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Wife has 1099K from PAYPAL. - not a business

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March 20, 2022
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My wife got a 1099K from PayPal and it shows 22k. Sometimes she sold off unused items like an online garage sale. However most of it was her buying an expensive purse, then turning around and selling it. Often she would sell the purse for what she paid for it. Sometimes she made a very small profit. Most of the time she was "trading" a purse for another purse. But since you can't trade online, she would sell hers to a person that she was in turn buying one from. Usually it was the same amount. For example, she sold to an online Facebook friend her purse for 500 and bought theirs for 500. This way both of them were protected as buyers/sellers on PayPal. But there was zero income on cases like that but the 1099K makes it look like a 500 income.

She sat down and wrote down all of the items she bought and then sold and has proof of purchase for. She went back and looked at all of her shipping costs that she has proof of. Basically it was just her buying used stuff like purses, not really using them if maybe a few times, then selling them and buying more purses. So really it was just recycling the same money. We searched online and talked to others and got mixed responses. When we list it as a hobby and add the expenses, it does not change the tax owed as it seems to disregard the "expenses".

I did find a suggestion based on this thread that seems to really fit best, does anyone see any issues or a better way this needs to be filed? This guy reported getting money as a loan.

1099-K from PayPal and I don't have a business

The suggest was to do the following

In TurboTax (TT), enter at:
- Federal Taxes tab (Personal in Home & Business)

- Wages & Income

Scroll down to:

-Less Common Income

-Misc Income, 1099-A, 1099-C

- On the next screen, choose – Other reportable income

- On the next screen, click yes

- On the next screen, you'll get blanks to enter the amount and a description. It will go on line 8 of Schedule 1 as "Other Income". Suggestion for description: erroneous income on 1099K

When that's done, do it again (a 2nd entry). This time make it a negative entry; put a minus sign (-) in front of the amount. Suggestion for description: erroneous income on 1099K offset

Here is what that outcome looks like when I follow that guide/suggestion. It looks fair since she really had about 2200 as an actual income that she made. If she bought a purse for 500 and sold it for 550 she only had a 50 dollar income but the 1099k would make it look like it was an outright 500 which is what we are struggling with. She wasn't selling for profit at all, she was just selling to turn around and buy a different one.

I tried to do it first using the generic income as a business but TurboTax wanted me to pay over 100 as a small business, which we are not.

If I tried to do it as a hobby and then list expenses of 20,715, It would disregard the expenses. I tried it with the expenses and then without expenses and the tax OWED stayed the same. I'm guessing it was looking at expenses like it would art supplies for a online painter, as example and not really seeing that as negative.

Thanks for the help

Other

Best answer by LeonardS

No, a Schedule C Profit or Loss from Business is used when there is an intent to make a profit and the net profit over $400 is subject to self-employment tax. You are not allowed to deducted expenses for a hobby business however, you may deduct the Cost of Goods Sold (COGS).

To report your wife's 1099-K from eBay and her cost of goods sold (COGS) in TurboTax follow these steps:

Log in to your TurboTax account if it is not open.
Select the Wages & Income tab.
Scroll down to Less common income click Show more.
On the page Let's Work on Any Miscellaneous Income click on Other reportable income.
On the page Any Other Taxable Income? select yes.
On the page, Other Taxable Income enter eBay 1099-K for the description and the amount.
Select continue and answer No on the next page.

Next, you will have to report your COGS. Follow these steps to report your COGS:

Log in to your TurboTax account if it is not open.
Select the Wages & Income tab.
Scroll down to Less common income click Show more.
On the page Let's Work on Any Miscellaneous Income click on Other reportable income.
On the page Any Other Taxable Income? select yes.
On the page, Other Taxable Income enter eBay 1099-K COGS for the description and the cost of the items sold as a - amount for example -1,200.
Select continue and answer No on the next page.

This process will report your gross income reported to you on the 1099-K in the first entry and then "back-out" your COGS in the second entry. As you are aware this is the first year of the new filing requirements for Form 1099-K and there is no one single step to report the sale and COGS if you are not a business.

