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Thread: PayPal Change

  1. #1
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    PayPal Change

    I received a notice from PayPal that I need to give them my social security number for tax purposes. The reason is that if I sell more than $600 of things in a year, they will do a 1099 on me. This only applies to things sold as "merchandise", it does not apply to money transferred between friends (what many people call "Friends and Family").

    The problem with getting a 1099 is that you then have to deal with it in your tax return. If you sold a tool for less than you paid for it, there would be no "income" for tax purposes. But, technically, you have to have a record of what you bought it for, and that increases the record keeping problem. We would now have to keep receipts for anything we might sell in the future.

    You can avoid the problem by using other payment techniques: You can require cash for any in-person sales or you could have have a person send you a check.

    Personally, I don't want to have to deal with making sure I keep records of everything I bought in the past and will just not sell with PayPal payment in the future.

    Has anyone else heard of this? Any accountants have any comments about the tax issue?

    I think this was done to force people who essentially run a business using PayPal payment to report their income but it could affect all of us.

    Mike

    [Here's something from PayPal about this.]
    [Here's another source.]
    Last edited by Mike Henderson; 11-24-2021 at 5:33 PM.
    Go into the world and do well. But more importantly, go into the world and do good.

  2. #2
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    It’s done because the laws around this kind of thing are tightening and they likely want to be ahead of the curve to avoid being aggressively fined. I already keep a record of everything and have for years, so no change for me but you can expect more of this to continue happening.
    Last edited by Lee Schierer; 11-24-2021 at 8:12 PM. Reason: removed political content
    Bumbling forward into the unknown.

  3. #3
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    It is just a company that is trying to be prudent. PayPal doesn't want to pay penalties, which is just good business. As the US government tries to increase revenue, more and more monetary transactions will be reportable. My sister and her husband have a little side business with many transactions utilizing PayPal. Per their accountants advice, they keep good records of the costs of the items when they purchase them and report the gains from their activities each year. As the accountant said, "you don't want to be on the IRS's radar for a couple bucks in taxes".

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    A lot fewer people will be impacted than if EBay was still using Paypal for payments. Today, if you pay by Paypal on EBay the money actually goes into Ebay's Paypal account. EBay then deposits the money in the seller's bank account.

    I have been accepting credit cards via Square. I may stop taking credit cards since I am 95% cash anyhow. There is a good chance I will be over $600 in 2022.

  5. #5
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    Given that the congresscritters in their infinite wisdom have effectively stripped the IRS of the ability to audit all but the most egregious frauds, they are seriously not going to come after you for making a best guess on profits from a few hundred dollars in sales. Worst case you have to pay up and are out a few 10's of dollars. The 1099 requirement at least keeps the slimeballs who are making 10's or 100,000's in sales and profit and not reporting it at least subject themselves to the possibility of an evasion charge, not that that's likely in the current environment.

    Nearly 40 years of dutifully reporting a few hundred or thousands of dollars in hobby income and zeroing out with expenses incurred in the process has not produced even one raised eyebrow.

  6. #6
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    Most of my income comes through PayPal, and I imagine they must have had my SSN for some time, though I can't recall. All of my transactions are written in my day-book, so I have pretty good records if I was to get audited, though it would be hard to put everything together. For instance a banjo has several dozen small metal parts, most of which I buy from three or four sources but I make a few of them myself. Then there is the wood which may be from different places depending what the particular instrument has, so there are multiple cost amounts for each item sold, and each purchase of materials gets used in multiple banjos. Luckily I have pictures of each banjo so I can show just what went where. I pay income and self-employment taxes on my sales, but the record keeping is a bit time consuming and messy.

