Matching hobby income with 1099-k from paypal

No, you cannot take any expenses if the income is claimed as hobby income. For an IRS resource, see: Hobby or Business Guidance

However, you should determine how you want to treat this revenue. I could argue a hobby generating a lot of revenue could be considered a trade or business. If it is decided going forward to treat it like a business, then include expenses when reporting it as self-employed income on Schedule C. For more details, see: Am I considered self-employed?

For reporting Form 1009-K for personal items sold not associated with a trade or business, you have two options:

• Option 1 in TurboTax Premier or higher: reporting Form 1099-K as investment income
  1. Go to the search box and enter Investment Sales
  2. Select Jump to Investment Sales
  3. Select Other at the next screen, OK, what type of investments did you sell? and click Continue
  4. At Tell us more about this sale, enter in the name, such as Form 1099-K Personal Property Sales and the Payer's EIN and click Continue
  5. At Now we'll walk you through entering your sale details, under the first dropdown menu, What type of investment did you sell? Select Personal Items
  6. Answer How did you receive this investment with an option from the dropdown menu.
  7. Enter the Description. If you are uncertain what date you purchased the goods, select Something other than a date so that TurboTax will enter Various
  8. Next, enter your Sale Proceeds and an equal amount for the Total Amount Paid and click Continue. The description for the cost should include Cost of Personal Property
  9. Select None of these apply at Let us know if any of these situations apply to this sale and Continue
  10. Continue through the rest of the prompts 
  11. Select Add another sale to add the next Form received 
• Option 2 in TurboTax Deluxe or higher: reporting it via Other Miscellaneous Income is acceptable to the IRS.
  1. From the left menu, go to Federal and select the first tab, Wages & Income
  2. Add more income by scrolling down to the last option, Less Common Income, and Show more
  3. Scroll down to the last option, Miscellaneous Income, 1099-A, 1099-C and Start
  4. Choose the last option, Other reportable income and Start and Yes
  5. Enter the applicable description and amount and Continue
     • First, enter Form 1099-K as received. It is essential that the full amount be entered.
       • For a description, include Form 1099-K and Personal Property Sales
     • Next, enter an adjustment to reflect the cost of these items as an offsetting, negative amount up to the amount of the income.
       • For the cost description, include Form 1099-K and Cost of Personal Property 
       • In other words, if the goods cost you $100 and Form 1099-K was for $10 in sales, the maximum cost allowable would be $10.

[Edited 02/06/2021 | 11:28 AM PST]

@jeremyr3 

---

@jeremyr3 wrote:

So in my instance, if I have $10,000 in sales but the cost of those goods sold to my was $9700, I claim the hobby income off $300?   

 

The TCJA says hobby expenses are not deductible.   I assume that this means paypal fees, shipping, etc are not deductible, but to calculate hobby income received I can still take sales - the cost of the goods sold?  

 

---

Yes.

Despite what the other person said, you can NOT claim a hobby is a business just because it has a better tax result.

As for the 1099-K, you could just ignore it.  It is possible that the IRS would send you a notice, and then you could reply back explaining the situation and showing the $300 reported as a hobby.

Or you could enter that income as a business, then "back it out" by entering an equal amount as an "other deduction" (you could call the "other deduction" something like "hobby, reported elsewhere on return").  Doing that would likely avoid the IRS notice.

@KathrynG3 

Here's a simple question (hopefully).  I received multiple 1099-ks for 2020.  One from Paypal, one from Etsy, etc.  Do they need to be entered separately for misc income or can I roll them all together?  If I lost money reselling via Paypal but made money reselling via Etsy that will hurt me if I have to separate them, correct?

how to delete entry in erroneous entry in hobby income