By A.J. Gross, C.P.A., E.A.
Over the last few years, taxpayers that use PayPal and eBay to sell goods are getting a strange form. The form is 1099-K, Payment Card and Third Party Network Transactions. Don’t ignore this form. You may be in for a big surprise if you do.
PayPal and eBay are popular services to sell all sorts of stuff. You may be cleaning out your house and instead of setting up a garage sale; you decided to sell everything on eBay. Your intention may not be to make a profit but to make a little money. What you may not know is selling items on eBay may be a taxable event. You are unable to deduct a loss for personal items sold for less than the original purchase price. But you are required to report taxable income for any items sold for more than what you paid for it.
For example, you sold an old table for $100 on eBay. You originally purchased the table for $1,000. The table was sold for less than the purchase price. You are not allowed a deduction for this sale. On the other hand, what if the table is considered an antique? Instead of selling the table for $100, you sold the antique table for $1,500. The table was sold for $500 more than the original purchase price. The $500 difference is considered taxable income and the IRS expects you to report this income on your tax return. How does the IRS keep track of this? Form 1099-K.
The IRS started requiring eBay and PayPal to report payments received for items sold through their companies in 2011. The form eBay and PayPal must use to report payments received is Form 1099-K. All sellers that receive over $20,000 in gross payments and received more than 200 separate payments in a calendar year will receive Form 1099-K. If you receive this form, don’t ignore it.
If you receive Form 1099-K, you should report your eBay or PayPal activity on your tax return. On the tax return, you are allowed to report the original cost for the items sold. This may result in little to no actual taxable income to report. Failure to report Form 1099-K will likely result in an IRS adjustment. The IRS will notify you that your tax return is being adjusted and charge you tax, penalties, and interest. This would not be good.
You are allowed to amend your tax return on a later date to report Form 1099-K not originally reported. I highly recommend seeking help on amending your tax return before sending it to the IRS.
A.J. Gross, C.P.A., E.A. is President of ALG Tax Solutions. A.J. Gross can be contacted at AJGross@algtaxsolutions.com or www.algtaxsolutions.com.
This column was printed in the May 31,2015- June 13, 2015 edition.