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

[gauss]

I have a little bit different take Steve, although I do not disagree with you about having to compete with ebay cheats.

My take is that my partner and I choose not to combine finances and instead reconcile each month. This is largely to take advantage of credit card or other benefits. This month she paid me about $1200 for reimbursement for airline ticket and cell plan. People have been doing stuff like this forever and it would turn into a nightmare for everyone if the IRS used 1099s and pursued enforcement actions they would ultimately lose. In my case, for example they could ultimately pursue me but would lose because what we are doing is perfectly legal.

I had a vaction rental for almost 10 years that I operated professionally as a business including paying taxes and 1099-ing various people like cleaners and other professionals. It angered me that most of my competitors did not pay their fair share of state taxes and got better rates from cleaners because they did not 1099.

But my understanding is that this approach is a blunt instrument that will create a lot of extra work for a lot of innocent citizens but will result in very little collected extra income tax revenue.

In my case I believe I am already compliant but this will create a huge hassle if I have to explain and document how we reconcile cell phone bills every month.

Are you and your partner paying fees for your reimbursements that you handle via payment platforms? If you are not paying fees, then in all likelihood you will not be 1099'd. My understanding is that the 1099's will go out to those who have the transaction coded as "goods and services" where a fee is deducted.

-gauss

 

[gauss]

As I understand it, only a business, either a person or entity, filing a Schedule C can deduct their costs of goods sold. As an individual, where is it that a 1099 can be "adjusted?

If you are not a business and not filing Schedule C, then you can handle the selling of personal goods as follows:

If you are selling personal items on ebay etc and you sell them for more than you paid for them, then you owe captial gains tax which should be reported Schedule D (Capital Gains/Losses).

If the personal goods are sold for less than you paid for them, and you didn't receive a tax document, then normally you wouldn't report it because your net capital gain/loss would be $0. Personal items are not allowed a capital loss.

If you a receive a 1099 for selling personal goods that you sold for less than your cost to acquire them, then you would file a Schedule D, but use the appropriate code to not allow a loss. No tax would be due.

-gauss

 

[disneysteve]

If you are not a business and not filing Schedule C, then you can handle the selling of personal goods as follows:

If you are selling personal items on ebay etc and you sell them for more than you paid for them, then you owe captial gains tax which should be reported Schedule D (Capital Gains/Losses).

If the personal goods are sold for less than you paid for them, and you didn't receive a tax document, then normally you wouldn't report it because your net capital gain/loss would be $0. Personal items are not allowed a capital loss.

If you a receive a 1099 for selling personal goods that you sold for less than your cost to acquire them, then you would file a Schedule D, but use the appropriate code to not allow a loss. No tax would be due.

-gauss

Thank you. I was pretty sure it was a schedule D issue but didn’t want to give an incorrect answer.

 

[gauss]

Thank you. I was pretty sure it was a schedule D issue but didn’t want to give an incorrect answer.

Oh good. Glad I could help. I think I saw specific examples in the Schedule D instructions when I started to dig into this issue a few weeks ago.

-gauss

 

[Aerides]

From the 2nd thread:

Today, the IRS announced a delay for implementation of $600 reporting threshold for third-party payment platforms’ Form 1099-K. Companies like Venmo, PayPal etc. were required to implement this much lower level for year 2022 taxes. It has been delayed 1 year now affecting all transactions in 2023.


https://www.irs.gov/newsroom/irs-an...5h4JFK3ge_cHa94gNBHWMoxtjFFhFyLmUJ6zjiqlCdPUI

 

[Aerides]

Mod Note:
Another thread on this topic, with the news of the delay, has been closed. There are too many posts there to successfully merge, but if interested, they can be found here:

https://www.early-retirement.org/fo...-600-threshold-for-issuing-1099-k-116349.html

Please continue the discussion in this thread.

However, we'd ask that everyone resist the urge to perform general IRS/Taxation bashing, as that drags us into partisan territory, and no one wants that here.

