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Thread: PayPal Change

  1. #16
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    Quote Originally Posted by Mike Henderson View Post
    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
    I believe the short answer is no, you can't deduct those expenses. I think our only defense is to add the tax expense into the price charged for the piece.

    I would assume that any payment to the IRS to cover a 1099 would be documented on your tax return, just like paying estimated taxes.
    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

  2. #17
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    Quote Originally Posted by Brian Tymchak View Post
    I believe the short answer is no, you can't deduct those expenses. I think our only defense is to add the tax expense into the price charged for the piece.

    I would assume that any payment to the IRS to cover a 1099 would be documented on your tax return, just like paying estimated taxes.
    That doesn't make business sense. If I can't deduct the cost of materials for making something, then I shouldn't be able to deduct the cost of purchasing something when I sell it.

    I don't think it would be fair to tax someone on the full sale price of something that they bought, and perhaps sold for the same price. When you purchase and sell stock (for example) you get to deduct the price you purchased it for, plus any commissions, when you sell it. The difference is the gain or loss on the sale. A stock seems no different from selling a table saw that you bought, or a table that you made but which cost you to make it. Tax should be based on the gain or loss.

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

  3. #18
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    Speak to your accountant and if you don’t have one, then hire one. I have an excellent accountant and have never regretted paying for their services.

    You can’t avoid getting a 1099 From these service providers, they do it automatically once you meet their thresholds.

    Brian, I believe what is meant is not that you can’t deduct your operating expenses from gross revenue but that you can’t use hobby ‘income’ as a write-off, meaning that if it isn’t a business then it is not capable of being a write-off. Given that income is generally referred to as gross revenue minus expenses, this would seem to make sense, but I certainly could be wrong and this is why I hire an accounting firm for this type of work.
    Last edited by Brian Holcombe; 11-25-2021 at 1:14 PM.
    Bumbling forward into the unknown.

  4. #19
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    If EBay has to send a 1099 for over $600 in 2022 I better sell the extra solar inverter I have. I bought it on EBay in 2020 and ended up using it for a few weeks before switching back to an old inverter. My plan was to wait until late January to sell. The holiday season is rarely a good time to sell anything that isn’t a gift.

    It hardly seems fair to have to pay income tax when I will likely lose money on this item. It is something that would be hard to sell locally as not enough demand.

  5. #20
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    Quote Originally Posted by Brian Holcombe View Post
    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
    Wow, see what happens when you live out in the sticks and don't pay attention to the news.

    This was found in USA Today:

    There is no federal law prohibiting businesses from going cashless, however, some states have passed laws requiring businesses to accept cash.
    It seems the pandemic has resulted in many businesses not wanting to handle cash since it could be a source of infection.

    jtk
    "A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty."
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  6. #21
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    Quote Originally Posted by Mike Henderson View Post
    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.
    I was thinking this is for payment processors only and Ebay is not really a payment processor. But, I did more research and both EBay and Etsy are affected also.

  7. #22
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    How is it fair that a person selling a personal item can't deduct the cost of the item from their income, but a business running a business on Ebay, Etsy, etc can? Sure, you can file taxes as a sole proprietor, but if you lose money then the IRS calls it a hobby and makes you pay taxes on your revenue with no deductions.

    This may at least make a small dent in the resale of hard to get gaming systems although most will just switch to Craigslist or Facebook Marketplace with cash payment. I bet as many initial purchases of the PS5 have been resold as have ever been used to play video games.

  8. #23
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    Quote Originally Posted by Brian Holcombe View Post
    Brian, I believe what is meant is not that you can’t deduct your operating expenses from gross revenue but that you can’t use hobby ‘income’ as a write-off, meaning that if it isn’t a business then it is not capable of being a write-off. Given that income is generally referred to as gross revenue minus expenses, this would seem to make sense, but I certainly could be wrong and this is why I hire an accounting firm for this type of work.
    Completely agree on consulting with the accountants before trying to deduct expenses against hobby income.

    i don't want to beat a horse to death over this, so here's my last post on the topic.

    please google this: are hobby expenses deductible

    there are plenty of statements on this, by TurboTax, HR Block, and others. I doubt they all have a pretty basic feature of tax law wrong. I think the basic change with the tax act is with the definition of a hobby. If it's not an incorporated business, you don't get to deduct expenses. I'd love for it to not be true, but I think the law is pretty clear.
    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

  9. #24
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    Ebay was created as a way for someone to sell items like at a garage sale. It's now more like Amazon as most of the sellers are doing it to earn a living. When the courts started to allow states to force ebay to collect sales tax it was just a matter of time before the next step, Paypal keeping track of money sellers earn, was going to happen. It's just a matter of time before the government monitors your bank account for deposits (not just large ones).

