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

[isisdave]

Aren't there 2 modes on Venmo? Peer to peer and customer to business?

Whether or not there is, when you sell a couch to your brother-in-law or the guy down the street, he MAY mark it a "business" transaction. With strangers on PayPal, the "goods and services" designation is necessary to get certain protections, and it's set by the buyer, not the payment processor.

How many 1099-Ks will be issued because of this? 50 million, maybe more? What percentage will require adjustment? 75% maybe? There is NO WAY you are going to get this adjusted by the issuer. I'm guessing that the IRS might just accept them but do nothing with them the first year, while they see what kind of data it gets them and whether the chaos is worth the time.

The law "applies only for transactions for the provision of goods or services settled through a third-party payment network."

There is a movement in Congress to change this back to the way it used to be ($20,000 or 200 transactions). Who knows if they'll get it done.

 

[Scuba]

Maybe use Zelle going forward?

Very interesting. I wonder why not? I run a social group and several times a year, I collect funds in advance for dinners out. I require people paying me to code it as “friends and family” payments and if they do not, I refund their payment immediately and tell them to resubmit it properly. I also track every dime I collect and the amount collected goes to the restaurant venue in full, so worst case, I can document that I didn’t keep any of the funds. However I prefer not to have to get a 1099 in the first place so hopefully my methodology will prevent that.

 

[FLSUnFIRE]

Very interesting. I wonder why not? I run a social group and several times a year, I collect funds in advance for dinners out. I require people paying me to code it as “friends and family” payments and if they do not, I refund their payment immediately and tell them to resubmit it properly. I also track every dime I collect and the amount collected goes to the restaurant venue in full, so worst case, I can document that I didn’t keep any of the funds. However I prefer not to have to get a 1099 in the first place so hopefully my methodology will prevent that.

I'm a reluctant PP user but all I see is I have money waiting and asking if I want to accept it. I just looked at statements and funds received only state "Mobile Payment" or "General Payment" and they are not correlated to if they are personal or a taxable payment but seem to only be if they used the mobile app or web interface. I don't send money with PP so no idea what senders see.


Will be interesting what my 1099 states -I expect a 1099-MISC/NEC for actual income so if PP reports it on a 1099-K will be duplicated.



Think I'll stick with cash for reimbursements going forward (always my preference).

 

[disneysteve]

I’m a regular eBay seller with over 12K in sales this year so I’ll obviously get a 1099. What I’m a little concerned about is how they’ll report my income vs how I track it. I imagine they will include sales tax paid by buyers even though I never see that money. If I sell something for $20, I enter $20 on my spreadsheet, but they may actually collect $21.20 and that’s the amount that will probably go to the 1099. I’m probably going to need to sit down and reconcile all of that so that my numbers match theirs.

 

[albireo13]

Right. I have checked my records and I sold over $5000 last year on Paypal, at no profit. You can download your account's yearly activity on Paypal so, I will do that and have to sift through it to reconcile against what the 1099k will say. I am very curious to see what my 1099k will look like.

 

[cathy63]

I’m a regular eBay seller with over 12K in sales this year so I’ll obviously get a 1099. What I’m a little concerned about is how they’ll report my income vs how I track it. I imagine they will include sales tax paid by buyers even though I never see that money. If I sell something for $20, I enter $20 on my spreadsheet, but they may actually collect $21.20 and that’s the amount that will probably go to the 1099. I’m probably going to need to sit down and reconcile all of that so that my numbers match theirs.

State and local sales tax is not included on K-1s issued by eBay. They do include their fees though, so if you sell something for $20 and you only receive $19, it's the $20 that shows up on your K-1. The $1 is a deductible business expense.

Also, the dates can get a little screwy. If you make a sale on 12/31/2022 but don't receive the money until 1/3/2023, that transaction will be on next year's K-1.

 

[disneysteve]

State and local sales tax is not included on K-1s issued by eBay.

That's good to know. I thought what they'd report is the total amount of payment processing they did which would include tax. If they don't include tax, that will make my life much easier. Their numbers should match my numbers. Thanks.