  7. #7
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    Quote Originally Posted by roger wiegand View Post
    Nearly 40 years of dutifully reporting a few hundred or thousands of dollars in hobby income and zeroing out with expenses incurred in the process has not produced even one raised eyebrow.
    Those congress critters took away the ability to claim expenses against hobby income in the 2017 tax act.
    Brian

    "Any intelligent fool can make things bigger or more complicated...it takes a touch of genius and a lot of courage to move in the opposite direction." - E.F. Schumacher

  8. #8
    30 years ago, I heard Pat Robertson ranting about how the government wats to do away with cash to cut down on tax cheats and illegal businesses. I thought he was nuts then. Gotta reconsider not. My service club is getting a square to accept payments for Chicken BBQ, bingo, etc. So many people do not carry cash with them today. I understand that in many some countries, it is actually impossible to pay most bills by cash and even checks are becoming obsolete and electronic payments are almost universal. From that view point, many think the US is technologically backward..

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    Personally, I don't want to have to deal with making sure I keep records of everything I bought in the past and will just not sell with PayPal payment in the future.
    PayPal has been collecting sales tax for a couple years now. The fed just wants their share of the action.

    I'm not worried about every penny and am not a big fan of taxes but two things in life are certain…

    Many of my tools and things have been recorded somewhere, especially items bought with an eye towards reselling them. To me it isn't something to worry about. My tools are not being listed on a depreciation schedule, there isn't a recapture problem. Will the IRS take anyone to court on the grounds they believe they happened to get every one of their tools they sold for nothing?

    Quote Originally Posted by Brian Tymchak View Post
    Those congress critters took away the ability to claim expenses against hobby income in the 2017 tax act.
    The simple way around that is to get a business license. Of course if one keeps losing money after so many years they may decide it is a hobby.

    Quote Originally Posted by Perry Hilbert Jr View Post
    [edited]
    I understand that in many some countries, it is actually impossible to pay most bills by cash and even checks are becoming obsolete and electronic payments are almost universal. From that view point, many think the US is technologically backward..
    Part of the full faith and credit of the government is the pieces of paper they issue are legal for all debts public and private. It will be a while before we can do away with cash payment.

    jtk
    "A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty."
    - Sir Winston Churchill (1874-1965)

  10. #10
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    Not sure I believe that, Jim. I was turned away from buying coffee with cash yesterday.

    WRT hobby income, please see this:

    https://www.irs.gov/newsroom/five-th...e-and-expenses
    Bumbling forward into the unknown.

  11. #11
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    I've wondered about Ebay collecting sales tax. SWMBO has gone round and round with them about charging sales tax on food items. She buys tea and supplements on Ebay. In Pennsylvania food is not subject to sales tax.

  12. #12
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    Quote Originally Posted by Brian Holcombe View Post

    WRT hobby income, please see this:

    https://www.irs.gov/newsroom/five-th...e-and-expenses
    Wow, for a few minutes I was excited that what I had read previously was incorrect, but then realized that that page is dated November, 2017 and part of the historical archive. The 2017 tax act was signed in December, 2017 and in effect starting in 2018. If you dig down in the tax code a bit, there is this:

    https://www.ecfr.gov/current/title-2...ection-1.183-2

    1.183-2 Activity not engaged in for profit defined.

    (a) In general. For purposes of section 183 and the regulations thereunder, the term activity not engaged in for profit means any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212. Deductions are allowable under section 162 for expenses of carrying on activities which constitute a trade or business of the taxpayer and under section 212 for expenses incurred in connection with activities engaged in for the production or collection of income or for the management, conservation, or maintenance of property held for the production of income. Except as provided in section 183 and § 1.183-1, no deductions are allowable for expenses incurred in connection with activities which are not engaged in for profit. Thus, for example, deductions are not allowable under section 162 or 212 for activities which are carried on primarily as a sport, hobby, or for recreation. The determination whether an activity is engaged in for profit is to be made by reference to objective standards, taking into account all of the facts and circumstances of each case.


    There were a few exceptions noted in yet another sub paragraph of a sub paragraph of a sub paragraph, etc, etc.... and I'm certainly not a tax expert, but I didn't see anything that would allow a typical woodworker hobbyist to deduct expenses against income.

