So, please, if there's something you've noticed that nobody has flagged, chime in and correct it. As a stand-alone observation, that's not at all helpful.
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1099 K From PayPal -
- Thread starter BostonJazz72
- Start date
It's about every other posting, too much to try to parse out. Sorry, but mine is just a general warning not to take tax advice from music boards.
Some important points to consider, though: Capital gain tax is not new, even if Paypal sending a 1099 is a new experience for someone. And you aren't required to pay tax on something you sold for less than you paid. And, yes, you can counter losses against taxable gains.
Didn't read all the replies. Short answer is YES - over $20K or (and?) 200 transactions and you will be 1099'ed. Happened to me 2 years ago and it is old news really. Go to PayPal and download your 1099 and it will tell all. Be sure to have all the documentation available to write off cost on all the junk you sold.
You don't have to have a "real business" for the capital gain on that $600 to be taxable. You just have to have a capital gain.
Yes, you have to report income from private sales, if over a certain amount. That threshold is low enough that most yearly sales, for most who sell at all, will be over it.
The flip side is that by doing this, you are considered self employed, running a business. That means you can also report expenses, which, for the casual gear seller, will almost always outweigh income from selling gear, in a single tax year.
Keep good records of your gear purchases, and buy as much as you sell, and you shouldn't owe any taxes for gear sales. The way it is set up protects the casual gear trader, vs. those who are seriously running businesses selling gear for a living.
The flip side is that by doing this, you are considered self employed, running a business. That means you can also report expenses, which, for the casual gear seller, will almost always outweigh income from selling gear, in a single tax year.
Keep good records of your gear purchases, and buy as much as you sell, and you shouldn't owe any taxes for gear sales. The way it is set up protects the casual gear trader, vs. those who are seriously running businesses selling gear for a living.
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Understood. Which is why I question the cutoff amount being low. They're trying to catch unsuspecting individuals that are just going to add it to their return as income.
That's true, as far as TB responsibility, but not for people who sell on TB. I guess I don't understand the new law that minor transactions between private parties are taxable. We just happen to be talking about reverb, but if I sold the same guitar on TB instead of Reverb, and by some miracle I made $100 profit, I would not feel bad about not claiming that on my taxes. The reason I wouldn't feel bad is that waayyyy more often, I've lost money and have never claimed it as a loss on my taxes. And like I mentioned in my previous post, I'm sure the law was not written for guitars and basses. So to be legal now, do I have to claim capital gains when I sell my old couch on Craigslist?
Fortunately I have a lot more basses than ex wives. However, the one thing may have led to.....
I still think you're making quite a supposition here. I don't deal with folks who make US tax policy, but I do deal with public policy-makers in other fields. In general, the IRS doesn't make this stuff up, it comes out of legislation, and anything that can be made (by politicians of the party not in power) to look like a deliberate deception of the public tends to get shot down rather quickly. I see no need to presume malice here. There are people who make a living buying and selling stuff on the internet, and they don't have employers who can get penalized for failing to turn in a W2.
Can you write off gear that you may or may not sell in the future? I am going to talk to a tax guy/CPA tomorrow but if I am not being treated as a business shouln't I be able write off any gear I bought in 2020 as an expense?
Unless this is a brand new law, this is different than gig pay. I could definitely see things over a certain dollar amount being looked at for sure. If gramps gave me a '54 strat and I decided to sell it, I understand I likely have some tax liability there. But a hobbiest buying and selling a couple used things on Craigslist, I did not think IRS reporting was required. Mostly because when pressed, regardless of what we might say when bragging about good deals we got, most of us would show a net loss. Plus if they were pushing me, I'd start counting my time. So yeah, I bought a head for $600. Ended up not bonding with it so I sold it 2 months later for $700. Maybe shipping was $40, so I "made" $60. But I spent 10 hours over the course of a month scouring the internet for this deal. Let's just say for the sake of argument my time is worth $30/hr. So now the IRS owes me a bigger refund.
There's a simple, non-specialist discussion we can have here about the meaning of the 1099-Ks from PayPal. They're something PayPal has to send because it may be taxable revenue and, since they can't know otherwise, they have to track it.
But then we get into the messy stuff. Like the IRS concept of a "hobby" vs. a "business". This changes what you must declare, and what you can deduct. I'm not going to try to explain it here. There are links to further information on this in the NOLO article I posted above.
Note that, at least with some insurance companies, if you're doing your music as a business for tax purposes, it's also a business for insurance purposes, and your personal insurance may not cover your gear against theft or damage.
But then we get into the messy stuff. Like the IRS concept of a "hobby" vs. a "business". This changes what you must declare, and what you can deduct. I'm not going to try to explain it here. There are links to further information on this in the NOLO article I posted above.
Note that, at least with some insurance companies, if you're doing your music as a business for tax purposes, it's also a business for insurance purposes, and your personal insurance may not cover your gear against theft or damage.
To understand it very simply, you can generally "write off" (i.e. "deduct," to use the proper term) anything that can reasonably truthfully be called an expense for your "business." If your business is selling stuff (which it is, in this case), then buying stuff is an expense. The deductions are taken when filing your taxes for the year during which you spent the money. The income is reported in the taxes for the year during which you sold something. You don't tie the expense for a single item to that exact item's sale at a later date; all that really matters is the total amounts (though you do need receipts, in the case of audit). You mainly stretch deductions over multiple years when dealing with long-term "equipment," such as automobiles, tools, shop fixtures, etc., which you will be depreciating over a set number of years.
Note: This stuff will go on Schedule C in your case. That means you can also use the Standard Deduction for your entire income from all sources. The Schedule C expenses will count only against your 1099 income, not W-2 income.
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So I heard back from my tax professional and he said the following - 'You have to report the income (sales) and expenses (cost of items, paypal fees andany other related expenses). Taxes are paid on the net profit (if any), if there is a net loss you get to deduct this from your taxes. This is all reported on Schedule C.' This is essentially what has been reported in this thread.
From IRS.gov
Use Schedule C (Form 1040 or 1040-SR) to report income or loss from a business you operated or a profession you practiced as a sole proprietor. An activity qualifies as a business if:
Use Schedule C (Form 1040 or 1040-SR) to report income or loss from a business you operated or a profession you practiced as a sole proprietor. An activity qualifies as a business if:
- Your primary purpose for engaging in the activity is for income or profit.
- You are involved in the activity with continuity and regularity.
No. Now you owe payroll taxes and income tax, too. You increased your tax liability trying to reduce it.