 

[ShokWaveRider]

This is good news for those of us who like to recycle our electronics, Devices, Stuff etc., I for one have no idea what I paid for stuff, but know I am selling it for less. Charging sales tax to the buyer (eBay) should be good enough.

I will probably stop doing it through eBay and taking money through PayPal for 2023 to make my life easier and just use Craigslist or a local rag, that also saves the buyer from paying Sales Tax. I think it will deter a few of us who just do it for fun from using services that are bound to the "K" reporting, resulting in less business for eBay and PayPal.

 

[CRLLS]

This is good news for those of us who like to recycle our electronics, Devices, Stuff etc., I for one have no idea what I paid for stuff, but know I am selling it for less. Charging sales tax to the buyer (eBay) should be good enough.

I will probably stop doing it through eBay and taking money through PayPal for 2023 to make my life easier and just use Craigslist or a local rag, that also saves the buyer from paying Sales Tax. I think it will deter a few of us who just do it for fun from using services that are bound to the "K" reporting, resulting in less business for eBay and PayPal.

Agreed 100%. I may sell a few odd personal items on eBay, but I'll be sure to keep it under $600 for the year just to avoid any future tax complications. Some items need the bigger audience than local advertising would provide. Some here may see this as a tax avoidance scheme. I see it as less going into the landfill, and if I'm lucky, maybe buying myself a few Jack Daniels along the way.

I once purchased an item on eBay from a local seller. He collected my $ in person when he delivered the item to my door. I wonder how that transaction would be reported under today's rules. No need to reply to that last question. I was just thinking out loud.

 

[cathy63]

...If one gets a 1099-K for "reimbursements", I have not seen how properly to report and adjust for such. I know that some of my fellow Tax Aide folks would put it on Schedule 1 line 8 as other income and then enter a "negative other income adjustment" for any costs also on Schedule 1 line 8, reporting only the net income that way. I think that the IRS would not see the detail so I'm not sure that's the best way, but it is perhaps a way.

The "official" Tax-Aide method is to put both the positive and negative amounts on Sched 1 line 8z. The e-file transmission includes the notes that you enter, so the IRS can see it if a person takes a look at the return. I assume that the IRS has blessed that method since they do have some oversight over the VITA/TCE programs.

Personally I think it would be better to put the negative amount on line 24z as an adjustment, and that's the recommendation I've seen from most CPAs; but that line is out of scope for Tax-Aide.

...I suppose the third category that a 1099-K payment might fall into is hobby income. I don't know much about hobby income, but I think it is supposed to be reported on Schedule 1 Line 8 somewhere. I don't think hobby-related expenses are currently deductible. If true, and if people get 1099-Ks for hobby income, there will be economic pressure to avoid this situation going forward as most people are not going to want to do hobbies if their costs are not deductible...

Taxes are due on hobby income. No deduction for hobby expenses. This is true whether or not you get a 1099-K and it's been this way for years, so nothing new here except that when the reporting rule finally goes into effect a lot of people will no longer be able to evade the tax on their hobby income.

 

[cathy63]

Are you serious? If I go to a bar with a buddy now and we settle up in cash it is perfectly legal and the IRS is none the wiser. But if we settle up by Zelle or similar method and are 1099-ed, we now have an obligation to prove our payment was a simple reimbursement. Do we do this by paying a notary to notarize a reimbursement agreement or do we pay a lawyer to defend us during the audit? Why would the 1099 issuer correct anything. It is a risk for them with no benefit.

This is an idiotic rule with serious consequences.

The real economy does not work the way politicians think it does. They are out of touch.

If you settle up by Zelle, you will never get a 1099. Zelle does not issue them because they don't process any transactions. They just tell Bank A to move money to Bank B. At this time, there are no regulations requiring Banks A or B or Zelle to issue 1099s. If such regs are written in the future, they'll most likely fall on the banks, not Zelle.

