Updated: Delayed to 2023 - PayPal, Venmo issuing 1099-Ks

[CRLLS]

Quote:

Originally Posted by mpeirce This is one reason the government is exploring a digital currency (a CBDC). All transactions would be visible to them.

Then they will be back to trading chickens and pigs for services. The ingenuity of the underground is boundless.

[albireo13]

I don't think you can use capital gains/losses approach for personal property transactions.

I am still trying to figure out how to report this on my 1040.
I have a lot of hobby transaction over the year with Paypal ... buying various hobby gear and often selling it later to try something else. Much over the $600 limit so, I expect to see a 1099k. It was mostly at a small loss, certainly no gain for me.

Most PP transactions have been "goods/services" because internet buyers want the protection that gives them.

Anyway, I am very interested in finding out how best to report all this on my 1040.
I have been very good about keeping records of my purchases and sales.

[Aerides]

Quote:

Originally Posted by cathy63 TurboTax already handles income reported on 1099-Ks. This is not a new form and none of the problems discussed in this thread are new problems. It's just that more people will receive this form from now on than have received it in the past.

Exactly. More people will now feel they have to report the income, when, in reality, they already had that obligation.

And some people will now have a bit more work to do to excuse themselves from the obligation.

[foxcreek9]

Quote:

Originally Posted by mpeirce This is one reason the government is exploring a digital currency (a CBDC). All transactions would be visible to them.

"All transactions they want to see would be visible" would be a better description.

[gauss]

Quote:

Originally Posted by albireo13 I don't think you can use capital gains/losses approach for personal property transactions. I am still trying to figure out how to report this on my 1040. I have a lot of hobby transaction over the year with Paypal ... buying various hobby gear and often selling it later to try something else. Much over the $600 limit so, I expect to see a 1099k. It was mostly at a small loss, certainly no gain for me. Most PP transactions have been "goods/services" because internet buyers want the protection that gives them. Anyway, I am very interested in finding out how best to report all this on my 1040. I have been very good about keeping records of my purchases and sales.

I thought that Cathy's example, above, was designed specifically to address personal capital transactions .

-gauss

[albireo13]

Since I use Paypal a lot, and I buy/sell a bunch of hobby gear, I was very curious about what Paypal will actually report on the 1099k.

Does the amount I get after the Paypal fee get reported?? Apparently not. It is the gross amount that I am paid which is reported to the IRS, before PP takes their fee.

For example, if I sold a used motorbike for $1000 to someone who used Paypal to pay me using goods/services, the net amount I receive is less due to the Paypal fee. Let's say I get $970 net. The amount Paypal will report in the 1099k will be $1000. So, the IRS thinks I made $1000 on the sale. I contacted Paypal and asked them about this and they confirmed that yes, this is how it will work.

Beware!

[38Chevy454]

Quote:

Originally Posted by albireo13 Since I use Paypal a lot, and I buy/sell a bunch of hobby gear, I was very curious about what Paypal will actually report on the 1099k. Does the amount I get after the Paypal fee get reported?? Apparently not. It is the gross amount that I am paid which is reported to the IRS, before PP takes their fee. For example, if I sold a used motorbike for $1000 to someone who used Paypal to pay me using goods/services, the net amount I receive is less due to the Paypal fee. Let's say I get $970 net. The amount Paypal will report in the 1099k will be $1000. So, the IRS thinks I made $1000 on the sale. I contacted Paypal and asked them about this and they confirmed that yes, this is how it will work. Beware!

Why should the IRS/govt care, it is more potential tax money for Uncle Sam. This whole $600 idea is just a backdoor way for govt to collect more tax money. Yes, some of this money should have been included on tax returns in the past. But the difficulty will be to prove that it is *not* actually income, but rather a reimbursement or partial recovery of money already paid. It is not the same as investing.

I do agree with your comment. Fees should not be included in the 1099 amount. Net proceeds, since Paypal or Venmo or whoever is already paying tax on the fees as corporate income.

Now to throw a wrench into the discussion, just wait until states want to not only get their portion of the income tax, but look out for sales tax in addition. Never doubt the govt tax monster tentacles ability to come up with ways to get more tax collection out of you.

[Midpack]

Quote:

Originally Posted by wolf This topic was mentioned on a podcast. A little confusing. But if correct. This would be a "nightmare" for a lot of us. Sounds like, if someone receives, more than $600 a year. One may receive a 1099. Income on a 1099 is taxable. IRS also receive a "matching" 1099. If you look into the details, this is really bad. Big Brother coming after us.

