Online Vendors, Meet The 1099-K

Online sellers, we warned you about this in 2010. The Internal Revenue Service created the new 1099-K form as a way to keep closer tabs on those who sell items online, and the 2011 tax year is the first in which the form will apply.

Cash Money Life gives you the rundown on the form, which Amazon, PayPal and other services that deal with financial transactions will issue to customers.

You’ll only receive a 1099-K if you’ve participated in 200 transactions adding up to $20,000. It’s the IRS’s helpful way of reminding you to report income you might have otherwise overlooked. If you don’t receive a 1099-K because sell less frequently, you’ll still have to report your income.

Are You Ready for the New 1099-K? [Cash Money Life]

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  1. Fast Eddie Eats Bagels says:

    I wonder if you’re taxed on the $ amount before ebay and paypal fees, or the amount after the fees.

    • EarthAngel says:

      Maybe the expense will be deducted as a business expense?

    • thesalad says:

      **I’m no tax expert**
      But most likely you’d be taxed the full amoubnt then be able to write off the fees paid (as well as the item cost) etc with proof.
      IE Income: 10,000
      Expense: Item Cost: 8000
      Ebay Fees: 800
      Paypal Fees: 800
      Total Income: $400 so you’d pay on that
      *Provided you had all your invoices in a row so you can prove to the IRS that e-bay and Paypal are worse than they are and that they should get into the Online auction business to solve our debt issues.

      • Bsamm09 says:

        This is how it should be. The IRS looks at gross revenues for some things and what you sell your items at are gross revenues. Then you start making deductions.

      • ZachPA says:

        And, don’t forget, that if the IRS is going to treat the income as business income (and you should be doing the same!), that you have a right to deduct anything and everything that you buy in furtherance of that income generating activity, subject to existing IRS rules on business deductions, of course.

        In other words, if you are running a little business selling widgets on eBay, don’t forget to deduct your business share of the internet bills, your business share of the computer you purchased (or better yet, purchase a computer that you use solely for business), vehicular mileage or business use percentage of actual costs (fuel, maintenance), shipping materials, office supplies purchased for the business, etc. The list goes on.

    • Not Given says:

      You’d have to file schedule C and put the fees in as a business expense. Just hope you have records about what came through Amazon or Paypal that you also get a 1099-misc for.

    • Crackpot says:

      Both, probably. You’re taxed on the income, then you deduct your expenses, same as with anything else. And, like anything else, you’re probably supposed to track all of those details. I would guess that you don’t -have- to track them, but then, you’ll probably wish you had if you get audited. Better safe than sorry, and all that.

    • TuxthePenguin says:

      (If you have significant income, go see a CPA if you fall under this. I am one but I am speaking of generalities, so do not rely solely upon this)

      Generally speaking, 1099 income is reported as gross business income, from which you can deduct the costs of that business – sales, fees, etc. Just make sure you have documentation of those items as the IRS will come down on your hard if you don’t.

      • huadpe says:

        Yeah, but the definition of gross income isn’t quite clear here. That is, if I sell $50,000 worth of goods through e-bay, and am charged $2000 in fees by e-bay over those transactions. Although I sold $50k of goods, I didn’t get $50k of revenue, I got $48k. The $2k of fees wasn’t an expense I paid out of my business, it’s money I never touched to begin with, as e-bay took it before it got to my hands.

    • nearly_blind says:

      I don’t want to be an ass, and this isn’t really directly related to the comment – Sorry Fast Eddie, but it bothers me that so many Americans, including journalists, are totally clueless about the most basic aspects of US federal taxes, but still have strong opinions on the topic (e.g. teaparty and other voters). Businesses (including individual sole-props) are taxed (federally) on NET PROFIT. That of course means that you would be taxed on the profit after deducting all costs including fees. If you did that much trading you could also deduct related expenses including depreciation on your computer, office supplies, etc. You would file Schedule C on your tax return where you would list total sales and total expenses.

