PSA: Keep detailed records of your knife transactions

I assume they are only taxing you on the profit. I can see that good records on your costs are really important and PayPal simply reports "gross sales".
 
jeffsenpai said:
Leave it to Uncle Sam to get his hands into your pocket for practicing a benign hobby.
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Unfortunately they have no way of recognizing it as a hobby. They see it as a store front. They also have no way to determine the cost basis of the transaction until it is provided. It makes sense on the IRS's part, but is a real PITA for those of us that might get caught up in it, and as the OP indicated a lot of work for $110 profit.
I have heard the $20,000 threshold, but have also heard it can be as low as $600 in some states.
 
Money order payments are sounding better and better all the time! So are trades... Of course there is no buyer protection - but I've never had to use it.
 
Wait a minute. So PayPal only reports how much you sold (income) but not how much you paid? Say if I sold a total of $1000 knives and bought a total of $1200 knives last year, all through Paypal, how much would be reported in 1099?

Are payments via Family & Friends included?
 
22-rimfire said:
Any income over $600 is considered business income. Less than $600 income is a hobby. I don't believe the $110 profit is taxable income.
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$20k is the federal threshold, which most states go by too, but some states have lowered it to $600, including MA and VT.

sharp_edge said:
Wait a minute. So PayPal only reports how much you sold (income) but not how much you paid? Say if I sold a total of $1000 knives and bought a total of $1200 knives last year, all through Paypal, how much would be reported in 1099?
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Correct...they only report the money coming in. Money going out doesn't matter to them...they don't know that some of the money going out was used to buy something that you later sold. So in your example, you would get a 1099 for $1000. Up to you to fill out the tax forms showing you spent $1200.
 
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jlauffer said:
$20k is the federal threshold, but some states have lowered it to $600, including MA and VT.



Correct...they only report the money coming in. Money going out doesn't matter to them...they don't know that some of the money going out was used to buy something that you later sold. So in your example, you would get a 1099 for $1000. Up to you to fill out the tax forms showing you spent $1200.
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Thx. So the taxable income is still $1000, not $200, correct? Dont remember in any IRS form I have filled how much I spent/paid.
 
Glenn Goodlett said:
Oh God! This is bad news.
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Don’t get too worried; I’m certain I’m an outlier case, as I think the threshold for most states is 20K. Few people in this hobby move that much money around in a year on PayPal. Just download the report for the year and see if you need to fill out the additional 1040-C to keep the IRS off your back.

sharp_edge said:
Wait a minute. So PayPal only reports how much you sold (income) but not how much you paid? Say if I sold a total of $1000 knives and bought a total of $1200 knives last year, all through Paypal, how much would be reported in 1099?

Are payments via Family & Friends included?
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I'm fairly sure F&F is not included, but I could be wrong. Aye, PayPal make no attempts to correlate purchases with subsequent sales, and, realistically, could not be expected to do so with any accuracy. If I make an otherwise unannotated purchase from a user or website for $400, and then make a sale for $415 on eBay, how would it know they are related?

It's a lame but true aspect of online resale; the entities involved only know your gross income and gross expenses, and cannot make useful correlations between them unless you could, say, assign each item a unique ID of some sort that they can track. This is why good records are important. I'm retroactively very grateful that I always put the name of the item I was purchasing in the "notes" section of the paypal transaction - I was doing it at the time to ensure the seller knew what the payment was for (as bloated sales threads can often have multiple items of similar value), but it also gives me a solid data point to reference to the future sale.
 
sharp_edge said:
Thx. So the taxable income is still $1000, not $200, correct? Dont remember in any IRS form I have filled how much I spent/paid.
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If you spent $1200 on product, and then sold that same product for $1000, it would be a $200 loss, so not taxable. BUT, you have to show that you spent the $1200 on the appropriate tax form. If you don't, then you would get taxed on the $1000.
 
For people who are interested in this topic, here is what PayPal says on its website:

How does PayPal report my sales to the IRS? Will I receive a tax Form 1099-K?

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*
...
If you cross the IRS thresholds in a given calendar year, PayPal will send Form 1099-K to you and the IRS for that year early in the following year.

You can access your 1099-K from your PayPal account by January 31st annually. Only those customers that meet the 1099-K eligibility requirements will see the 1099-K available for download in their account.
...
*Except in Vermont and Massachusetts where the threshold is lower irrespective of the number of transactions.
 
Ha, so after they tax you on your income (money to buy the knife), possibly tax you on your purchase (depending on the state) they want to tax you again on what you might have made back, and also tax the guy buying the knife from you.

I'm surprised there's not a browsing/considering buying tax.
 
If one bought an Endura gen 1 years ago at normal price and subsequently sold one at collector price, how is the income is deducted? If the sale is lower than recent (within a year) sales value of same item, would it be considered as a loss (because if one is a trader, one would acquire it again at a loss)?
 
michaelm466 said:
Ha, so after they tax you on your income (money to buy the knife), possibly tax you on your purchase (depending on the state) they want to tax you again on what you might have made back, and also tax the guy buying the knife from you.

I'm surprised there's not a browsing/considering buying tax.
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It's almost 2019. I'm shocked there isn't a "Breathing Oxygen Tax."
 
There is confusion here. The threshold requirement to submit an information form like a 1099 is not the same as the requirement to report income. For example banks will only send a 1099 at earnings over $10 but even $5 is reportable and taxable on the return. Subcontractors must be given a 1099 (and the equivalent 1096 sent to IRS) only above $600 but the whole amount is taxable/reportable.

In the case of self employment income gross sales high enough to generate self employment tax require reporting. This amount is a little above $400. In the OP's case all IRS knows is the gross of $50k reported on the 1096 transmittal form from PayPal. It's up to the taxpayer to add the expenses.

The difference between hobby income and self employment income is the self employment tax (social security & Medicare) is not applied to hobby income. But business loss is deductable against other income and hobby loss is not.

You want to see real confusion it's when people sell stocks they've held for years.
 
dirc said:
Eagle scout, how is that possible? Normal businesses write off losses all the time, why does that apply?
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I'm with you. It's how it was explained to me by my tax preparer. Of course, I was justifying the incoming transactions as a "hobby" not a "business".

Funny, I remember her asking me what a Zero Tolerance was.
 
Basically with Paypal (via Federal guidelines), if you do over 200 goods and services transactions AND receive more than $20k they consider you "in business". A few years ago it said 200 transactions or $20k.
Some states have asked/required Paypal to report at $600 due to the number if people doing Uber and Lyft since they are working for money.
 
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