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Looking for some advice for PayPal 1099.
I am a hobby seller that started on Ebay the beginning of this year. I never thought to keep records because I kept reading that under 20k you don’t need to pay taxes. About half of what I sell is at a huge loss because my husband loves to shop and try products like high end stereo equipment, electronics and bicycle stuff and then dump it. He LOVES to shop and I got tired of going to bicycle swap meets and giving TONS of expensive items away.
TODAY I got a request for a 1099 IRS form! I have NO records kept and certainly NO receipts from items bought at estate sales or ten years ago.
I’ve only cleared about $4,000-5,000 in the past 10 months of selling and it is prob. a wash with depreciation of personal items sold.
My question(s) for you all. How do you account for free items and garage sale items or old junk you have around the house that is sold for a loss without receipts? How detailed do records need to be for selling just a few things here and there?
Thanks in advance. Liz -
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i should clarify–
PayPal will track the payment volume of your account(s) to check whether your payment volume exceeds both of these levels in a calendar year:
$20,000 USD in gross payment volume from sales of goods or services in a single calendar year
200 payments for goods or services in the same year* -
Its an online seller myth that you dont have to pay taxes under $20k. At one time, Paypal just didnt send our 1099’s for account who sold under $20k. But the IRS is very clear that everyone must pay taxes on any profit you make.
All of us have been where you are when we started. Its goes from “Im just having fun. No big deal” to “Oh yeah, this is a business”.
Did Paypal send you a 1099?
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Thank you for the responses. I did see that paypal only reports over 20k and sends 1099 for over 200 transactions. I am very clearly under 20k but must have sold 100 items along with transactions for shipping so that is what flagged my account.
I am going to call my accountant to see if i need to file a 1099.
I just need to figure out the records for the past year. thanks liz
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To be clear, you’re asking if Paypal is going to give the IRS and you a 1099 showing you made money this year. If Paypal doesnt send you a 1099, its your choice whether to hide that income from the IRS.
If your accountant is honest, he/she will tell you that you must claim any income you made.
We feel your pain, but if you are building a business its best to be legit. Start collecting records and doing your monthly accounting.
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You don’t “file” a form 1099, that is the form received from another party to report funds they paid to you. If you get any 1099s, those were also filed with the IRS. That doesn’t mean you owe taxes on that amount, this is only your gross sales before expenses. Regardless of receiving Form 1099 or the number of sales, you still need to file taxes on your business income (or loss).
Please do talk to an accountant to get your head around this. It’s not all that complicated, just something new to absorb. You can also ask the accountant about doing cash-based accounting, which is going to be easier. Basically, that means everything you made in income minus all your expenses (including merchandise purchases).
Start keeping a notebook on your purchases. You may not have receipts for things bought at yard sales, etc, but the IRS is generally going to accept “contemporaneous records” for small businesses. All that means is you wrote it down at the time (date, description, price). Also, do that for vehicle mileage and other expenses.
Don’t panic, you could end up showing a loss for your business, if so then that amount comes off the other joint income you have.
Lastly, don’t take everything you read online as fact, including what I am suggesting. You need expert advice, free advice is only worth what you pay for it.
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If PayPal provides you with a tax form, it will show how much you did in sales for the year. I believe that it subtracts out the shipping costs and PayPal fees, but double-check. I think that eBay fees are taken out as well.
Then, it will be up to you to get your profit down to as close to zero as possible. The cost of goods sold (COGS, what you paid for the item) is one of the deductions. If you don’t remember exactly the amount you paid, but are sure that your husband paid more than what it sold for, then you can use the profit from that sale as your COGS. If you have absolutely no idea, then come up with something reasonable. Start a notebook or spreadsheet for this year and do you best to track your costs.
You can deduct any supplies such as boxes, packing tape, etc. Go through receipts or eBay/Amazon orders to get those.
You can deduct the standard automobile cost (I think it is $0.52/mile) for the trips to the post office, FedEx, etc plus any other business use of your personal car. If you bought bubblewrap at WalMart, then the trip to get there can be counted.
There are many other deductions that require more research. You should be able to get to zero without too much difficulty. Just keep better records for the future. I suggest not showing a loss. Don’t take advice from me without verification, but I believe then that the IRS will expect you to show a profit a few years down the road if you try to deduct a loss in the beginning.
