1099-K received for selling personal items on Ebay

[Greta]

A handful of clients received 1099-Ks last year for selling used personal items of clothing etc. The items were bought years ago for much more than sales price. I put it on Sch C and washed it to zero net, since we are not allowed to take a loss on sale of personal items. This was not a business as such. City Hall seeing a Sch C sent them a letter requesting a business license. NYTimes article today warns to expect more of these 1099-Ks since the limit of sales is now a mere $600. How have you handled this?

[sjrcpa]

Other Income line.

Then a subtraction for the same amount.

[dascpa]

The nice thing about community boards is you get all the opinions.  Apparently Turbo Tax suggests the following:  Sch C and report the expenses to offset, Sch D with a code adjustment to take it to a -0-, and other income multiple line as suggested already.  These inciteful responses tell me one thing - no definitive answer from the IRS yet.

[IRonMaN]

But in this case, it isn't so much an IRS issue as it is a city hall issue.  Maybe all of these folks will go back to having garage sales just so they can do their thing with cash. We all know that even if it is a business, if there is no 1099 there is no taxable income 😅

[TaxGuyBill]

I just posted this on your other thread, but here it is again:

I'm not going to play games with  the 1099-K.

I'm going to prepare an accurate return, and put the numbers where they belong (8949/Schedule D for personal items that are sold).  If it doesn't belong on the tax return, it isn't going on the tax return.

If I don't put it on the tax return, I'm going to give the client a pre-written letter so if they receive an IRS notice they can send it to the IRS saying it is not taxable income.  I will also instruct the client that if they receive a letter, they should contact their Congressional representatives to complain that the IRS is wasting everybody's time by sending out such letters.

[TaxGuyBill]

I'm not going to play games with  the 1099-K.

I'm going to prepare an accurate return, and put the numbers where they belong (8949/Schedule D for personal items that are sold).  If it doesn't belong on the tax return, it isn't going on the tax return.

If I don't put it on the tax return, I'm going to give the client a pre-written letter so if they receive an IRS notice they can send it to the IRS saying it is not taxable income.  I will also instruct the client that if they receive a letter, they should contact their Congressional representatives to complain that the IRS is wasting everybody's time by sending out such letters.

[qbteachmt · Accepted solution]

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Here is "Action(s) to Take" per the IRS:

https://www.irs.gov/businesses/understanding-your-form-1099-k

[Terry53029]

IRS announces delay for implementation of $600 reporting threshold for third-party payment platforms’ Forms 1099-K

WASHINGTON — The Internal Revenue Service today announced a delay in reporting thresholds for third-party settlement organizations set to take effect for the upcoming tax filing season.

As a result of this delay, third-party settlement organizations will not be required to report tax year 2022 transactions on a Form 1099-K to the IRS or the payee for the lower, $600 threshold amount enacted as part of the American Rescue Plan of 2021.

[sjrcpa]

I wonder how many of these payors have already programmed their systems to spit out 1099-Ks at the $600 level. They may not be able to turn it off by January 31.

[TaxGuyBill]

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@sjrcpa wrote:

I wonder how many of these payors have already programmed their systems to spit out 1099-Ks at the $600 level. They may not be able to turn it off by January 31.

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I was wondering the same thing.  The Notice doesn't say they CAN'T file them if under $20,000.

While would definitely save quite a bit of money in mailing costs for them to not mail 1099-Ks to a zillion people, the money-saving might not be worth the hassle to change their programming back to $20,000, then back to $600 AGAIN next year.

[Greta]

At least I now know per IRS instruction where to report it: Schedule A under other income "1099-K erroneously sent" and an equal negative adjustment on Sch A.

[sjrcpa]

That's kinda what I said, without line numbers. 

[TaxGuyBill]

The actual 1040 Instructions for Schedule 1 states the opposite.  It says "Use line 8z to report any taxable income ... Don’t report any nontaxable income on line 8z".

https://www.irs.gov/instructions/i1040gi#en_US_2022_publink100079531

[sjrcpa]

They speak with forked tongue.

[rbynaker]

I ask clients but generally recommend we Other Income in/out with a description (similar to the IRS "action to take" site).  I also tell them we can leave it off entirely and reply to the notice if one gets sent, if they want to go this route I suggest we include a note filed with the return saying why we're not reporting the 1099-K (not that those actually get read, but a boy can dream, right?)

I've been doing the same as SJR (with finger's crossed).  We've had the $600 threshold in VA for a couple years now.  I put a good description in (but I'm not convinced that anyone at the IRS actually reads it).  There are some folks on other lists who are adamant about washing this through a Schedule C, I'm fairly strongly opposed to that here in VA where that will get you a nastigram from the local tax office asking for their gross receipts/business license tax money.

I've always just backed it out as a negative in Other Income (FKA Line 21), I might consider making the subtraction an adjustment for 2022 returns per the link that QBTeach sent.  

I agree that the technically correct method is Sch D personal loss limited to $0 (mostly what I've seen are ebay garage sales, selling toys or clothes the kids outgrew).  Not sure why the IRS left hand wants this reported as Other Income and the IRS right hand wants this not reported at all. <shrug>

The general consensus across various tax lists that I'm on is that the IRS computers will be wanting to match this to Sch C and send a letter if it's not there.  Maybe they'll get smarter next year?!?  Or maybe they're relying on 87,000 new employees to open the replies to all of the notices.

I completely agree with TGB, if clients get notices, I'm going to recommend they contact their Reps in Congress.  I may even draft a form letter for them to use.  IMO the $600 threshold that's never been indexed for inflation is pretty ridiculous.  Going from $20K/200 to $600/1 is a swing from one extreme to the other.  I don't know where the right answer is but to me it's clearly between the two.  $5K/50?

Rick

[sjrcpa]

I don't do any of this kind of selling, so don't know how it works, but the 1099-K rules say it is for business transactions. So, in theory, there is a way to tell the payor you're selling your personal stuff?

[TaxGuyBill]

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@sjrcpa wrote:

I don't do any of this kind of selling, so don't know how it works, but the 1099-K rules say it is for business transactions. So, in theory, there is a way to tell the payor you're selling your personal stuff?

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Others have told me that at least one of the companies (Venmo?), it starts off as personal, and you need to check a box if it is for selling something.

[rbynaker]

<rant> If we're seriously relying on people checking a box for these numbers to be reported or not reported, then relying on reported or not reported to determine taxability then we have reached the future predicted in the documentary film Idiocracy. 🙂

I was taking Google Wallet payments for a while (no fee and yes they sent me a 1099-K) but had to stop last year because 1) My really smart Google employee clients making well into 6-figures/year could not follow directions and send the money to the right email address (but now we're expecting them to correctly check or not check a box?) and 2) Google rethemed Wallet to Google Pay and changed the terms to disallow commercial transactions.

I have zero faith in the general population accurately checking/unchecking a box in an app to correctly determine taxable income.  And on the consumer side, if I buy a widget on ebay and pay for it with paypal, I neither know nor care whether the person selling the widget is clearing out their deceased grandmother's garage, selling a widget they got as a white elephant Christmas gift, or in the business of buying and selling widgets for profit.  On the seller side, if I'm in the widget selling business you mean I can just check a box with ebay/paypal and they won't send a 1099-K anymore?  Where's my Staples button 'cause "That was easy."

</rant>

[TaxGuyBill]

Now that I think about it, I think there also 'business accounts' which are entirely for business (and 1099-Ks).  But the general/personal account has the check box.