      I still remember the famous Joe the Plumber interview from 2008 where he clearly thought businesses were taxed on revenues (total sales) instead of profits and how 99% of the news media failed to realize it or point out his error and instead kept on replaying it.

  2. maruawe says:

    Don’t try to go to the bathroom either without tell the IRS

    • SeattleSeven says:

      True. It is so crazy that they care about $20,000 of unclaimed, untaxed income. They are so unreasonable.

    • Taed says:

      From _The Hitchhiker’s Guide to the Galaxy_:
      “Like the fact that the fabulously beautiful planet, Bethsellamin, is now so worried about the cumulative erosion caused by ten million visiting tourists a year, that any net imbalance between the amount you eat and the amount you excrete whilst on the planet, is surgically removed from your bodyweight when you leave. So every time you go to the lavatory there, it’s vitally important to get a receipt.”

  3. Bsamm09 says:

    “If you don’t receive a 1099-K because sell less frequently, you’ll still have to report your income.”

    You wouldn’t believe the clients I have who think they don’t have to report income if they don’t receive a 1099.

  4. Darrone says:

    So heres a question. Let’s say I buy 2 tickets to Grand Funk Railroad for 500 dollars.

    I sell my 2 tickets on ebay for 750 dollars (because who doesnt love GFR, right?). After total fees from ebay and paypal, I make a profit of $150.

    Am I paying taxes on $750, $650, or $150?

    • Not Given says:

      Supposedly you have a receipt or other documentation that says what you paid for the tickets. The line it goes on is cost of goods sold.

    • TuxthePenguin says:

      Simply speaking, you’d be taxed at the net level – after COGS. But if you had a good accountant and records, you might be able to deduct the mileage driven to buy those tickets and other things…

    • RandomHookup says:

      The net — $150.

    • KyBash says:

      Probably closer to $140 because there’s also the postage, cost of the envelope, etc..

  5. Dallas_shopper says:

    Good thing I don’t sell anything online.

    Geesh.

    Hope the government also goes after Mitt Romney and his less-than-15% tax bill. He sucks.

    • Nigerian prince looking for business partner says:

      That would require some major changes to the tax law, including raising capital gains taxes. Congress doesn’t have the stomach to do so. It’s a lot easier to go after the little guy and make minor changes, like eliminating certain qualified HSA/FSA expenses, that disproportionately hurt the middle and working classes.

    • George4478 says:

      Give 3 million to charity and see how that drives down your taxes.

      Personal experience: Wifey and I give approximately 10% of our after tax income to charity ever year. That drives my taxes and the percentage-of-gross they represent waaaaay down each year.

      I can only imagine giving 15% of my gross earning, ala Romney, to charity would have a huge effect too.

    • Bsamm09 says:

      Why would they go after him? He followed the law. Just because you’re jealous doesn’t make it a crime. If you have a problem, vote for someone else who will tax capital gains at a level you deem appropriate.

      • eturowski says:

        +1. It really peeves me that more people don’t understand this.

      • Dallas_shopper says:

        I’m aware that he followed the law. The law sucks ass. It has nothing to do with envy and everything to do with a sense of common fairness. Why should I pay almost 30% and he gets away with 14%?

        That’s bullshit any way you slice it.

    • Oranges w/ Cheese says:

      Why would they do that? Low capital gains taxes mean that the rich people can get richer, while the people who actually WORK have to pay ridiculous tax rates to balance the budget.

      That’s how it works in America, duh. Since all the workers are lazy, we have to make them pay their fair share!

      • Firethorn says:

        Yeah, just listening on the radio about Mit and Newt’s tax rates. Mit ended up paying 14.5%, Newt 33%.

        Why? Mit’s income is all capital gains, while Newt actually earned his money.

        Personally, I’d seperate the income and capital gains taxes – but use the same tax tables for both.

