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Casual eBay Sellers and new 1099-K Policy

Casual eBay sellers are up in arms over the new rule for 2022 that requires

1099-K for sellers with $600 or more in sales with no minimum transaction count. It's not a problem for high-volume sellers who already deal with this, and it also won't affect the low-volume seller who might only sell a few items per year.

But what is the best strategy for the casual mid-range seller who treats eBay as an online garage sale and sells extra and unneeded items from around the house for more than $600 per year. It's not a business for these kind of sellers, and they probably sell most things for less than what they originally paid. So in their minds they are making money by selling stuff they no longer need, but in the strict accounting sense, they are really taking a loss.

Let's assume a taxpayer has eBay sales for the year of $1500, but the original purchase price for the items sold is $2500. Assume that like many taxpayers today, the seller takes the standard deduction because they don't really have enough deductions to make itemizing worthwhile. What is their best tax strategy?

1) Just report the $1500 as income and chalk it up to inequities in the tax law.

2) Don't report any of it and assume the IRS won't worry about such a small amount. In the event an audit happens, explain to the auditor that it was for items that had a cost that exceeded the 1099-K amount.

3) Pretend it's an actual business and fill out a Schedule C reporting sales and expenses, which in this case would show a net loss.

Is there another strategy I'm missing? Personally, I think for relatively small amounts option 2 might be optimal.

Reply to
Rick
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Receipt of a 1099-K does not mean that there is income to report. It only documents that there were financial transactions. The casual seller on ebay doesn't have any reportable income (or loss) to report. Technically, their sales were at a loss since the used goods were sold for less than their original purchase price, but losses on the sale of personal property cannot be claimed. If they wanted to try to claim the losses, they would have to be able to prove that they had a profit motive. Your option 2 is the correct choice. FWIW, the IRS has major problems trying to reconcile current 1099-Ks ($20K volume and/or 200 transactions) with reported sales for actual businesses since 1099-Ks include sales tax, tips, and other non-income amounts.

Ira Smilovitz, EA Leonia, NJ

Reply to
ira smilovitz

I have the same question: slightly different context but really the same script. I do some recreational sports betting and poker playing, all online. I transfer money from these accounts to PayPal. It may be $1000 more or less. That will generate a 1099=K, but I really don't make any money. So, how to handle this?

Mel

Reply to
MZB

Gambling winnings are reportable income. Gambling losses are deductible as other itemized deductions, but only if you itemize deductions and only up to the amount of your winnings. You can't net your winnings and losses, but must report winning and losses separately. This has been true whether or not you receive a W-2G or 1099-K or any other tax reporting document. You can find more information in IRS Pub. 529, Miscellaneous Deductions,

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Although not mentioned in the IRS Pub, you may be able to reduce your reportable earnings by using the "session method" of tracking your gambling activiity. This is clearly allowed for slot machine play (IRS Notice 2015-21), but less clear for other forms of gambling.

Ira Smilovitz, EA Leonia, NJ

Reply to
ira smilovitz

The big problem with reporting gambling losses up the amount of winnings is that so many people are now taking the standard deduction rather than itemizing. Typical scenario is a person gets lucky and wins $1000 on a scratch-off but spent $5000 during the year on losing tickets. They receive a W2-G so they have to report the $1000 but have no way of reporting the $5000 in losses. It's one of the unintended consequences of the high standard deductible. Another is that charitable contributions dropped quite a bit with the new rule because people stopped itemizing and could no longer deduct much for charity. They've since allowed for up to $300 per person in charity deductions over and beyond the standard deduction, but I don't think they've made similar exceptions for other deductions.

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Reply to
Rick

On 10/17/21 10:37 AM, Rick wrote: {SNIP} Another is that charitable

According to the following article, charitable contributions went up after TCJA, not down!

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Reply to
Alan

I never said the tax code was fair. It is what Congress intended it to be.

Ira Smilovitz, EA Leonia, NJ

Reply to
ira smilovitz

This is weird. I am in the category of taking the standard deduction. Now suppose I play poker and bet sports online, say 1-2 times a week. Suppose I win $1000 and lose $500.No W-2g forms involved, Just bits and pieces. Are you saying technically I would have to report $1000 as income? Wow. That's crazy. But I guess it's true.

Mel

Reply to
MZB

That's exactly true. You would report $1000 of income with no deductions.

Ira Smilovitz, EA Leonia, NJ

Reply to
ira smilovitz

In the case of a professional gambler, you can deduct wagering losses up to the amount of winnings, but not more. You can, though, deduct other business expenses such as travel and lodging, when necessary.

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Reply to
Stuart O. Bronstein

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