eBay Form 1099-K Featured

I posted a message about this more than a year ago, and this is what I wrote back then. I still think my option 2 is the best course to follow, although I do keep a good record of everything I sell with estimates on their cost basis in the unlikely event the IRS comes a knocking.

This is my post from October 2021:

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

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?

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.

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

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A 1099 only gives the IRS information that you should already be giving them. Just keep track of all your taxable income and that should be sufficient. For the 1099-K specifically, a large amount of that is not taxable income, and the IRS knows it.

But that does bring up one other question, if anyone knows the answer

- is a payor, under proper circumstances, ever supposed to give both a 1099-Misc and a 1099-K on the same money?

I just read through the instructions on various forms and didn't find a helpful, explicit statement like, "If income is reportable on a more specific form than 1099-MISC, use that form and do not report duplicate income on 1099-MISC."

It is unlikely that the same issuer would issue Forms 1099-MISC and 1099-K to the same party. In the case of ebay sales, ebay isn't purchasing the items from the seller, so it wouldn't issue a 1099-MISC.

Separately, the instructions for Form 1099-MISC (page 3) explicitly state that this form is not to be used to report payments that are properly reported on Form 1099-K

Ira Smilovitz, EA Leonia, NJ

My error. That's the instruction I was looking for and I missed it. Thank you.

Bob Sandler

Just to be clear, the correct place to report this income is not on Schedule 1, or Schedule C, it's on Schedule D via Form 8949. Personal tangible property is a capital asset.

Ira Smilovitz, EA Leonia, NJ

That gives Rick another strategy, with two variations. Reporting it on Form 8949 makes it easy to report the income and show no gain or loss, and therefore no taxable income.

In Rick's example (1099-K for $1,500, original cost $2,500):

EITHER

(5a) Show proceeds and cost of $1,500

OR, more accurately,

(5b) Show proceeds of $1,500, cost $2,500, code L (nondeductible loss) in column (f), and a $1,000 adjustment in column (g).

In either case, I would put "Form 1099-K" in the description, in the hope that the IRS will match the proceeds to the 1099-K and recognize that you reported the income.

Bob Sandler

I don't think this gives Rick "another" strategy. I think this is the *only* strategy that meets the requirements of the Code. Reporting this income anywhere other than Form 8949 is wrong.

Ira Smilovitz, EA Leonia, NJ

Except what we are talking about is not really income per se. It's money received from eBay that represents the sale of goods at a loss. Bob's suggestion to report the money with an offset that shows it's zero income is a good one as a way of signaling to the IRS that the funds are not income in the event they decide to question it. My premise is that doing nothing is also a legitimate alternative because my only legal obligation is to report actual income to the IRS, which this is not. If I literally do nothing and don't report the funds at all, the worst case is the IRS asks me about it and I explain that this was not income but merely the casual sale of some good at a loss.

Independently and separate from all this, I also think as a practical matter that the IRS will be flooded with so many 1099-K forms from small eBay sellers in relatively small amounts of, say, $2500 or less, as in my example, that it would be impractical and unlikely they would go after people on this. eBay has an enormous number of small sellers.

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Per the IRC, the sale of *any* personal property is a capital transaction. Per the 26 USC 61, Gross income is defined as follows: "Except as otherwise provided in this subtitle, gross income means all income from whatever source derived " Sections 101-140 specifically list the exceptions to gross income. You won't find the sale of used personal goods listed there. Whether the transaction results in a gain or a loss is immaterial.

As an aside, you can't indicate to the IRS that it isn't income, because it is. What you are trying to do is indicate that the income isn't *taxable* income (because the Code states that you are only taxed on the gain resulting from the sale of property). The proper way to show that this is not taxable income is through the two choices that Bob Sandler proposed.

As to whether the IRS will pursue any of the small eBay sellers or those that report their income on the wrong form, probably not. But that doesn't mean that it might not come up if there is some other reason for the IRS to look at a specific return. And... as a credentialled professional, I can't ethically suggest that a taxpayer not comply with the rules as they exist.

Ira Smilovitz, EA Leonia, NJ

Thanks, Ira, those sound like valid points and I will defer to your experience on this.

One question this triggers for me is how are the major tax software packages (Turbo Tax, TaxAct, H&R Block, etc.) handling this issue? Aside from the fact that the 1099-K receipt will now be triggered by lower amounts, does anyone know if the major packages have added sections or dialogues to assist small eBay users who have never had to deal with this issue before?

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When you enter a 1099-K in 2022 TurboTax, it asks you the type of income and gives you a list to select from. If you select "personal item sales" it creates an incomplete Form

I don't know about the other tax software packages.

Bob Sandler