        So if you make $9500 or less in each? 0% taxes(standard deduction + single exemption). Max income at 0%: ~$19k (50% wage, 50% capital gain).
        Then you pay 10% up to $18.2k each, etc…

        That way rich people end up in the top bracket irregardless of income source.

    • Actionable Mango says:

      Properly paying the amount of tax one owes, on time, and also giving away 15% of one’s gross income to charity, makes someone an asshole?

      How many people in the current administration outright cheated on their taxes? Oh, excuse me, they made “errors in their favor” and were eager to correct them, haha.

  6. George4478 says:

    “If you don’t receive a 1099-K because sell less frequently, you’ll still have to report your income.”

    Or not. I have sold numerous things online over the years and have never reported the income. It’s very dependent on how many sales you make and where you acquired and/or how you used the items you’re selling.

    From the IRS website: If your online auction sales are the Internet equivalent of an occasional garage or yard sale, you generally do not have to report the sales.

    http://www.irs.gov/businesses/small/industries/article/0,,id=202939,00.html

    • sponica says:

      so that cabbage patch kid that I sold for 10 bucks online probably won’t send the feds after me….

    • Yacko says:

      Exactly. If it a business, no matter how informal, you owe. If it is a hobby, and in particular, you are selling your own stuff, which cost you more than you will get, no reporting necessary. You have to be aiming to make a profit for it to count.

    • Taed says:

      The key piece is “If you paid more for the items than you sell them for, the sales are not reportable.”

      For those of us who just sell our used books and other media, nearly every transaction will fall under that condition.

  7. rmorin says:

    Sweet KKK picture Phil?

  8. scoutermac says:

    And yet there would be no way for them to know if you did this on Craigslist.

  9. Phil Keeps It Real [Consumerist] says:

    So wait, if my store on da bay, which btw sells fine, used undergarments, racks up 20K or more, the gov will need to know ?

    • scoutermac says:

      I thought the taxable limit was $700 or more.

      • RandomHookup says:

        You’re thinking of a standard 1099. If a business pays you (as a non-employee) at least $600 in a year, they have to provide you and the IRS a 1099.They can issue them for less. The VA gave me one for taking a $15 survey.

  10. Traveller says:

    In theory if you are just selling some junk around the house, that’s not income 1099k or otherwise. What the IRS is looking for is professional sellers.

    I would hope there is a place on the tax forms to indicate that the 1099k received was for household items sold (like a garage sale) and not a business.

    More than likely if you are below a certain threshold the IRS won’t care. (the article indicated 20k).

    Last year I had a tax situation that resulted in an automatic audit with additional info required (knew this in advance and the IRS couldn’t keep track of my documentation and I had to send it twice). I would not be surprised to see this in the case of 1099k forms as well.

  11. There's room to move as a fry cook says:

    Paypal is payment processor – not a buyer or a seller. Paypal will report total payments on the 1099-K but has no way of knowing what is “income” vs money transfers or gifts from granny.

  12. dourdan says:

    20,000?! hahahhaha

    wow i make about 200 a year on ebay. i guess this is for professionals who do this as their main source of income

  13. shopalooza says:

    So.. just to be clear. If I am just selling stuff I bought before and then never used, I am not required to report income from it? Sometimes I sell them below cost or above during an auction. Is it still income to be reported if it got sold above cost? What if I have no proof/basis for the original cost? Say, I bought the item 2 years ago and can’t remember how much it was?

    • RandomHookup says:

      Generally, you only have to report your sales if you made a profit on it. If you sold 20 items on eBay and netted $12 above your total cost, then you should *technically* report that as income. But it’s a lot like the state sales tax owed for online purchases — it doesn’t get reported very often and it’s almost impossible for anyone to track you down for it.

      • shopalooza says:

        Thanks!

        Can’t believe that I’m saying this, but I’m glad I didn’t make a profit out of my sales from last year. I simply got rid of stuff I didn’t want anymore.

  14. Warren - aka The Piddler on the Roof says:

    “Online Vendors, Meet The 1099-K”

    1099-K, meet my ass.