If your friends use Venmo, PayPal or other services properly, there will be no 1099s issued. Some people are going to have to learn how to use apps correctly. Some people will screw this up. Your choices are to accept only cash from your less competent friends or be prepared to enter your 1099 info as both a positive and negative number on your tax return. You are not being asked to provide any proof or notarize anything, and it's extremely unlikely that you'll be audited. If you're worried, print out the year's list of transactions from each site that issues a 1099 and make some notes on what each payment was for. That type of documentation is normally sufficient for answering IRS questions.

 

[disneysteve]

Taxes are due on hobby income. No deduction for hobby expenses. This is true whether or not you get a 1099-K and it's been this way for years, so nothing new here except that when the reporting rule finally goes into effect a lot of people will no longer be able to evade the tax on their hobby income.

Thank you!! So many people don't understand (or understand and choose to ignore) that income is reportable and profit is taxable regardless of where it comes from. As far as the IRS is concerned, there is no such thing as hobby income. Income is income.


Of course, if you're talking about cash transactions like a yard sale or Marketplace sale, nobody will ever know if you report that or not, and the new 1099 law doesn't affect you anyway. But if you sell at craft shows or online and take payments electronically, you need to report it, but you also get to deduct your expenses to limit or even eliminate any tax burden.

 

[SecondCor521]

Thank you!! So many people don't understand (or understand and choose to ignore) that income is reportable and profit is taxable regardless of where it comes from. As far as the IRS is concerned, there is no such thing as hobby income. Income is income.


Of course, if you're talking about cash transactions like a yard sale or Marketplace sale, nobody will ever know if you report that or not, and the new 1099 law doesn't affect you anyway. But if you sell at craft shows or online and take payments electronically, you need to report it, but you also get to deduct your expenses to limit or even eliminate any tax burden.

I agree with you that people should properly report all income.

But hobby income is different from business income. They're reported in different places on the tax return, and expenses are treated differently.

Now that we have a "transition" year, I'm sure a lot of hobbyists are going to decide that they are in fact in business and file a Schedule C to be able to deduct expenses against their newly issued 1099-Ks, or they'll decide to only accept cash or other non-1099-K style payments. It will be a bit of a squeeze play because the former results in reported income and the latter exposes the hobbyist and/or their customers to escrow risk.

 

[JoeWras]

As far as the IRS is concerned, there is no such thing as hobby income.

https://www.irs.gov/newsroom/tips-for-taxpayers-who-make-money-from-a-hobby

Tips for taxpayers who make money from a hobby

IRS Tax Tip 2019-85, July 1, 2019

Many people enjoy hobbies that are also a source of income. From painting and pottery to scrapbooking and soapmaking, these activities can be sources of both fun and finances. Taxpayers who make money from a hobby must report that income on their tax return.

https://www.irs.gov/faqs/small-business-self-employed-other-business/income-expenses/income-expenses

Question
How do you distinguish between a business and a hobby?

Answer
In making the distinction between a hobby or business activity, take into account all facts and circumstances with respect to the activity. A hobby activity is an activity not done for profit. This includes activities done mainly for sport, recreation, or pleasure. No one factor alone is decisive. You must generally consider these factors in determining whether an activity is a business engaged in making a profit:

• Whether you carry on the activity in a businesslike manner and maintain complete and accurate books and records.
• Whether you have personal motives in carrying on the activity.
• Whether the time and effort you put into the activity indicate you intend to make it profitable.
• Whether you depend on income from the activity for your livelihood.
• Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
• Whether you or your advisors have the knowledge needed to carry on the activity as a successful business.
• Whether you were 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 you can expect to make a future profit from the appreciation of the assets used in the activity.

You may find more information on this topic in section 1.183-2(b) of the Federal Tax Regulations.

 

[ShokWaveRider]

It surprises me that the IRS is concerned about this Trivial $600 moneys, in fact perhaps the limit should be $5k (Not $20k as it is now and for 2022). ESPECIALLY when there are Billionaires and folks a lot richer than the $600 crowd that manage to evade taxes every day/year by claiming their property is worth less or more than what it is as it suits them to and writing off millions. The little guy is way more likely to declare their minuscule income that they are.

