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Thread: Paypal

  1. #1

    Default Paypal

    If I have this right, it appears that any payments on PayPal, venmo, etc. over $600 has to be reported to the IRS. That will affect the buying and selling of mandolins on the Cafe, right?

  2. #2
    Registered User liestman's Avatar
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    Default Re: Paypal

    My understanding is that yes, they will report sales over $600 a year that are paid via those payment systems to the IRS. It would affect mandolin sales here if the IRS perceives you to have a business. If you simply once in a blue moon sell a personal instrument, the IRS will not consider it to be income from a business. So income from businesses will be reported, as they should, and income from the occasional personal item sale will be reported but not taken further. That is my personal understanding.
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  3. #3

    Default Re: Paypal

    Payment processing companies are all being brought into compliance by the IRS in terms of reporting. This is about reporting; issuing 1099s for sales over the threshold. The tax laws regarding capital gains on real property sales have not changed.

    If you have questions about how this will impact your taxes, speak with a licensed tax professional.
    "your posts ... very VERY opinionated ...basing your opinion/recommendations ... pot calling ...kettle... black...sarcasm...comment ...unwarranted...unnecessary...."

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  5. #4

    Default Re: Paypal

    Quote Originally Posted by liestman View Post
    So income from businesses will be reported, as they should, and income from the occasional personal item sale will be reported but not taken further. That is my personal understanding.
    And you can guarantee that emboldened outcome: not taken further?

    Not trying to cause trouble. Just pointing out that no one can guarantee what the government will do in the future. Once they get something started, it will likely NEVER end; the extraction will only increase.

    Personally, I will probably forgo selling anything on PayPal over $600.

  6. #5

    Default Re: Paypal

    The $600 is cumulative over a tax year. It is not item by item. They will report a consolidated statement of your sales. So, if you sell three items through Paypal at $500 each, you will get a 1099 for $1500. I suggest you keep a spreadsheet by year of what you sell, where you sold it, the amount it sold for, and what your original basis in it was (meaning what you bought it for, including any shipping you paid to receive it).

    If you have a net gain (meaning you sold it for more than you paid), from the sale of instrument(s) you will need to report this as income on you taxes. You can net these against any losses from any other sales, but they must all be within the same tax year. A net loss for that tax year on these sales cannot be taken by an individual (only if you are operating as a bone fide business, and that in itself requires additional processes which I will not go into here). But you MUST report a net gain, capital or short term.

    This is as far as I am going to go with a technical explanation here. If you get a 1099 from PayPal, Reverb, etc. again, I suggest that you hire a licensed professional to do your taxes or at least advise you. I am going to assure you of this, the fines and interest are far more than the average person will pay in additional income taxes if you are one of the unlucky individuals that they single out for a review. And tax attorneys are very expensive.



    Don't get your tax advice here, or anywhere on the internet, unless it's from IRS.Gov. It's not a viable defense in tax court that so-and-so from the Wall Street Journal said....or what your neighbor told you, etc. I have read so many misleading on-line and newspaper articles over the last ten years that I have been studying tax law.
    "your posts ... very VERY opinionated ...basing your opinion/recommendations ... pot calling ...kettle... black...sarcasm...comment ...unwarranted...unnecessary...."

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    Default Re: Paypal

    And for those of us who normally buy high and sell low: maybe I can even deduct my losses?

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  10. #7
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    Default Re: Paypal

    Quote Originally Posted by Mandobar View Post

    If you have a net gain (meaning you sold it for more than you paid), from the sale of instrument(s) you will need to report this as income on you taxes. You can net these against any losses from any other sales, but they must all be within the same tax year. A net loss for that tax year on these sales cannot be taken by an individual (only if you are operating as a bone fide business, and that in itself requires additional processes which I will not go into here). But you MUST report a net gain, capital or short term.



    Don't get your tax advice here, or anywhere on the internet, unless it's from IRS.Gov. It's not a viable defense in tax court that so-and-so from the Wall Street Journal said....or what your neighbor told you, etc. I have read so many misleading on-line and newspaper articles over the last ten years that I have been studying tax law.
    Heed these words. If you sell an instrument for more than what you paid for it, it is taxable income. Failure to declare such income will result in expensive consequences if you are audited. I also could discuss whether to report it as capital gain, business income, etc, but it is better to get that info from a qualified tax professional or the IRS.

    And yes, if you buy high and sell low, that may qualify as a capital loss, but you d*** sure better understand the tax code and be able to provide hard documentation if you declare such a loss. The IRS does read and check all tax returns. And they do not like it when people take deductions that they are not eligible for, or are not properly reported, or are not sufficiently documented.