  15. Sean says:

    What state thought it would be a good idea to have road K intersect with road KK and put the signs like that?

  16. azmountaintroll says:

    If I ever start another business, I’ll just deal drugs and be done with it. All the DEA does is shoot you, by the time the IRS is done you’re praying for a bullet.

    • Evil_Otto would rather pay taxes than make someone else rich says:

      Yeah, how dare they expect you to pay your taxes like everyone else!

    • Actionable Mango says:

      Actually, black market income is taxable, so you still have to pay taxes on it and the government can still go after you.

  17. ChicagoAndy says:

    Something I don’t understand – this 1099Misc reports revenues, not income. Of course, income is taxable, but revenues are not. To get income, you subtract the cost of goods sold, plus a share of any fixed costs like rent, electricity and internet, for example. Is the IRS seriously asking everyone to do this accounting when they submit their taxes? In a small home business, costs like these are easily ‘tweaked’ in the taxpayers favor…

  18. PaymentsGuy says:

    It’s not just for online vendors. Anyone who takes card payments and hits the 200/20,000 threshold will get a 1099-k. If you take cards online or in person, you’d better make sure your processor has correct tax information about you.

    If the processor doesn’t have a seller’s tax ID, they may have to send money to the IRS as witholding, just like with income tax. Then the merchant has to file a return to request the refund.

  19. Telekinesis123 says:

    Same old IRS fraud scheme. Notice they are saying FILER’s name, go look up the definition of what a FILER is in the relevant act, it’s a legal fiction they created and they are tricking you into contracting with it by signing that form and entering your name saying you’re a “FILER”. There are lots of rules the FILER has to abide by, one being paying a tax they put on it. This is how they legally encroach on your rights and squash them, good old contract fraud and tricking you into voluntarily giving them up as your human rights can only be voluntarily given up.

  20. Phil Villakeepinitrreal says:

    Since, once again, Phil cannot phrase things clearly:

    You will receive the 1099-K if any of the following happened:
    1) You had 200 or more sales, regardless of source or total. You can make 200 sales for $5 each, and you will get a 1099-K.
    2) You had $20k or more in sales, even if it was only two transactions
    3) Both

    • PortlandBeavers says:

      Everything I’ve read anywhere says you have to go over the number of transactions AND the dollar limit.

  21. drjayphd says:

    Wake me when they start sending Mike Rotunda out to enforce this new form.

  22. verbatim613 says:

    The government hates not being in control of anything and everything. Inch by inch, regulation by over-reaching regulation, they are going to push to control as much of the Internet as possible. Whether through more taxes and regulation (oh why oh why did Amazon cave in concerning the Internet tax) or through laws like PIPA or SOPA (just because Congress got creamed in round one of this particular fight, don’t think they’ve given up: there’s more to come on this one)

    Watch our Internet citizenry.

  23. PortlandBeavers says:

    One loophole in the law is that the limit is per processor. So if a seller sells $19,000 through Paypal, $19,000 through Amazon and $19,000 through a physical card reader at a retail store, the seller won’t get a form. They are clearly going after professional sellers here. The truth is that anything sold for a profit generates income, but as a practical matter, if you sell junk sitting around the house, no sane person is going to remember what that stuff costs. Unless you catch lightning in a bottle with some hot collectible, you presume you sold it for a loss and don’t say anything. I sold a big CD collection a year or so ago. I got about $5-$6 a disc after expenses, and I have no idea what I paid for each one. I just knew the going rate for a used CD at the time I accumulated them was around $8. That was not income.

    The $20,000 limit might sound generous, but count on it never being adjusted for inflation, so that decades from now anyone who sells more than a few things gets one. I’m sure the $600 limit to get a 1099-MISC was a large sum of money when it was set, but now it is so small that anything that doesn’t count as petty cash will set it off.

  24. zantafio says:

    Got mine today…. $116k… ouch!