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My 2¢
Form 1099 from PayPal, the way my accountant has handled this over the past 10 years, shows gross (total) sales; everything buyers paid to eBay for our items. This is gross income. The amount charged to buyers for shipping isn’t relevant, its the actual amount we pay USPS, UPS, etc. for shipping that is the business shipping expense. PayPal fees are also an expense, along with eBay fees and many other expenses of selling. It can get more complicated, but those basics stay the same.
My 2¢
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Article re limit on hobby expenses
I’m not sure exactly what happened from your post, but it would be odd for the IRS to send a 1099k request for the current tax year.
Re COGS, just do your best and pull his credit card history, checkbook register, paypal transaction download etc. and review. Good luck!
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WOW! Thank you for all of your thoughtful and informative responses!
I will def. put a call in to my accountant tomorrow. I sort of freaked out with Paypal asking for my tax ID number to file a 1099 because I kept thinking I didn’t need to report especially if I am selling junk from my house at a loss.
I will just have to go back to all my sales over the past year and try to create some sort of records for them to the best of my ability. I make such a small amount selling junk it hardly seems worth all of this hassle! 😛
Thank you all! liz
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@catmom – your original post was a little confusing. You clarified things a bit with your last post. So PayPal is asking for your Social Security number because they may need to issue a 1099? That makes more sense.
In some states (VT, MA) they issue 1099s for sales above $600. For other states it is sent out using the rules others have mentioned above.
Create the best records you can and plan on filing taxes for your business for the 2019 tax year. If either you or your husband have regular job, consider having slightly more tax withheld for the rest of the year to cover the profit on your business (assuming there is some).
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There is a lot of good advice in this post.
I would just like to add that in term of the IRS 4-5k is small potatoes. You still will have to report your income and pay taxes – but don’t let it stress you out. Do your best to approximate your expenses and earnings (with the help of a tax professional) and don’t worry about it further. If you are offsetting the costs of your husbands spendiness you should be able to record enough expenses to offset any tax burden.
Just keep better records going forward.
No one likes paying taxes, but unless you are committing outright fraud no one is going “take the house or garnish your wages”.
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Another question about taxes. I got the 1099 printed out. That is gross sales and shipping, right?
So, I want to know the actual things I need to give the tax preparer and make this as simple as possible:
1. 1099 from Paypal
2. Total of monthly invoices I paid eBay.
3. What about fees paid to Paypal, which aren’t included in monthly eBay invoice, right? Is that 3% or whatever that I need to figure out?
3. All other business costs for the year
4. Partial write-offs like cell phone bill, etc.Is this right? Is there anything else?
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First of all, Let me say you should consult with your accountant to find out for sure what they will want from you and take any advice you receive here or from friends, etc. as points to discuss with your accountant. Be sure the accountant you use has experience dealing with online sales. A CPA might be worth the extra cost but not necessarily required. Some accountants will be more conservative about expenses than others and the advice may not be consistent from various accountants. You will probably want to find out what support they will provide if you are audited.
General suggestions for your list of things to talk to your accountant about:
You can download a report from PayPal to show the fees they charged. Also any supplies, merchandise, etc. you might have bought for the business and paid with PayPal.
Sales tax collected on eBay sales on your behalf but paid to the states by eBay. I haven’t looked at my 1099 from eBay yet; if they are showing that as income you need to offset it as an expense.
Cost of Goods (COG). If I recall correctly you are selling a lot of personal items, talk with your accountant about the cost basis for those.
Vehicle mileage. This can add up. The IRS wants contemporaneous records, meaning you recorded the mileage when it happened and what the mileage was for. Talk to your accountant about this and see if they will use your estimates for last year, where that estimate has some basis such as daily trips to the post office, etc. Start a mileage log now for 2020 if you haven’t already.
Business use of your home. There are very specific IRS requirements on this, go by what your accountant tells you. In general, this would be a portion of your home used exclusively for the business and if you qualify then probably a % of your utilities, real estate tax, etc., might also be deductible. This is a biggy to get the accountant’s advice on since it is one of the IRS audit triggers.
I suggest you pick an accountant now and set up a consultation to discuss specific information they will want you to provide, and do that soon since the closer to April 15 it gets the busier they will be. And again, take this advice and any outside advice with a grain of salt and get/use your accountant’s advice on specifics. Getting these specifics might also lower your stress level if it gives you a specific game plan to follow.
It might seem overwhelming the first time but it really isn’t that bad once you can see the actual picture of what your accountant will require. Filing next year for 2020 sales will be easier for you because you will be better prepared.
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