@armybrat13

Z

ZoltanB45

It is not an erroneous 1099-K so you will have to enter it in as a business activity, and record the cost of goods sold there if you want to avoid the high taxes. The other method is an incorrect way of doing it and will just raise the eye of the IRS. It is actually a pretty lucrative business not a hobby, making a few dollars to renew a lavish item throughout the year. You do not want to mess with that by trying to work around the tax program.

A

armybrat13Author

Thank you. Definitely not trying to get around anything. Just trying to pay taxes on the actual profit of 2k. In the following website the seller talks about the confusion that online market place sellers getting a 1099-k think they have to pay taxes on all of it when they only owe takes on the profit. They give the example of getting a 1099K for 25K but having purchased 20k worth of goods at the same time. They report the 5k difference is the profit that one would then have as the taxable income. I'm at a loss at how to file this because each different online suggestion seems to have a vastly different outcome. On this article, he suggests filing a Schedule C? Is that inline with what you are recommending?

https://www.eseller365.com/ebay-etsy-marketplace-sellers-irs-1099-k-guide/

Usually, as a sole proprietor and you will have to file a Schedule C (Form 1040) with your tax return. Schedule C has spaces for you to enter applicable business expenses (Part II Expenses) to reduce your income. In rare cases, you may even have a loss, which could help you lower your overall tax burden. But then why are you in business?

We didn't have a net loss, but I can imagine a lot of people that have this as a "hobby" absolutely could have a net loss. He asks then "why are you in business", which is the point that people in our situation are trying to make, we simply are not in business. My wife is not trying to make an income/profit. She simply found a way to have the joy of shopping and finding bags/purses that she likes. She keeps them for a short time and then sells them again. Most of the time she gets back what she put into it. Sometimes she looses money after fees and shipping. Occasionally she gets a profit. But she's not trying to make money, she is simply trying to keep the process going without having to burden the family budget. For her, it was a way to keep sane during Covid by selling stuff she bought online usually at cost to then buy something else. Essentially, you start with 500. You buy something and then turn around and sell it for 500. Then you turn around and buy something else for 500. Keep it for a second and then sell it for 500. At the end of the day, you are just flipping your 500 over and over. But to PAYPAL, they see a 1099K for several thousands of dollars in income. That's why I was thinking erroneous based on that suggestion of someone else online because she didn't actually earn 22k. If she invested 20k into a used car that she then sold for 22k, she only had a profit of 2k. That's about 166 a month, or about 41 dollars a week. We are just trying to figure out the best way to file the profit while acknowledging the expenses.

Would you suggest schedule C?

LeonardSAnswer

No, a Schedule C Profit or Loss from Business is used when there is an intent to make a profit and the net profit over $400 is subject to self-employment tax. You are not allowed to deducted expenses for a hobby business however, you may deduct the Cost of Goods Sold (COGS).

To report your wife's 1099-K from eBay and her cost of goods sold (COGS) in TurboTax follow these steps:

Log in to your TurboTax account if it is not open.
Select the Wages & Income tab.
Scroll down to Less common income click Show more.
On the page Let's Work on Any Miscellaneous Income click on Other reportable income.
On the page Any Other Taxable Income? select yes.
On the page, Other Taxable Income enter eBay 1099-K for the description and the amount.
Select continue and answer No on the next page.

Next, you will have to report your COGS. Follow these steps to report your COGS:

Log in to your TurboTax account if it is not open.
Select the Wages & Income tab.
Scroll down to Less common income click Show more.
On the page Let's Work on Any Miscellaneous Income click on Other reportable income.
On the page Any Other Taxable Income? select yes.
On the page, Other Taxable Income enter eBay 1099-K COGS for the description and the cost of the items sold as a - amount for example -1,200.
Select continue and answer No on the next page.

This process will report your gross income reported to you on the 1099-K in the first entry and then "back-out" your COGS in the second entry. As you are aware this is the first year of the new filing requirements for Form 1099-K and there is no one single step to report the sale and COGS if you are not a business.

@armybrat13

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