  10. #25
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    Quote Originally Posted by Mike Henderson View Post
    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.]

    Did you confirm your notice was from PayPal? Not by clicking on some link in the e-mail but logging into your paypal account. I am not sure 100% of the requirements of selling on PayPal, but isn't it just a means of a transaction? If your sales were going through a credit card, would your credit card service send you a 1099? Seems a bit like a phishing attempt to me.
    Distraction could lead to dismemberment!

  11. #26
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    Quote Originally Posted by Justin Rapp View Post
    Did you confirm your notice was from PayPal? Not by clicking on some link in the e-mail but logging into your paypal account. I am not sure 100% of the requirements of selling on PayPal, but isn't it just a means of a transaction? If your sales were going through a credit card, would your credit card service send you a 1099? Seems a bit like a phishing attempt to me.
    It's real and yes, because PayPal is a payment processor they need to do follow any reporting requirement that are placed on them by existing or new regulations.
    --

    The most expensive tool is the one you buy "cheaply" and often...

  12. #27
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    The IRS has problems auditing and processing the current load of people that may be cheating the system.

    How will they handle this with millions upon millions of system generated 1099 transactions.

    I see people dropping the normal level of PayPal security, i.e. paying for goods or services and PayPal getting their fee, to just doing a cash transfer between friends and risking the deal doesn't go bad.

  13. #28
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    Quote Originally Posted by Justin Rapp View Post
    Did you confirm your notice was from PayPal? Not by clicking on some link in the e-mail but logging into your paypal account. I am not sure 100% of the requirements of selling on PayPal, but isn't it just a means of a transaction? If your sales were going through a credit card, would your credit card service send you a 1099? Seems a bit like a phishing attempt to me.
    Yes, the notice is in the PayPal account. In the messages section of PayPal. When you go to your "Dashboard" page, at the top of the page is an icon that looks like a bell. It had a red bubble on it with the number 1 in the bubble. If you use PayPal, you should have the same notice.

    It was not an email. In any case, I included links to sites that discuss it and where the requirement came from in my original post.

    Mike

    [Regarding how the IRS is going to deal with the 1099's - as long as you include the income from the 1099 in your tax return, you won't have any problems. If you don't include the 1099 info, they will send you a computer generated bill. No human will be involved, and no audit - just a bill.]
    Last edited by Mike Henderson; 11-27-2021 at 10:32 AM.
    Go into the world and do well. But more importantly, go into the world and do good.

  14. #29
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    Quote Originally Posted by Mike Henderson View Post
    Yes, the notice is in the PayPal account. In the messages section of PayPal. When you go to your "Dashboard" page, at the top of the page is an icon that looks like a bell. It had a red bubble on it with the number 1 in the bubble. If you use PayPal, you should have the same notice. It was not an email. In any case, I included links to sites that discuss it and where the requirement came from in my original post.Mike[Regarding how the IRS is going to deal with the 1099's - as long as you include the income from the 1099 in your tax return, you won't have any problems. If you don't include the 1099 info, they will send you a computer generated bill. No human will be involved, and no audit - just a bill.]
    Ok - more legit The company I work for, due to the work we do, requires us to take tons of phishing courses so my alert is always up high when I see someone being asked for a SS# or some other personal info.
    Distraction could lead to dismemberment!

  15. #30
    When I was in Germany this fall I found that many small businesses would not accept credit cards. There seems to be a thriving cash economy due to people not wanting to be tracked for privacy as well as tax reasons. It is becoming harder and harder to stay off the radar especially if one has a smellphone.

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