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  12. #8

    Default Re: Paypal

    Quote Originally Posted by liestman View Post
    My understanding is that yes, they will report sales over $600 a year that are paid via those payment systems to the IRS. It would affect mandolin sales here if the IRS perceives you to have a business. If you simply once in a blue moon sell a personal instrument, the IRS will not consider it to be income from a business. So income from businesses will be reported, as they should, and income from the occasional personal item sale will be reported but not taken further. That is my personal understanding.
    Individuals are required to pay capital gains on the sale of personal and real property. This includes cars, boats, investment real estate (anything other than your personal home), and musical instruments. Musical instruments are specifically mentioned in the tax code that applies to this activity.
    "your posts ... very VERY opinionated ...basing your opinion/recommendations ... pot calling ...kettle... black...sarcasm...comment ...unwarranted...unnecessary...."

  13. #9
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    Default Re: Paypal

    I will add that all US banks automatically report all deposits above a certain amount to both the IRS and Homeland Security.

    I know people who have avoided or played games with their taxes. Most of them got caught, sooner or later; and most of them ended up with tax penalties that were so high that it took years for them to pay them off.
    Last edited by rcc56; Jan-10-2022 at 7:46pm.

  14. #10

    Default Re: Paypal

    Maybe they have changed things in the last few years, but for many years I made most of my income from eBay....back when it was a somewhat new and exciting thing -- no longer the case, resulting in much slower sales these days, sad to say.

    Anyway, Paypal will send you a 1099 IF YOUR SALES ARE OVER $20,000 if your sales are less than that, you still must pay taxes on your sales, but you don't receive the 1099 form from Paypal. You must document those sales yourself to send the IRS, no biggee, print out eBay, Reverb, etc. yearly sales for that year (or monthy sales...)

    Keep in mind as a business, you pay tax on the profit you make. In other words, if you sell a $4500 instrument for $4500 and that instrument cost you $3800, then you pay taxes on the $700 profit, not the whole $4500. There are many other factors and things that can be written off (and not written off) as I understand it -- mileage, advertising, packing materials, postage (if the customer is not paying it.) That's why we have accountants, IMHO. Save your receipts...

  15. #11

    Default Re: Paypal

    PayPal is now issuing 1099's if your yearly sales are over $600. All the payment transfer services have been brought into compliance. In fact, I remember having this discussion for the last few years with people. It is not something totally brand new.
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  17. #12
    harvester of clams Bill McCall's Avatar
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    Default Re: Paypal

    This is all why buy and hold is such a good strategy.

    Besides, I just remodeled that closet to manage the inventory.

    ymmv
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  19. #13
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    Default Re: Paypal

    This is not political, it is simply stating a fact. Until the current administration declared the $600 reporting rule, the threshold for reporting to the IRS was anything over $10K. IMHO, $600 is a joke. I spend $600 at the grocery store these days. Any mandolin worth playing and owning is going to be waaaay over $600.
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  20. #14
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    Default Re: Paypal

    Quote Originally Posted by Chris Calley View Post
    This is not political, it is simply stating a fact. Until the current administration declared the $600 reporting rule, the threshold for reporting to the IRS was anything over $10K. IMHO, $600 is a joke. I spend $600 at the grocery store these days. Any mandolin worth playing and owning is going to be waaaay over $600.
    This seems like a very inefficient way for the government to raise revenue since it has to rely on an army of auditors.

  21. #15

    Default Re: Paypal

    Quote Originally Posted by Chris Calley View Post
    This is not political, it is simply stating a fact. Until the current administration declared the $600 reporting rule, the threshold for reporting to the IRS was anything over $10K. IMHO, $600 is a joke. I spend $600 at the grocery store these days. Any mandolin worth playing and owning is going to be waaaay over $600.
    This reporting has been in effect several years. It’s not new for the 2021 tax year. I’ve had this conversation with people for several years now. And 1099 or not, tax on capital gains resulting from sales on personal property has been the law for decades. The change here is that the payment processing services are required to report cumulative sales over $600 for every tax year by taxpayer id number.
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  23. #16

    Default Re: Paypal

    Quote Originally Posted by DaveGinNJ View Post
    This seems like a very inefficient way for the government to raise revenue since it has to rely on an army of auditors.
    Actually their system uses criteria to pinpoint taxpayer returns that may or may not be under-reporting. It looks for patterns.
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  24. #17
    Registered User Christine Robins's Avatar
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    Default Re: Paypal

    I asked my wife, an experienced and licensed tax preparer, for her comments. Her advice:

    "First, Card Payment and Third-Party Networks are indeed required to report aggregate payments greater than $600 to any individual or business entity. So, whether you sold one item for some amount greater than $600 or 10 items for $61 each, you will get a 1099-K from that network.

