Long story short I got caught with my pants down when I got a 1099 today from paypal. I thought I was at least $4k under the 20k threshold. I’ve got a long road ahead of me trying to sort out all these transactions and seeing what was actually profit as I wasn’t planning on keeping track of anything. Anyone kind enough to talk to me for a few who has to deal with these regularly?
Several states have limits under the federal $20k and 200 transaction threshold. For example, in Massachusetts where I live the state limit is $600 regardless of transaction numbers, this means I get a 1099-K pretty much every year.
You should look up the tax law in your state as each one varies of course, and the best advice is always to speak with a tax expert. In MA, you do not have to file the form if your sales derive from occasional “garage sales” of personal belongings/hobby items/what have you. If you get audited, they’ll look at whether your sales actually are occasional personal item sales or whether you’re running a business. Things like maintaining an inventory, selling large numbers of items, and selling throughout the year are indications that you’re actually running a business and should be filing.
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Yeah I messed up big time, paypal claimed I made $20,178 with 235 transactions I thought I was around the 16k range. Big OOF time
Folks… The 1099 is a courtesy legal reminder. It’s not “if you made $19k profit on a Charizord sale you don’t have to pay taxes but if you made $21k you do”.
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If only life were so black and white. Federal reporting related to possible income and sales taxes tightened up substantially in 2020, and promise to tighten further in the coming years. There will ultimately be situations where sales of $1,000 or less may trigger a 1099-K form.
But all is not lost. The 1099-K number is a gross proceeds number, and likely doesn’t even include deductions for Paypal and / or Ebay costs. All of your costs, including purchase costs, are deductible. So Profit will be (hopefully much) lower, and whatever drops to your personal adjusted gross income will be lower still.
The key thing now is to determine if you likely owe more taxes for 2020 than you paid. If so you need to calculate and send in estimated taxes as soon as possible. The deadline was 1/15, but the IRS is usually lenient if you get your payment in before the end of January.
You then have until April 15th (or October 15th if you file the allowable extension) to figure out the details and file your return.
I usually overpay on taxes, and can then take my time figuring out and optimizing how much I can get back. That way I don’t put myself under too much stress.
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Yeah lol honestly EVERY person should be reporting every year, I understand not reporting if you sold a couple things here and there like $1k or so for the year but at these numbers you are running a business and its not just a hobby.
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Yeah I’m working on trying to figure out these deductions immediately. Hmm the 1/15 deadline thing is new to me. From what I read it is quarterly so aren’t I screwed for the other 3/4 of the year? Also this only seems to apply if I’m treating this as self-employment income rather than hobby income? The former seems like I need to fill out schedule C rather than claiming this on schedule 1 of form 1040. I looked at what constitutes hobby income and I think I hit most of the criteria despite the amount… Thanks you have been super helpful so far.
Edit: probably a bad idea to consider it hobby income as I cant take deductions
A fellow Masshole!
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So you thought if you had done 235 transactions and done 16k you could’ve just…not paid any taxes? Amazing how many people think this! Good luck, hopefully you can figure it out
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A lot easier to plead ignorance of tax laws if you dont recieve any official looking paperwork, it seems. Hehe
Does anyone know how it works with eBay’s new managed payment system? I just got my 1099K from Paypal but it shows $0 in gross income for November and December, I assume I’ll be getting a separate 1099K directly from eBay for those months?
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Yes. Unless it is under whatever reporting limits they’ve set. Then you’d still owe on them regardless but wouldn’t get the document.
Thanks! What a hassle, I was expecting they’d just send me the form per usual. Not sure if I met the threshold, and if I didn’t then going back and putting all of my sales together is gonna be a pain.
Totally get the sentiment and agree!
On the other hand, think about all the people out there who make a few sales on ebay every year (let’s say just selling old stuff of theirs) as well as selling a few things on mercari or facebook marketplace, maybe even some local sales.
Expecting those people to pay taxes on that stuff is a bit absurd, even though technically they are liable for those taxes (in some states).
I think a threshold definitely makes sense - like $20k and 200 transactions from feds - because otherwise it would be entirely cumbersome and difficult for everyone to file their taxes and I ultimately think that’s not really ideal (we just made Taxes simpler w a standard deduction and I imagine that’s good for everyone, including the IRS handling the returns)
NOW - let’s be honest. Most people, including myself, would prefer to not pay taxes on this kind of stuff given the choice 
Most very wealthy people and very wealthy corporations spend insane amounts of money in order to avoid paying taxes and they are arguably wealthier for it. I’m not trying to make an argument about paying taxes or what good it does for society, I’m just trying to say, I am in no way surprised to see people trying to avoid it or taking the “ignorance is bliss” stance 
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www.ebay.com/help/selling/fees-credits-invoices/ebay-form-1099k?id=4794#:~:text=If%20you’re%20a%20managed,state%20tax%20authority%2C%20where%20applicable.
eBay uses the federal transaction threshold for most states, excluding Massachusetts and Vermont which have lower threshold for tax reporting. This means that if you do not hit your respective threshold, eBay will not send you a 1099-k tax form. I believe that since eBay did not actually process customer payments until they introduced managed payments, you will not receive a 1099 from them unless you had 200 transactions and $20,000 in sales in November and December.
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While we’re on the tax topic – for people who utilized 1031 like - kind exchanges prior to the 2017 tax act, what pathways did you explore after this was limited to real property in 2018?
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Please remember that the 1099-K form simply means an accounting is required.
If I sold “my old stuff” in 235 Paypal transactions totaling $21,000, but I had paid $100,000 for that stuff, then my sales netted out a loss of $79,000, less any depreciation and other price reductions along the way.
If I sold a 1st Edition Base Charizard I had picked out of a pack in 1999, and got $100,000, I could write off the price of the pack, the price of grading, the cut to Paypal and the cut to whomever helped sell it.
Sales show revenue. State sales taxes are a function of revenue. Federal and State income taxes are a function of income, which relates to Profit. The threshold for reporting profit, or income, can be as low as $1. Just because venues and financial institutions you utilize don’t report formally until some threshold is reached doesn’t mean everything below that threshold is exempt from reporting.
Given the above reality, it pays to get really good at knowing what things cost to buy, to transport, to store, and to sell. And what additional costs can be expensed. Expenses include those direct costs, plus at times a whole lot of indirect or overhead costs.
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With the current tax law (as of 2018) and if I wanted to consider pokemon a hobby then I would be expected to pay taxes on all of that 21K revenue regardless of the expenses, since hobby related itemized deductions were removed on Schedule A correct? If I wanted to write off the costs of the cards, ebay/paypal fees, shipping ect. ($10k+ in my case) I need to consider myself a sole proprietor selling pokemon cards as a business and itemize all that stuff on Schedule C? I think I have a grasp on it but just want to make sure as the former option seems like a tax nightmare.
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Correct – you can’t deduct expenses from taxed hobby income. Sole proprietorship is the way to go, or at least it was for me.
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Thanks for the confirmation. I’m surprised this hasn’t been talked about more here given how easy it is to wrack up tons of revenue now in pokemon.
I’ll post this here, although slightly outdated on laws is has relevant discussions: www.blowoutforums.com/showthread.php?t=424854&highlight=taxes
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