I have a question for you if you don't mind. A CPA mentioned that sales of collectibles are handled differently and profits are subject to capital gains on schedule D but not self-employment tax as if reported on schedule C. He was looking into if I could report the sales of collectibles in that way to lessen my tax burden. Honestly, that sounds wonky to me. I can understand that if I bought a painting to hang in my home ten years ago and now decided to sell it, that would count as a capital gain, but if I bought a collectible item last week for the sole purpose of reselling it for a profit this week, that would go under my business return, not my personal return.

Deciding what qualifies as a collectible is hard, too, because people collect pretty much everything. I've sold bars of vintage soap, for example. Maybe the buyer got it to use but maybe they bought it to display as part of their soap collection. Who knows?

 

[joesxm3]

I think the rule regarding a panting is if you hang it in your house it is personal property but if you store it in a vault it is an investment.

 

[SecondCor521]

I have a question for you if you don't mind. A CPA mentioned that sales of collectibles are handled differently and profits are subject to capital gains on schedule D but not self-employment tax as if reported on schedule C. He was looking into if I could report the sales of collectibles in that way to lessen my tax burden. Honestly, that sounds wonky to me. I can understand that if I bought a painting to hang in my home ten years ago and now decided to sell it, that would count as a capital gain, but if I bought a collectible item last week for the sole purpose of reselling it for a profit this week, that would go under my business return, not my personal return.

I'm not @cathy63. But I'm going to an Oxford Suites later today for a tax training meeting, so there's that.

The CPA is correct that capital gains on Schedule D are not subject to SE tax.

The IRS definition of collectibles can be found here: https://www.irs.gov/retirement-plan...text=Any metal or gem (with,IRC Section 408(m).

I have read that collectibles may be taxed at up to a 28% tax rate. I tracked it down a bit the other day to part of the somewhat complicated capital gains worksheets (see Schedule D instructions) but didn't run through an example to see how the taxes actually work on them. Collectibles are clearly subject to some special tax handling in those worksheets.

The capital gains rate you might end up paying might be higher than the income tax plus SE tax on the same amount.

If you're buying and selling collectibles as part of your business, I would personally think that those should still go on Schedule C.

If you bought a marble statue for personal enjoyment in your French garden, then sold it five years later, that would be a Schedule D kind of transaction.

 

[teejayevans]

Does 1099K “income” add to your MAGI, so threatens blowing your ACA income limit?

 

[disneysteve]

Does 1099K “income” add to your MAGI, so threatens blowing your ACA income limit?

I’m not a CPA but I’m going to say yes. It’s part of your overall income.

 

[SecondCor521]

Does 1099K “income” add to your MAGI, so threatens blowing your ACA income limit?

Why did you put income in quotes?

If any of the payments made to you and reflected on a 1099-K are taxable income, then generally that taxable income would flow into AGI and into ACA MAGI. The higher your ACA MAGI, the lower your subsidy.

Currently there is no ACA income limit per se; Congress suspended the 400% of FPL cliff through the end of 2025. (There is some point at which the SLCSP is less than 8.5% of ACA MAGI, at which point the subsidy drops to zero.)

As has been previously mentioned, the new rules are only changing the reporting requirements (in an effort to capture more of the underground economy and tax it). The income and it's taxability remains the same.

To the extent that the 1099-K payments do not reflect income, then there is no impact on your tax return, including any impact on ACA subsidies and CSRs.

 

[kyzymurgist]

I doubt I'm the only one to receive this message from ebay this week-

"As of Jan 1, 2022, the IRS now requires us to file and send a Form 1099-K to everyone who sells $600 or more.

Since you’ve made $600 or more in sales this year, we’ll need your full 9-digit Social Security number (SSN) or Individual Tax Identification Number (ITIN) to send you your 1099-K.

Please update your information so we can start sending your payouts and avoid other account restrictions.

Check out our*1099-K FAQ*to learn more about these changes."

They ensure compliance by holding your payout hostage. Taxes will already be more complicated than usual this year after selling a rental. This just adds to the fun.

Everything sold on ebay was old household stuff or gifts sold for less than original cost. If this change adds to my tax headache, these items will go to Goodwill, Restore, or the trash from now on. If everyone feels the same, eBay revenue may take a slight hit.

 

[teejayevans]

Why did you put income in quotes?