I’m not outright disagreeing, but is there an easier way to report legitimate income to the IRS? Sadly but not surprisingly the honor system hasn’t worked, why should honest people pay more than dishonest…

[COcheesehead]

Plug your income into Dinkytown and see the reality of what the 1099 really means. I sold $2000 worth of household stuff on eBay this year. I ran the numbers, we itemize and with the 1099 income we’ll still not owe any additional tax - thanks to a big muni bond ladder in our taxable account.

[SecondCor521]

Quote:

Originally Posted by albireo13 Since I use Paypal a lot, and I buy/sell a bunch of hobby gear, I was very curious about what Paypal will actually report on the 1099k. Does the amount I get after the Paypal fee get reported?? Apparently not. It is the gross amount that I am paid which is reported to the IRS, before PP takes their fee. For example, if I sold a used motorbike for $1000 to someone who used Paypal to pay me using goods/services, the net amount I receive is less due to the Paypal fee. Let's say I get $970 net. The amount Paypal will report in the 1099k will be $1000. So, the IRS thinks I made $1000 on the sale. I contacted Paypal and asked them about this and they confirmed that yes, this is how it will work. Beware!

If the used motorbike was something you bought for $2000, then you have a nondeductible personal capital loss and the fee is just too bad.

But if you're running a business and report the $1000 on a Schedule C, you can probably deduct the $30 fee as a business expense. You'll only pay self-employment and income taxes on the $970 net.

[SecondCor521]

Quote:

Originally Posted by Midpack I’m not outright disagreeing, but is there an easier way to report legitimate income to the IRS? Sadly but not surprisingly the honor system hasn’t worked, why should honest people pay more than dishonest…

Quite often, the honest reporting of income would have been done on Schedule 1 line 8z, labeled Other income. Things like honoraria and jury pay go here. It's where I will report the income I received this year for being a poll worker at the November elections.

[Midpack]

Quote:

Originally Posted by SecondCor521 Quite often, the honest reporting of income would have been done on Schedule 1 line 8z, labeled Other income. Things like honoraria and jury pay go here. It's where I will report the income I received this year for being a poll worker at the November elections.

Thanks. I’m not talking about honest taxpayers like you. I was asking how to catch those using Venmo, PayPal and other digital payments systems who knowingly evades reporting income in response to the post “If you look into the details, this is really bad. Big Brother coming after us.” I disagree with that as a blanket statement. Issuing 1099s for anyone who has more than $600 in transactions and then asking them to provide documentation if it’s not income doesn’t seem unreasonable to me. We all have to provide documentation for all sorts of income sources…

[FLSUnFIRE]

This whole thing looks like it could be a big mess... or not much of anything. One thing I think will be interesting is how it influences public opinion. Most of the pols rhetoric is about getting the "billionaires" (known for laundering their billions $600 at a time) and a lot of smaller and younger gig workers and side hustlers are going to get caught up in this. If it's a mess I could see thresholds going back up to something I'd consider more reasonable.


Personally, I've received some taxable income via PP but even more reimbursements this year as I booked airfare, rental car and paid some expenses on a vacation for two friends and they paid me back via PP. I'm also expecting my 1099-NEC/MISC (not sure what I'll get) and PP 1099K to double report that portion that is taxable. I know what I earned and will put that on my return.

[CRLLS]

It occurred to me. I wonder just how long it will take the IRS to require places that buy your "stuff" to issue 1099-K's. Places like Carmax, "Cash for Gold" and pawn shop like places might be ripe for IRS targets. I sure hope that nobody at the IRS is reading this post.

[cathy63]

Quote:

Originally Posted by Midpack ...Issuing 1099s for anyone who has more than $600 in transactions and then asking them to provide documentation if it’s not income doesn’t seem unreasonable to me. We all have to provide documentation for all sorts of income sources…

To be clear, the vast majority of people are not being asked to document that the income shown on their 1099-Ks is not taxable. Only people who get audited are asked for documentation, and even then, if you don't have documentation the determination of taxability is at the examiner's discretion. If he/she believes your explanation of the payments, they shouldn't levy any additional tax.

You can choose to just not report the 1099-K income that is non-taxable. The IRS does not require every dollar on a 1099-K to match some field on your return, and they even have an example online where you would leave some of it off your Sched C (customer gets cash back on a credit card transaction).

Personally, I think it's best to report it anyway and net it out to zero on Sched 1, Form 8949, or Sched C as previously described in this thread, and that's what I've done for myself and family members in the past. That way if anybody at the IRS does look at your return, there's at least some indication that you thought about it and made a determination that the income wasn't taxable.