    Unless the law changes again, we're stuck with it until 2025 when the tax act expires.
    Brian

    "Any intelligent fool can make things bigger or more complicated...it takes a touch of genius and a lot of courage to move in the opposite direction." - E.F. Schumacher

  13. #13
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    Quote Originally Posted by Brian Tymchak View Post
    Those congress critters took away the ability to claim expenses against hobby income in the 2017 tax act.
    Quote Originally Posted by Jim Koepke View Post
    The simple way around that is to get a business license. Of course if one keeps losing money after so many years they may decide it is a hobby.
    jtk
    True, although you carry the additional burden of self-employment taxes ( both sides of SS and FICA).
    Brian

    "Any intelligent fool can make things bigger or more complicated...it takes a touch of genius and a lot of courage to move in the opposite direction." - E.F. Schumacher

  14. #14
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    Quote Originally Posted by Brian Tymchak View Post
    Wow, for a few minutes I was excited that what I had read previously was incorrect, but then realized that that page is dated November, 2017 and part of the historical archive. The 2017 tax act was signed in December, 2017 and in effect starting in 2018. If you dig down in the tax code a bit, there is this:
    https://www.ecfr.gov/current/title-2...ection-1.183-2

    1.183-2 Activity not engaged in for profit defined.

    (a) In general. For purposes of section 183 and the regulations thereunder, the term activity not engaged in for profit means any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212. Deductions are allowable under section 162 for expenses of carrying on activities which constitute a trade or business of the taxpayer and under section 212 for expenses incurred in connection with activities engaged in for the production or collection of income or for the management, conservation, or maintenance of property held for the production of income. Except as provided in section 183 and § 1.183-1, no deductions are allowable for expenses incurred in connection with activities which are not engaged in for profit. Thus, for example, deductions are not allowable under section 162 or 212 for activities which are carried on primarily as a sport, hobby, or for recreation. The determination whether an activity is engaged in for profit is to be made by reference to objective standards, taking into account all of the facts and circumstances of each case.


    There were a few exceptions noted in yet another sub paragraph of a sub paragraph of a sub paragraph, etc, etc.... and I'm certainly not a tax expert, but I didn't see anything that would allow a typical woodworker hobbyist to deduct expenses against income.

    Unless the law changes again, we're stuck with it until 2025 when the tax act expires.
    I can understand not allowing me to deduct the cost of things I purchase for a hobby. But what about if I sell something that I made? I'm not in business but I made a table for a friend and he paid me a fair price. Can I deduct the cost of materials and consumables? If he paid me by PayPal as merchandise and it was over $600 that will generate a 1099. And I have experience with missing a 1099. The IRS just sends you a bill for the tax on the amount you missed on that 1099. No audit - just a computer generated bill.

    You'd have to have some way to offset that 1099 on your tax return.

    But the best thing is just to avoid getting a 1099 in the first place.

    Mike
    Go into the world and do well. But more importantly, go into the world and do good.

  15. #15
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    Quote Originally Posted by Brian Elfert View Post
    A lot fewer people will be impacted than if EBay was still using Paypal for payments. Today, if you pay by Paypal on EBay the money actually goes into Ebay's Paypal account. EBay then deposits the money in the seller's bank account.

    I have been accepting credit cards via Square. I may stop taking credit cards since I am 95% cash anyhow. There is a good chance I will be over $600 in 2022.
    I expect that eBay will have to track the payments to you and generate the 1099. It's a payment for merchandise, and my reading of the requirements would indicate that they would have the same obligation as PayPal would.

    If eBay gives you more than $600 for things you sold on eBay, no matter how the buyer paid for it, they will have to send you a 1099.

    Mike

    [It's very easy to exceed $600. A good camera, or a good lens, can go for $600 or more. And the test is the aggregate over the whole year. So even if one item didn't exceed $600, you may exceed it with the next item. This is going to affect a LOT of people who casually sell items they no longer want.]
    Last edited by Mike Henderson; 11-25-2021 at 11:24 AM.
    Go into the world and do well. But more importantly, go into the world and do good.

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