If any of the payments made to you and reflected on a 1099-K are taxable income, then generally that taxable income would flow into AGI and into ACA MAGI. The higher your ACA MAGI, the lower your subsidy.

I put it in quotes because if you can offset the income, is it still income?

 

[disneysteve]

I put it in quotes because if you can offset the income, is it still income?

If it is money that was paid to you, it’s income. Whether or not you owe taxes on it is a different question. That’s where the offset comes in.

 

[SecondCor521]

I put it in quotes because if you can offset the income, is it still income?

Yes, it is still income. Any offset, and by that term I assume you mean a subtraction for cost basis or business expense, is a separate item that goes in a separate spot on your tax return.

No different than an early withdrawal penalty offsetting CD interest, or a deductible IRA contribution offsetting W-2 income, or a business expense offsetting business income.

 

[FLSUnFIRE]

BLUF: If not taxable income (personal reimbursement, gift from grandma, etc), it won't impact AGI/MAGI.



It's not necessarily "income" for 1040 purposes, it is netted out by expenses. A better term would probably be revenue. If your business grossed $1M and you had $800K expenses to generate that income only $200K would transfer to the 1040 as business income and flow into AGI/MAGI (net profit or loss is included on line 12 of the 1040, not gross receipts).



So yes, taxable income reported on a 1099K would be included in AGI/MAGI but just because you got a 1099K does not mean the entire amount is taxable income -but if you claim less income you may need to justify it (which is why some say to net out non-income payments on the schedule C to carry over none of it to the 1040 but account for it to hopefully avoid an IRS annoyance).


I see two options for personal payments reported to you on a 1099k, one, don't include them on your return and ignore the 1099K -Not wrong but could lead to follow up and you want to be able to justify why you didn't include/match the number reported to the IRS. Two, include it like your life is a business and then record and "expense" to offset it. IMO, wrong since it wasn't income from a business but a personal reimbursement but the numbers match this way and might save headaches (they can always challenge your offsets just the same as the discrepancy -from their perspective, you are reporting a non-profitable business and that looks fishy to them too).

 

[sengsational]

The IRS better expect a flood of non profitable businesses. No matter, they have plenty of resources to chase the grandma's doing their swedish death cleaning using eBay.

 

[Montecfo]

Yes, it is still income. Any offset, and by that term I assume you mean a subtraction for cost basis or business expense, is a separate item that goes in a separate spot on your tax return.



No different than an early withdrawal penalty offsetting CD interest, or a deductible IRA contribution offsetting W-2 income, or a business expense offsetting business income.

Perhaps I am misunderstanding you.

Gross sales are not in AGI for a business. Only net income or loss.

If someone gets a 1099 for sales of goods and services, presumably it is for a business, Sch C. Business net income is in AGI, not sales.

Reimbursement of personal expenses, like settling a dinner bill, is not income. Even if you are overpaid, presumably that was a gift or included reimbursement for other personal expenses.

 

[CRLLS]

From what I read, any 1099 from PayPay etc could be claimed on my taxes as either a business or a hobby. If a business, then expenses of the business such as cost of goods sold and PP fees among other things could offset the income. However, SS must be paid both as employee and as employer. If it is claimed as a hobby, then the SS payment is not required but any expenses cannot be deducted from the gross income on the 1099.

Is this correct? This is a very simplistic example. As a business it is a bit more complicated, for sure.

 

[cathy63]

From what I read, any 1099 from PayPay etc could be claimed on my taxes as either a business or a hobby. If a business, then expenses of the business such as cost of goods sold and PP fees among other things could offset the income. However, SS must be paid both as employee and as employer. If it is claimed as a hobby, then the SS payment is not required but any expenses cannot be deducted from the gross income on the 1099.

Is this correct? This is a very simplistic example. As a business it is a bit more complicated, for sure.

No, it's not correct that "any 1099" (1099-K) could be claimed as either business or hobby income. You are required to use the IRS rules to determine whether you are running a business or making money from a hobby or doing something else that may be non-taxable. If you get audited and the IRS decides that you made the wrong determination, then they will recalculate your tax and penalize you if you underpaid.

Your understanding of the differences in taxation between business and hobby income is roughly correct.

 

[SecondCor521]

Perhaps I am misunderstanding you.

