PayPal 1099

[JLivi]

I received an email last night from Paypal saying that there was a 1099 ready for my account. It appears that everything I sold this year that was paid via "goods and services" I have to pay taxes on. So not only did PayPal take 3% out of my money, but I also now have to pay taxes on it too.

It's unfortunate that I bought the horn with money I was taxed on, and now after I sold it, I'm getting taxed on it again. I understand it, but I'm not happy about it.

[BGuttman]

You only have to pay taxes on any appreciated value. So if you have some proof of what you paid for the things you sold on PayPal, you can use that to reduce your tax burden.

The law says you owe taxes on all income, even ill-gotten gains and gambling winnings (to which you can apply gambling losses). The Gummint doesn't intuit that you are selling used stuff at a loss -- you have to prove it.

[harrisonreed]

PayPal assumes everything you sell is literally something you produced for free out of thin air and you're selling it as a business. The 3% is their credit processing fee, and it's a bit more than what a normal card processing service charges because it is way easier to set up and use. That convenience is worth a lot.

Our US currency has a mention of it being intended for all debts, "public and private", giving you some idea as to what cash was intended to be used for, but when you use PayPal, it isn't private any more. And, like Bruce said, even with cash the law says you're supposed to report any capital gain on a sale.

[olivegreenink]

Also - just tossing in a PSA for one of the most widely spread misconceptions about US Taxes - “the $600 rule”

Lots of folks believe some variation of “the first $600 I make with a client or project is tax free.” Please do not get your self in trouble. ALL income must be reported. The $600 threshold pertains to when the person hiring you needs to prepare tax forms to send to you. YOU need to report your $1+ either way.

Cheers

[brassmedic]

If you file a Schedule C you can write off all your expenses, including PayPal fees and all instruments you purchased. PayPal says they only issue a 1099 if you made more than $20,000, so this can't be just from one horn sale, right?

[JLivi]

If you file a Schedule C you can write off all your expenses, including PayPal fees and all instruments you purchased. PayPal says they only issue a 1099 if you made more than $20,000, so this can't be just from one horn sale, right?

Its from one sale and a few lessons where the parent accidentally used goods and services. It’s ~$2k on the 1099. It’s actually a 1099-K?

And I do keep track of all money coming in and going out. So this isn’t a big deal. Since I’ve never received a 1099 from PayPal before I though it was interesting.

[chobone]

I just saw this on Paypal's site:

PayPal will track the payment volume of your account to check whether your payment volume exceeds both of these levels in a calendar year:

$20,000 USD in gross payment volume from sales of goods or services in a single calendar year
200 payments for goods or services in the same year

Some US States require merchant reporting at a lower threshold:

Vermont, Massachusetts, Virginia, Maryland: $600 USD in gross payment volume from sales of goods or services in a single calendar year regardless of the number of transactions;
Illinois: $1,000 USD in gross payment volume from sales of goods or services in a single calendar year with at least 3 payment processed

I'm guessing it's an Illinois tax thing since you're from Chicago. In any case I hope you're able to write it off somewhere on your taxes.

here's the link: https://www.paypal.com/us/smarthelp/art ... ent-faq729

[BGuttman]

...

I'm guessing it's an Illinois tax thing since you're from Chicago. In any case I hope you're able to write it off somewhere on your taxes.
...

Or that you are declaring the income and paying taxes on it. Payments for lessons are income (and taxable at that). Also, does Illinois want sales tax on the services (lessons)?

[JLivi]

I just saw this on Paypal's site:

PayPal will track the payment volume of your account to check whether your payment volume exceeds both of these levels in a calendar year:

$20,000 USD in gross payment volume from sales of goods or services in a single calendar year
200 payments for goods or services in the same year

Some US States require merchant reporting at a lower threshold:

Vermont, Massachusetts, Virginia, Maryland: $600 USD in gross payment volume from sales of goods or services in a single calendar year regardless of the number of transactions;
Illinois: $1,000 USD in gross payment volume from sales of goods or services in a single calendar year with at least 3 payment processed

I'm guessing it's an Illinois tax thing since you're from Chicago. In any case I hope you're able to write it off somewhere on your taxes.

here's the link: https://www.paypal.com/us/smarthelp/art ... ent-faq729

Thanks for digging into that. And thanks for the link!

Or that you are declaring the income and paying taxes on it. Payments for lessons are income (and taxable at that). Also, does Illinois want sales tax on the services (lessons)?

I declare everything, but now I have to find those specific transactions and take them off of my spreadsheet. Luckily my dad is a CPA so he'll make sure I do everything correctly (legally).

[brassmedic]

I just saw this on Paypal's site:

PayPal will track the payment volume of your account to check whether your payment volume exceeds both of these levels in a calendar year:

$20,000 USD in gross payment volume from sales of goods or services in a single calendar year
200 payments for goods or services in the same year

Some US States require merchant reporting at a lower threshold:

Vermont, Massachusetts, Virginia, Maryland: $600 USD in gross payment volume from sales of goods or services in a single calendar year regardless of the number of transactions;
Illinois: $1,000 USD in gross payment volume from sales of goods or services in a single calendar year with at least 3 payment processed

I'm guessing it's an Illinois tax thing since you're from Chicago. In any case I hope you're able to write it off somewhere on your taxes.

here's the link: https://www.paypal.com/us/smarthelp/art ... ent-faq729

Aha. That explains it.

[Kelly858]

This is so helpful! Thank you guys so much
... I dread taxes every year

[Elow]

Do i need to worry about this? I only sold 2 horns worth more than 1000 this year

[spencercarran]

Do i need to worry about this? I only sold 2 horns worth more than 1000 this year

Florida has no income tax, so if paypal hasn't reported anything to the feds then there's no one to care.

(I am neither an accountant nor an attorney and this post is not legal advice, proceed at your own risk)

[ExZacLee]

this has me worried a little bit - not so much for income, but for sales tax. OK finally got around to requiring sales tax for online purchases (which I support) and I'm wondering if I'm going to have to pay that on the equipment I'm offloading (which I'm definitely doing at a loss.) I'm no stranger to complicated tax filings but I've never had to deal with the sales tax issue.

[LIBrassCo]

"PayPal is required to report gross payments received for sellers who receive over $20,000 in gross payment volume AND over 200 separate payments in a calendar year"

Taken directly from PayPal

[Jmloudon]

If you file a Schedule C you can write off all your expenses, including PayPal fees and all instruments you purchased. PayPal says they only issue a 1099 if you made more than $20,000, so this can't be just from one horn sale, right?

Brad is right, and the “only in certain states” thing caught me by surprise this year as well (Virginia). I wrote off pretty much all of my 1099 from PayPal via “cost to obtain goods” deduction in TurboTax.