 

[disneysteve]

JoeWras, thank you for adding that info. That's exactly what I'm saying. I didn't mean that hobby income isn't a thing but rather that it still counts as income and has to be reported.

"IRS Tax Tip 2019-85, July 1, 2019

Many people enjoy hobbies that are also a source of income. From painting and pottery to scrapbooking and soapmaking, these activities can be sources of both fun and finances. Taxpayers who make money from a hobby must report that income on their tax return"

So many people disregard this. Whether you consider what you're doing a business or a hobby doesn't matter to the IRS. The income must be reported either way. There are endless posts in the ebay groups from sellers saying they don't report their ebay income because they are just "hobby" sellers but that's not how it works. Income is income no matter what you call yourself.

 

[USGrant1962]

It surprises me that the IRS is concerned about this Trivial $600 moneys, in fact perhaps the limit should be $5k (Not $20k as it is now and for 2022). ESPECIALLY when there are Billionaires and folks a lot richer than the $600 crowd that manage to evade taxes every day/year by claiming their property is worth less or more than what it is as it suits them to and writing off millions. The little guy is way more likely to declare their minuscule income that they are.

It is not the IRS - it is Congress. It was part of the American Rescue Plan Act of 2021. I'm sure they needed every penny of revenue to claim it was paid for. What is surprising is that IRS can suspend it - so much for "paid for".

 

[SecondCor521]

It surprises me that the IRS is concerned about this Trivial $600 moneys, in fact perhaps the limit should be $5k (Not $20k as it is now and for 2022). ESPECIALLY when there are Billionaires and folks a lot richer than the $600 crowd that manage to evade taxes every day/year by claiming their property is worth less or more than what it is as it suits them to and writing off millions. The little guy is way more likely to declare their minuscule income that they are.

Plenty of comments here on the $600 limit. I think mostly it's just the change that people are reacting to.

Other sources of income have had much lower reporting limits for a while. Dividends and capital gains income need to be reported to the IRS even if it's a dollar. W-2 wage income needs to be reported to the IRS even if it's a dollar. Interest income needs to be reported to the IRS over $10 (and you should report on your tax return if over 50 cents).

Those don't raise our ire because we've become accustomed to them because they've been that way for years.

When the government looks for sources of tax revenue, there are plenty of options. But a gig economy that is apparently large enough in aggregate and previously mostly underground will remain a prime target.

(For the record, I oppose tax evasion by both billionaires and eBay hobbyists.)

 

[SecondAttempt]

Are you and your partner paying fees for your reimbursements that you handle via payment platforms? If you are not paying fees, then in all likelihood you will not be 1099'd. My understanding is that the 1099's will go out to those who have the transaction coded as "goods and services" where a fee is deducted.

-gauss

No, we are not paying fees and currently use old fashioned checks so it is not an issue. We were planning to start using Zelle until hearing about this a few months ago.

Frankly, I get what they are trying to do and am not opposed to it. They are trying to collect taxes owed by people operating "underground" and getting paid in electronic cash. I just think the approach they are taking is inherrantly flawed and will cause a whole lot of headaches for innocent people.

 

[ShokWaveRider]

It is not the IRS - it is Congress. It was part of the American Rescue Plan Act of 2021. I'm sure they needed every penny of revenue to claim it was paid for. What is surprising is that IRS can suspend it - so much for "paid for".

I am sure it costs more to collect than is gained. They still let the big guys get away with it or just give them breaks.

 

[cathy63]

For those who are thinking these are all small numbers...

https://www.cnn.com/2022/12/23/inve...increase-for-business-transactions/index.html

Indeed, the increase in 1099-Ks issued early next year for people’s 2022 tax returns was expected to be, in a word, “ginormous,” according to Wendy Walker, who chairs the information reporting subgroup on the Internal Revenue Service Advisory Council.

