a sense, paypal is selling us out by only reporting that we are making money when we aren't. In that way, they can get bent.

 

[sharp_edge]

So if someone sold 30 knives in a given year, that's like 60 receipts to show IRS. I don’t think a spreadsheet will be sufficient. Also, The records keeping can become more complicated when buying or selling multiple knives together. If I bought a lot of three knives for $400 and sold them separately later (could be in different years) for $80, $70, and $60. How to prove I did it at a loss?

This 1099 thing is definitely taking away the fun of this hobby. I will significantly reduce my purchases. I would rather not sell instead of using PayPal G&S.

 

[Blues]

Right....no one is saying you are required to pay taxes on items sold at a loss. The problem for many is the hassle involved in proving you sold items at loss. In a sense, paypal is selling us out by only reporting that we are making money when we aren't. In that way, they can get bent.

I doubt it's volitional behavior on PayPal's part.

 

[craytab]

I doubt it's volitional behavior on PayPal's part.

(But, I've been wrong before.)

They aren't exactly bending over backwards to help users keep track of purchases made with their service that are later sold. Just a giant "f you hobbyists, all your sales are profit, here's your 1099".

They already turn a blind eye to gifts that are clearly sales. Wonder if they put an end to that when a chunk of their fees dry up and uncle sam catches on. I hope they get a good reaming.

Think of all that sales tax they are facilitating being avoided too...

 

[Peter Hartwig]

I did read that. Sounds like you should save all records in case you are audited but you don't need them when filing.

records only come into play if you are challenged , but when or if that happens you are going to want them and they better match what you file.
There is only so much you can do about the past , if you didn't save receipts(other than deciding if, how and by what payment method you want to dispose of the item), but you will certainly want to start keeping receipts.

 

[Random Dan]

It would be nice is paypal added an option where you could attach the original purchase receipt as a pdf to each transaction where you sell something. That would make bookkeeping much easier

 

[Peter Hartwig]

error-double post

 

[Peter Hartwig]

It would be nice is paypal added an option where you could attach the original purchase receipt as a pdf to each transaction where you sell something. That would make bookkeeping much easier

problem there is PP doesn't know what the payment was for in many cases. It is just a $ amount sent to someone. Most leave out descriptions on exchange sales, since they just lead to problems with PP.
In the future I don't know if descriptions will be added, but without you likely will want the exchange ad also-to match up.
There are no super easy answers and each will have to find their own way(to some extent), since each has there own circumstances to deal with-tax bracket, profit or loss, number of transaction to deal with and so on.

 

[Random Dan]

problem there is PP doesn't know what the payment was for in many cases. It is just a $ amount sent to someone. Most leave out descriptions on exchange sales, since they just lead to problems with PP.
In the future I don't know if descriptions will be added, but without you likely will want the exchange ad also-to match up.
There are no super easy answers and each will have to find their own way(to some extent), since each has there own circumstances to deal with-tax bracket, profit or loss, number of transaction to deal with and so on.

That's why it'd be nice if they let you attach any pdf to a transaction. Then it could serve as identification of what was sold and original purchase price

 

[craytab]

problem there is PP doesn't know what the payment was for in many cases. It is just a $ amount sent to someone. Most leave out descriptions on exchange sales, since they just lead to problems with PP.
In the future I don't know if descriptions will be added, but without you likely will want the exchange ad also-to match up.
There are no super easy answers and each will have to find their own way(to some extent), since each has there own circumstances to deal with-tax bracket, profit or loss, number of transaction to deal with and so on.

Yup, like Dan said, if paypal was interested in helping its customers it could come up with all sorts of things to help record keeping and tax paying information rather than just ship off 1099s. They might give an F if enough people stop using it or if the gov comes after them when it sees their F&F transactions go through the roof. Just passing the headache along to us seems like a shitty move.

 

[Peter Hartwig]

Yup, like Dan said, if paypal was interested in helping its customers it could come up with all sorts of things to help record keeping and tax paying information rather than just ship off 1099s. They might give an F if enough people stop using it or if the gov comes after them when it sees their F&F transactions go through the roof. Just passing the headache along to us seems like a shitty move.

There is a lot to be sorted out yet, and I have no idea what reaction PP might have to loosing fee based business. I don't think they have any option about sending out 1099's. If they fail to send them out the Feds will either fine or close them. . I am just glad 1-I don't use them 2. My big buying and selling days are in the past. I had loads of fun trying out all the top knives. It would be a shame if newer and younger members couldn't do the same, do to the hassle.

 

[craytab]

There is a lot to be sorted out yet .

Absolutely. Especially since they haven't done a damn thing other than pass the buck.

 

[Peter Hartwig]

Absolutely. Especially since they haven't done a damn thing other than pass the buck.

While I understand you being unhappy with this, your anger should be placed toward your Federal representatives that passed this law rather than PP.
This is going to be a headache for PP. They not only have to compile this information, send out 1099's to both us and the IRS, but as you have indicated they will surely loose at least some business. They have no choice in the 1099 part and will not be compensated in any way(as far as I know). Can they do something to make it easier for their customers maybe, and maybe they will. So far only a few states have been getting these. The rest of us will not see anything until 2023.

 

[craytab]

While I understand you being unhappy with this, your anger should be placed toward your Federal representatives that passed this law rather than PP.
This is going to be a headache for PP. They not only have to compile this information, send out 1099's to both us and the IRS, but as you have indicated they will surely loose at least some business. They have no choice in the 1099 part and will not be compensated in any way(as far as I know). Can they do something to make it easier for their customers maybe, and maybe they will. So far only a few states have been getting these. The rest of us will not see anything until 2023.

Oh sure. Of course, that would be a topic for a different section of the forum. Getting mad at the government for being dumb is about like pissing into the wind. Near pointless and you end up covered in piss.

The topic of this thread is Paypal and them sending 1099s