Gross sales are not in AGI for a business. Only net income or loss.

If someone gets a 1099 for sales of goods and services, presumably it is for a business, Sch C. Business net income is in AGI, not sales.

Reimbursement of personal expenses, like settling a dinner bill, is not income. Even if you are overpaid, presumably that was a gift or included reimbursement for other personal expenses.

Oh, I know. The person I was responding to was using the term "offset", so I was thinking that they were not using precise tax language. I used that as a license to similarly use non-precise language to explain some tax concepts. I probably did a bad job.

When I used the term "business income", I was implying (and hoping the person I responded to interpreted it as) top line or gross revenue, not net profit.

Agree with the rest of what you wrote too.

 

[SecondCor521]

From what I read, any 1099 from PayPay etc could be claimed on my taxes as either a business or a hobby. If a business, then expenses of the business such as cost of goods sold and PP fees among other things could offset the income. However, SS must be paid both as employee and as employer. If it is claimed as a hobby, then the SS payment is not required but any expenses cannot be deducted from the gross income on the 1099.

Is this correct? This is a very simplistic example. As a business it is a bit more complicated, for sure.

Also:

It's SS and Medicare taxes that must be paid, not just SS.

Also also:

SE taxes are only owed on the net profit of a Schedule C business, not the gross income.

Also also also:

A Schedule C taxpayer can take a deduction for 1/2 of their SE taxes.

All three of the above are approximately and generally true.

 

[CRLLS]

No, it's not correct that "any 1099" (1099-K) could be claimed as either business or hobby income. You are required to use the IRS rules to determine whether you are running a business or making money from a hobby or doing something else that may be non-taxable. If you get audited and the IRS decides that you made the wrong determination, then they will recalculate your tax and penalize you if you underpaid.

Your understanding of the differences in taxation between business and hobby income is roughly correct.

Ok right. According to the IRS:

Here are nine things taxpayers must consider when determining if an activity is a hobby or a business:

Whether the activity is carried out in a businesslike manner and the taxpayer maintains complete and accurate books and records.

Whether the time and effort the taxpayer puts into the activity show they intend to make it profitable.

Whether they depend on income from the activity for their livelihood.

Whether any losses are due to circumstances beyond the taxpayer's control or are normal for the startup phase of their type of business.

Whether they change methods of operation to improve profitability.

Whether the taxpayer and their advisors have the knowledge needed to carry out the activity as a successful business.

Whether the taxpayer was successful in making a profit in similar activities in the past.

Whether the activity makes a profit in some years and how much profit it makes.

Whether the taxpayers can expect to make a future profit from the appreciation of the assets used in the activity.

I was thinking mostly of this group and making just enough $ from selling on eBay to be lucky enough to receive a 1099-k. For instance, $800. I doubt that that would meet the dependence on the income for living expenses. As for the 1st year receiving the 1099-K, some of the other requirements are not applicable. So year 1, one could argue either way. Business or hobby. Assuming I take the position of it being a hobby, some of the previous posts of deducting PayPal's cut and the cost of the goods sold would not be allowed. Maybe I am wrong.

DW does sell some crafts, not to make money but to have a way for her to move along finished goods. The cost of materials, craft show fees, donated gifts to the craft show and such are likely 70-80% of her total sales. How can she/we reduce the effect of a 1099-K from "the Square" she might receive if it is a Hobby?

 

[disneysteve]

DW does sell some crafts, not to make money but to have a way for her to move along finished goods. The cost of materials, craft show fees, donated gifts to the craft show and such are likely 70-80% of her total sales. How can she/we reduce the effect of a 1099-K from "the Square" she might receive if it is a Hobby?

It's not a hobby though. She's running a business. She has supplies and expenses. She is setting up at craft shows to sell her wares. And she's walking away with a profit of 20-30% which is a very nice profit margin.

When she files her taxes, she'll enter everything on Schedule C. That's where she can "reduce the effect" of the 1099 by deducting all of her expenses, cost of materials, craft show fees, mileage, etc. She'll only owe taxes on that 20-30% number. If for some reason she doesn't file properly, she'll owe tax on 100% of the 1099 amount which would make no sense.

The problem is that many people are in business but don't consider themselves to be. I see that in the ebay groups all the time.