Walker works as a solution principal for Sovos, which helps more than 30,000 business clients with tax compliance, including the issuance of all types of 1099s, of which there are at least 16 different varieties.

Some businesses that only had to issue a couple thousand 1099-Ks under the prior rules were looking at a couple hundred thousand, she noted. “Our clients … have reported enormous increases in their potential filing obligations as result of the threshold change,” Walker said.

Just extrapolating, if there are 500K new forms reporting actual taxable income, and the average amount reported is about $10K (remember the current min is $20K) and that gets taxed at an average of 15%, then it's $750M in new tax dollars.

 

[disneysteve]

Just extrapolating, if there are 500K new forms reporting actual taxable income, and the average amount reported is about $10K (remember the current min is $20K) and that gets taxed at an average of 15%, then it's $750M in new tax dollars.

And the real number is likely far higher. Ebay has about 18 million active sellers. I'm sure ebay alone would account for a lot more than 500K new 1099 forms. More likely several million.

 

[JoeWras]

JoeWras, thank you for adding that info. That's exactly what I'm saying. I didn't mean that hobby income isn't a thing but rather that it still counts as income and has to be reported.

Yeah disneysteve, I wasn't trying to retort, but rather hang some meat onto the argument.

This came up on the "Amazon Vine" thread started a few weeks ago. Amazon sends a 1099-NEC out to reviewers who are compensated with more than $600 in products. People think a 1099-K is intimidating, well what about an NEC, normally used for independent self employed contractors? An activity done for fun for just a few hours a week suddenly gives you a tax challenge. Is it a hobby? Probably. Will the IRS accept that it is given you get a 1099-NEC? Don't know.

Anyway, back to the 1099-K. Sorry to derail.

 

[USGrant1962]

For those who are thinking these are all small numbers...

https://www.cnn.com/2022/12/23/inve...increase-for-business-transactions/index.html



Just extrapolating, if there are 500K new forms reporting actual taxable income, and the average amount reported is about $10K (remember the current min is $20K) and that gets taxed at an average of 15%, then it's $750M in new tax dollars.

Good guess. Looks like CBO has it varying between $800M and $1.1B new revenue per year. See detailed tables, Title 9., row 262 (I believe).

https://www.cbo.gov/publication/57037

 

[CRLLS]

JoeWras, thank you for adding that info. That's exactly what I'm saying. I didn't mean that hobby income isn't a thing but rather that it still counts as income and has to be reported.

"IRS Tax Tip 2019-85, July 1, 2019

Many people enjoy hobbies that are also a source of income. From painting and pottery to scrapbooking and soapmaking, these activities can be sources of both fun and finances. Taxpayers who make money from a hobby must report that income on their tax return"

So many people disregard this. Whether you consider what you're doing a business or a hobby doesn't matter to the IRS. The income must be reported either way. There are endless posts in the ebay groups from sellers saying they don't report their ebay income because they are just "hobby" sellers but that's not how it works. Income is income no matter what you call yourself.

I disagree. The IRS does distinguish between hobby and business income as has been posted already. One is not allowed to deduct their costs from their gross sales. In a hobby, "gross sales" are taxed since the Tax Cuts and Jobs Act (TCJA) of 2017 and will stay that way until 2025 unless the laws change. For a business, "net sales" are taxed.

 

[SecondCor521]

I disagree. The IRS does distinguish between hobby and business income as has been posted already. One is not allowed to deduct their costs from their gross sales. In a hobby, "gross sales" are taxed since the Tax Cuts and Jobs Act (TCJA) of 2017 and will stay that way until 2025 unless the laws change. For a business, "net sales" are taxed.

While I agree with you about the difference in how the two are taxed and reported, I think @disneysteve's point is that both are supposed to be reported. I think @disneysteve pointed out in an earlier post that some people have the mistaken idea that hobby income isn't taxed whereas business income is.