Paypal 1099K selling used goods while laid off.

[SliceOfLife]

So I got laid off earlier this year due to Covid. To keep paying my bills I've been selling off my Stone, razor and shaving brush collections en masse through eBay to subsidize my unemployment checks. I probably sold $12k-15k, however Paypal includes any and all refunds, collected sales tax, etc, etc, etc in your total and that put me just over the 20k threshold ($20200... ffs) where they sent me a 1099K.

Now, this isn't a business. It fits the "online garage sale" exception that they put the threshold @ $20k to protect, but it was a very active online garage sale due to covid and Paypal's completely wrong way of recognizing income.

I suppose it's a hobby? I'm selling off used goods, not for a profit.

How's the best way to file this?

There's ~$1000 in PA sales tax that Paypal is putting down as my "income" on this 1099, as well as ~$4000 in eBay and shipping costs. But can those even be deducted if it's not a business? Further complicating things is eBay doesn't allow me to see purchases before 2019. Of what I sold, I had ~$6000 in goods costs in 2019 alone, as well as easily another $4000 in early 2020 before I was laid off... but a lot of what I sold I bought 2, 3, up to 10 years ago. And it's ~250 stones, razors, brushes, and collections/lots of items. Proving item by item the exact cost would be impossible.

But perhaps more importantly, I don't even know how to file this. Articles online say to use a Schedule C to deduct the cost of goods... but that's if it's a business. Others say use Schedule A if it's a hobby, but then apparently ONLY cost of goods can be deducted (not sales tax, shipping, eBay fees). Also, some places I'm reading indicate that the mere presence of a 1099 automatically qualifies it as a business.

Anyone been through this and know what the best way to proceed is?

 

[MyOldKentuckyHome]

They sent me a 1099K for $2000 and 82 transactions.

 

[SliceOfLife]

Yeah, I think it depends on the state. They told me I got it because I broke the $20k federal guideline. I've heard people getting them as low as $600 b/c their state has a lower threshold.


Going through all the records I've got ON eBay and etsy, plus adding up tax, shipping costs, and eBay fees, I've got $18075 accounted for of the $20200. So about $2000 liability left (probably some of which is due to several refunds, etc that Paypal doesn't capture correctly). I will dig through my emails and see if I have any receipts from the stones, etc bought pre-2019... but I doubt I'll get that lucky. So figuring worst case, I file it using a schedule C to write off the state sales tax collected, eBay fees, Shipping costs, and all the 2019-2020 purchases for the stuff I sold that eBay and etsy still have logs of "Used Goods Cost"... leaving me with $2k I'm stuck paying taxes on. Hopefully that doesn't screw up my unemployment though. This is ridiculous.


Edit: Filtered the Refunds out of the Paypal Excel data... $18404 accounted for now.

 

[MyOldKentuckyHome]

Yeah - I'm in Virginia. And since I'm not a business and I don't itemize my deductions I get to pay tax on all of it - even though most of it was in and out and took a loss on some of it.

Oh well.

 

[Doc4]

"1099k"?

 

[SliceOfLife]

Yeah, that's a shame. It's looking like I'll have to itemize as a business... no clue what other tax implications that has for me. I'll see what it costs to speak to a CPA just to confirm I can't deduct all this stuff and keep it as a hobby, because that'd be ideal.

Found what I paid for 3 of the eschers and 1 coticule and 1 jnat I sold this year from 2010-2014 when I bought them by searching my old emails.


Another $1400 accounted for from just those 4 stones. If I find a couple more stones, it's all accounted for. Damn I took a BIG loss on some of the coticules and Eschers I had bought way back in the day.


Edit: Found 2 more eschers and 2 coticules I sold this years ebay receipts from when I bought them. Already over $20200, and there's probably several more still I haven't found.

So proving cost of goods seems easy enough. Just need to make sure I file correctly.

 

[SliceOfLife]

@Doc4 1099k is a form online payment services send you and to the irs to recognize "income" received through their services. It was invented in 2011 because folks were running online stores and not registering the business or declaring the income.

 

[pdillon]

As a non-tax professional I would think proving you took a loss to be the best strategy. You mentioned your difficulty doing this because eBay will not show pre-2019 transactions (which seems ridiculous). I assume you have been trying to put together the records from email?

Have you looked at turbo tax? They have a "live" service. I have no idea of its quality but it seems like a low barrier to entry for getting professional tax advice. You might check it out to see if it works for you.

 

[pdillon]

Also have you been doing research on reddit r/ebay? Probably a lot of folks with experience there.

 

[timwcic]

Other than paperwork for a profit and loss, no big deal. Your biggest headache will be any sales taxes collected in your home state that eBay allowed you to keep. Get creative for items you dont have receipts for and create them for a loss. Your home state will want their money from you. Every state is different for unemployment but profit and loss is not earned income to count against your checks.

 

[SliceOfLife]

Sales tax isn't a problem. It's all paid. Ebay has been collecting it all year. It just screws things up because the way they did it is buyer paypal's me the total PLUS tax, then paypal auto sends it to eBay, then eBay sends it to my state. This means that it shows up as money sent to me in PayPal, so the 1099k has an extra ~$1000 in "income" that I literally never had... Because ebay raked it as soon as the bidders paid. So now it's just another thing I have to deduct. If PayPal/eBay weren't handling it in this silly manner, I likely wouldn't have triggered the 1099 k.


And good call on reddit/ebay. I'll check it out.

 

[timwcic]

That good for home state sales tax. eBay did it differently fo me. Any item I sold and shipped in Florida on my non business username, they sent me the funds via PayPal. I than sent the sales tax to the state using my newly formed resale account. All other states, eBay kept the money. You are going to have to pour a adult beverage and do the joy of any home hobby seller, paperwork. And when done, I hope you had a big loss

 

[Billski]

Yeah - I'm in Virginia. And since I'm not a business and I don't itemize my deductions I get to pay tax on all of it - even though most of it was in and out and took a loss on some of it.

Oh well.

 

[SliceOfLife]

Yeah, so I got up at 4am and spent the morning digging through all my emails, finding as much as I could track down invoices for things from my collection that I sold last year which had cost me $40 or more when I bought them (2010-2018) and making a spreadsheet with dates, item number (almost all of it was eBay purchases), cost (missing shipping for most of the items, cause eBay didn't have that info in a lot of the invoices), and a brief description of what it was from listing titles (Razor Hone, Shaving Brush, etc). Then I put in everything I sold last year that I had bought in 2019 on eBay into the spreadsheet. (eBay still has my 2019 purchases saved so I have a good record of those).

This still doesn't account for all the money I spent on the stuff I sold (or include anything that I bought after 2019 and then sold), but it's already more than my income from selling after sales tax, shipping, eBay fees, and refunds are removed... so I'm going to talk to a CPA and see if that's sufficient before I spend another day digging around to try and find any invoices I missed as well as all the <$40 invoices from 2018 and before.


I found a bit of info in reddit, but it's overwhelmingly tailored to folks who are selling as a business... telling you to write off everything you can as a business expense and claim a loss, which I have no interest in doing. This was just clearing out a ton of stuff from my collection to pay my tuition bills.

 

[SliceOfLife]

So I spoke with a CPA. Basically... what I've been doing is correct, and it'll be filed as a hobby using Section C, and I must write off all the listed expenses (postage, fees, tax), and then use cost of goods sold to zero out the net income. The list of invoices are only necessary if I get audited, and I'll only need to prove that the cost was > what I got from selling... which is extremely easy to do with the invoices I've already located.