Our state requires that PayPal and similar services provide a 1099K form when $1,000 has been paid over at least 4 transactions. Googling and checking various sites on how to deal with this has not turned up anything terribly helpful.

I sold about $3,200 of things from our household - losing money on almost all of them. Nothing I have sold was acquired for resale. Reviewing both the IRS 1040 and State of Illinois forms, there is NO place to indicate that these sales represent an "online garage sale" - thus our friends with the IRS and State of Illinois would like to take a healthy chunk of the proceeds of this "income."

Looking at the form, I noticed there's a place for hobby income. Looking there I discovered that up until 2018, one could offset income with expenses. But the IRS removed the expense line. They're only interested in your income - so if you sold your crafts for $1,000 but had expenses for things like materials, packing materials, and shipping - they just want to tax the gross income without considering that the gross income did not represent profit.

Clearly, some people have cheated the system - but it now appears that the IRS and various states are trying to really put the screws to people doing decluttering.

I'm researching what can be done to avoid paying tax on income where I'm actually losing money. I'd rather pay an accountant or tax attorney a $1000 that the IRS>

That is the IRS I know.

I'm curious to know what you find out. I sold a bit of our own household stuff at the end of last year -- it was over $1000 but I did not get a 1099. I was thinking about starting back up but if I am going to end up with a tax nightmare, I'll just donate the stuff.

Are you using tax software of some sort?

In the TurboTax world, you would list the 1099K as investment income, and it would walk you through a menu of how to list the cost of that investment. You wouldn’t get a deduction for the net loss calculated it would be a wash on your return. I think H&R Block works the same way.

However, if you’re sitting there at your desk with a quill and ink trying to fill out the paper forms, God help you…

quote:

Originally posted by Lisa:
I'm curious to know what you find out. I sold a bit of our own household stuff at the end of last year -- it was over $1000 but I did not get a 1099. I was thinking about starting back up but if I am going to end up with a tax nightmare, I'll just donate the stuff.

I think Ken must’ve run into a state limit. The IRS only requires filing a 1099K if you get more than $20,000, or do something like 200 transactions.

By the way, I am not really a tax expert though I’m pretty familiar with stuff . The reason I know what the heck a form 1099K is because my son is in the process of selling $75,000 worth of “magic the gathering” cards He has collected since he was 11.

very interesting.

as a sole proprietor who files a schedule C every year, i would think you could declare yourself a business and deduct your expenses and even deduct your loss against your other income.

quote:

Originally posted by Doug:
Are you using tax software of some sort?

In the TurboTax world, you would list the 1099K as investment income, and it would walk you through a menu of how to list the cost of that investment. You wouldn’t get a deduction for the net loss calculated it would be a wash on your return. I think H&R Block works the same way.

However, if you’re sitting there at your desk with a quill and ink trying to fill out the paper forms, God help you…

Yup, I'm in the TurboTax world. And yes, the State of Illinois is the villain triggering the 1099K. I need to find the creative mind in our state who suggested this strategy and be sure to help any candidate running against him/her/they/it.

One person suggested writing in the income under Misc. income and then a second Misc. income showing a negative amount noting a cost of goods sold. I tried that but TurboTax seemed to not like that idea.

I'm assuming you're suggesting putting the 1099 income under "Stocks, Mutual Funds, Bonds, Other?"

The State of Illinois will still get a copy of the 1099K form - but if I get called in, at least I won't have to drive as far to do battle with them.

quote:

Originally posted by piqué:
very interesting.

as a sole proprietor who files a schedule C every year, i would think you could declare yourself a business and deduct your expenses and even deduct your loss against your other income.

I've thought of that. Essentially, my entire household and all household goods are my business. Seems a little crazy - but then we're dealing with crazy.

Alternatively, we could form the Church of the WTF and donate all personal property and goods to that entity... :-)

Thanks, Doug, I think I saw a post by that person which didn't have quite as much detail. I'm doing the Investment Sales strategy. Again, it may not help with Illinois - but our state may not figure out anything for a decade or so.