    If you are operating a business, your business's gross income needs to reflect all the 1099-K forms you receive, plus other income that might be received in some other form, such as cash or check. Gross income is before expenses. Expenses should be subtracted before taxes are assessed. Keep good records.

    If you have a credit card machine for which you are the owner of record but you share the machine with, say, another small vendor at a trade show, there is a procedure for reporting the other vendor's share to the IRS so you don't get a letter from them claiming that you under-reported your income. Get some help from a tax or bookkeeping firm if you can't figure out how to nominee the income to the other party by yourself. You shouldn't enter into such an arrangement without having a Tax ID for the other party, because you will need it.

    If you are not operating a business, but you decided to sell your piano for $1000 and let the buyer pay you through Paypal or Venmo or some other Third-Party network, you are going to get one of those 1099-K forms. You can report that to the IRS on Schedule D along with the original cost of the piano and the date you purchased it. You will have a capital gain or loss and that gets figured into the taxes and is subject to those rules.

    If YOU don't take the initiative to report the income, correctly characterized and with expenses also reported, the IRS will send you a difference letter. They will assume the most advantageous treatment from THEIR point of view and estimate the taxes you owe, usually assuming it's a business and you owe Self-Employment Tax as well as Income Tax on the total amount. Then you will have to amend the taxes to correct the IRS's assumptions.

    My advice, after 30+ years as a tax consultant, is to take the form seriously and report the amounts on the original filing, making sure you don't get taxed on the gross amount but only the profit."

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  26. #18
    Barn Cat Mandolins Bob Clark's Avatar
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    Default Re: Paypal

    Thanks Christine and Patricia, this is most helpful. I will be sure to have this conversation with my CPA.
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  27. #19

    Default Re: Paypal

    Whether you get a 1099-K or not (cash sales, checks, or using other forms of payment) you still need to keep track of sales, especially if you are buying and selling on a regular basis, business entity or not. All banks are required to report cash deposits through the Bank Secrecy Act, which rcc56 alluded to. This reporting used to be based on $10k and up deposits, then it was $5k and up. The new software uses an accumulator, so unless you are keeping all that cash hidden in a shoe box somewhere there is always the chance that you will come under scrutiny. Twenty years of bank operations, three earning a master's in tax, and probably fifteen years doing taxes.

    My advice, Bob, during that conversation, ask the question and heed the advice. Sooner or later the IRS is going to get its act together (there are over twenty-five openings for Treasury Agents in the Portland, Maine vicinity alone), and while it might take some time to get to you, they will. They have a whole division dedicated to what they call "Under-reporting Taxpayers." Their definition of a gain is quite broad.
    Last edited by Mandobar; Jan-12-2022 at 11:05am.
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  29. #20
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    Default Re: Paypal

    If you have TurboTax 2021 software, open it and search for "1099-k personal items". You should be able to find a very recent query (7 days old as of today) by jmitch04 on this. The reply will give you two different ways to handle the 1099-k and also enter costs (basis), resulting in a net "profit" that will count as income. If it nets out to a loss, it will allegedly show a zero profit, not a loss, when you follow the guidance.

    Anyway, this is not an official IRS statement, but it is something that Intuit (TurboTax) has included in their instructions and thus, theoretically, will stand behind. At best, this is a method that IRS will accept. At worst, if Turbotax disavows this "help" advice at some later date and you get auditted, it might allow you to avoid a penalty tacked onto having to pay up. I plan to document the Turbotax advice as completely as possible in my files in case I need it later. Of course, you also should be sure to have documentation for all the claimed costs.

    edit: I tried finding the help topic again and had trouble finding it. But I found exactly the same instructions online at the www.intuit.com website from one of their "experts". Here's the link: https://ttlc.intuit.com/community/ta...ing/00/1881097

    edit2: revised instructions in first paragraph, to help find the response from within TurboTax.
    Last edited by HonketyHank; Jan-12-2022 at 1:43pm.
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    Registered User Ranald's Avatar
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    Default Re: Paypal

    In my country, Revenue Canada is merciless, unless, you owe them twenty million dollars, then they'll negotiate with you and allow you to pay a much smaller amount from your account in the Cayman Islands, and consider the matter closed. There's plenty of good advice here. From my experience, don't think you can outsmart the tax people -- or customs either. I lived on the border, and heard stories of people boasting about beating customs duties, then regretting it after a resentful in-law or a law-abiding neighbour reported them to Customs. If they found that you had smuggled goods, Canada Customs could (but didn't always) raid your house, bringing great lists of brand names and serial numbers to seize whatever else you'd smuggled. And this was in a city where smuggling was to a degree socially acceptable.
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  31. #22
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    Default Re: Paypal


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