US Sellers - IRS Issued "Understanding Your Form 1099-K" Yesterday

The IRS issued "Understanding Your Form 1099-K" yesterday here
https://www.irs.gov/businesses/unde...-form-1099-k

The "American Rescue Plan Act of 2021" has driven this; sucks to be you if you have received payments from third-party payment processors like PayPal.
Don

It has been made clear that the IRS will be vigorously enforcing the new tax requirements.

Sold some excess stamps, some of your old furniture, sent money to your kids using a TPP? Pay up peasants. There are 87,000 new agents looking at you.

Morning Don and all,

Yes, 1099-K reports "gross revenue". Now the issue is how does a long time casual collector (not a business proprietor) apply the money paid for the items against this gross revenue to come up with the net revenue which is the taxable amount for personal income tax?

You report those expenses on Schedule C, but I believe that unless you have net income in three of five years, the IRS can treat your activity as a hobby, not a business, and disallow all the costs or expenses. You need to set up business-like records and treat the activity as a business if you want to defend your offsets in an audit. Unless you have a business, all the income is taxable and that's exactly what Congress wants.

Consult a qualified tax advisor.

https://tax.thomsonreuters.com/blog...x-liability/

Anyone who thinks that these 87,000 new IRS agents are being hired to only go after the 1%ers is kidding him/herself. We are where the money is and they will extract every last cent of it before they're done so they can earn bonuses and promotions.

For small sellers, it is more cost effective to just pay the tax on the 1099-K "income" than do all the time consuming and if using a qualified tax advisor expensive work to "save" on your taxes while spending the "savings" on you time and effort plus the tax consultant or CPA. You have just one political party to thank for this but there is now bipartisan support for making some changes to the current requirements. Just don't hold your breath.

The joys of targeting the not hidden at all underground economy.

Elsewhere on SCF there are threads on this subject including warnings that it was coming when passed. Will the APS issue 1099-K s for circuit and store sellers? Is record keeping not worth the extra taxes in many small amount cases? And the like.

Edit:

States and the feds cross report or "compare notes" for income tax filing which for the 1099-K is not the issue. But when the states start to see you getting income for selling things (except on eBay) the states can begin to demand their state sales tax be paid to the state on your sales. That is a whole new unintended consequence that may arise down the road for sellers selling not on eBay (be care they collect and pay to the state any state sales taxes or your sales). What does your CPA charge, more or less than $300/hr?

[Not financial advice, consult a qualified tax professional, yadda yadda yadda...]

Keep in mind that while you may not be allowed to deduct expenses if treated as a hobby, you still get to deduct your cost of goods sold, i.e., what you originally paid for an item. You just don't get to deduct selling fees, utilities, supplies, postage, etc.

Simplified example: Buy a stamp for $10 and sell it for $25. If a hobby, then you pay tax on the $15 difference, regardless of any selling or shipping expenses. If a business, you pay tax on $15 less eBay fees, postage, packing materials, etc.

That's if you have kept all the receipts and other evidence of the riffraff, stamps and otherwise, that you sold, item by item. Much of it may have been bought a while ago and the evidence may have been lost, misplaced, shredded or never existed, since one may have not anticipated any reason for keeping it for unwanted items disposed of piecemeal because you wanted to clean out your closet. What does one do when agent #47.687 demands to see your cost evidence and then duns you on the entire amount received?

The selling price will be inarguable. The buying price (receipt amount) not so much.

What an unmitigated fustercluck.

I heard that there are some proposals in house that may change the limit to a higher dollar amount.

$601.00?

Any time in my business or my household that I spent more money than I had, I ultimately had to generate more income to cover the debt.
Don

I would love to see this "problem" go away by raising the limit considerably, however I'm more realistically concerned about how I am to deduct cost, expenses (commissions, fees, taxes, certification, postage) from income on tax forms. We are only responsible for tax on income less costs.

Any good CPA can advise or handle that problem. But are you willing to spend $600 (2 hours of work) on a CPA plus the time/effort to do your necessary proper record keeping to save $400 in taxes? You will be still $200 out of pocket more than just paying the extra tax.

No, $600.01!

John

I'm coming to the realization that when I'm finally ready to sell off all my stuff, it will cost me more to do so than I could possibly earn from it. Maybe I should just burn myself on a pyre of all my accumulated junk.