I am very interested in how this will work out for our Tax-Aide sites this year. The options of reporting it as a plus and minus on Sched 1 or as a sale on Form 8949 are currently deemed to be out of scope for us, so either we will be doing a whole lot of Sched Cs, or we might have a lot of clients getting inquiry letters from the IRS. I suppose we won't really know how well this works out for 2023 until after tax season is over and we see what the IRS does.

[SecondCor521]

Quote:

Originally Posted by Midpack Thanks. I’m not talking about honest taxpayers like you. I was asking how to catch those using Venmo, PayPal and other digital payments systems who knowingly evades reporting income in response to the post “If you look into the details, this is really bad. Big Brother coming after us.” I disagree with that as a blanket statement. Issuing 1099s for anyone who has more than $600 in transactions and then asking them to provide documentation if it’s not income doesn’t seem unreasonable to me. We all have to provide documentation for all sorts of income sources…

A lot of the ability to enforce income taxes is due to information returns. If you know the IRS got your W-2 with your SSN on it, it's pretty much impossible to forget or choose to skip reporting that income. Same goes for 1099-Bs, 1099-DIVs, 1099-INTs, 1099-Rs, 1099-Ks, and 1099-NECs.

There is going to be a lot of confusion about these new reporting requirements, and taxpayers are going to spend a lot of time trying to understand how to comply. There will also be some complaining, of course, either (a) people don't want to pay taxes on the income, or (b) the reporting and compliance are complicated and confusing and time consuming. I understand the former but only sympathize with the latter.

I hope collectively Congress and the IRS and the financial institutions can make improvements to the system to be able to better and more easily distinguish between the interpersonal reimbursements and selling of personal goods at a loss from gig income.

I personally think we could make structural changes to the tax code away from this sort of problem, but last I checked I am neither king nor emperor, and nobody from my Senator's office has called lately to ask for my guidance. So I'll just comply with the complex system we have and advocate (probably in vain) for a system I would prefer to move towards.

[rodi]

Hmmm. I used to use Venmo a lot for transferring funds to my college kids. I've switched to Zelle, but there is still some back and forth on venmo between us. Example - kid uses my amazon account to buy christmas gifts - charging my amazon store card. Then he venmo's me back to cover it.

Our tenant pays us rent via zelle. But I report that as rental income. (though I see, above, that Zelle doesn't report it.)

[Montecfo]

Quote:

Originally Posted by cathy63 To be clear, the vast majority of people are not being asked to document that the income shown on their 1099-Ks is not taxable. Only people who get audited are asked for documentation, and even then, if you don't have documentation the determination of taxability is at the examiner's discretion. If he/she believes your explanation of the payments, they shouldn't levy any additional tax. You can choose to just not report the 1099-K income that is non-taxable. The IRS does not require every dollar on a 1099-K to match some field on your return, and they even have an example online where you would leave some of it off your Sched C (customer gets cash back on a credit card transaction). Personally, I think it's best to report it anyway and net it out to zero on Sched 1, Form 8949, or Sched C as previously described in this thread, and that's what I've done for myself and family members in the past. That way if anybody at the IRS does look at your return, there's at least some indication that you thought about it and made a determination that the income wasn't taxable. I am very interested in how this will work out for our Tax-Aide sites this year. The options of reporting it as a plus and minus on Sched 1 or as a sale on Form 8949 are currently deemed to be out of scope for us, so either we will be doing a whole lot of Sched Cs, or we might have a lot of clients getting inquiry letters from the IRS. I suppose we won't really know how well this works out for 2023 until after tax season is over and we see what the IRS does.

I agree. If I get an information return such as a 1099, I want to show that figure on my tax return, and then net it out to whatever the taxable portion is. Likely zero in the case of Venmo transactions.

This might reduce the risk of a letter from the IRS, which could bring further needless scrutiny.

[CaptTom]

Quote:

Originally Posted by rodi Our tenant pays us rent via zelle. But I report that as rental income. (though I see, above, that Zelle doesn't report it.)

One article I read did mention Zelle as subject to the new rules for reporting.

I got reimbursed via Zelle for over $1,500 this year. It was personal, not a business transaction, and I didn't come out ahead. I didn't even get all my expenses reimbursed. So I'm following this closely.

As for the government and tax prep industry fixing this, don't count on it. The industry gives significant campaign contributions to ensure the legislators keep the tax laws as complex as possible.

[albireo13]

The IRS includes the Paypal fee in your taxable income (via 1099k).
I assume that the fees are also part of Paypal’s revenue stream which is reported to the IRS.
Sounds like double dipping by the IRS.