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Thread: Payments via PayPal, Venmo and Zelle

  1. #1
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    Payments via PayPal, Venmo and Zelle

    Everyone should be aware of the new provisions included in the American Rescue Plan Act. Payment credit, debit, and third-party payment networks like PayPal and Venmo are required to report to the IRS on Form 1099-K any annual accumulation of payments received of $600 or more. These provisions were delayed until 2023. Payments to Family and Friends are supposedly not reported by PayPal, however, as noted in the Classified rules for SMC, such payments for goods and services transacted using Friends and Family probably violate the PayPal agreement.

    According to Zelle, their service is not impacted by the legislation.

    My purpose in posting this is NOT to debate the legality, appropriateness, nor the specifics of the legislation, nor the PayPal rules on how to handle transactions that may occur by use of this Classified forum. It is simply to alert everyone to research this legislation for you own purposes.
    Last edited by John Keeton; 02-01-2023 at 9:31 AM.

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  2. #2
    I came across this article that indicates this won't kick in until 2024?

    https://www.taxpayeradvocate.irs.gov...ing-by-a-year/

  3. #3
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    Phil, I think the delay is in the "reporting" timeline. In other words, the 1099-Ks will not be required in 2023 (for transactions in 2022 as per the legislation), but will start in 2024 for transactions occurring in 2023.

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  4. #4
    I stand corrected: so if one were planning on selling a vast collection of Lie Nielsen tools (and retire to Tahiti), they missed the boat (as of Jan 1 2023).

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    Correct me if I'm wrong, but it also appears that you are responsible for paying taxes only on the gains - so when you sell anything at a loss (which is common on the secondary market) you wouldn't incur a tax obligation.

    You probably need to keep records of what you sell for your accountant. Or use alternate methods.

  6. #6
    Quote Originally Posted by Keegan Shields View Post
    Correct me if I'm wrong, but it also appears that you are responsible for paying taxes only on the gains - so when you sell anything at a loss (which is common on the secondary market) you wouldn't incur a tax obligation.

    You probably need to keep records of what you sell for your accountant. Or use alternate methods.
    So you buy a plane in 2015 for $200. You sell it in 2023 for $300. You owe income tax on the profit ($100), but if you can't prove the cost basis ($200) you will be paying income tax on the entire sale ($300): sounds like a book keeping nightmare.

  7. #7
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    That's a good question for your accountant. Or if you don't want to deal with it, just use an alternate method (cash, gold, personal check, probably others I can't think of).

    I'm pretty sure you were always required to report all income to the IRS. These new rules just step up enforcement for all those businesses using Venmo/Zelle/PayPal etc. as their payment processors.

  8. #8
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    Quote Originally Posted by Phil Gaudio View Post
    I stand corrected: so if one were planning on selling a vast collection of Lie Nielsen tools (and retire to Tahiti), they missed the boat (as of Jan 1 2023).
    If you do it quickly and are gone before next tax season you should be fine

    I remember reading last year that if you are selling your property and have receipts it will not be taxable. The problem is coming up with the proof it was something you bought and paid taxes on.

  9. #9
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    Quote Originally Posted by Keegan Shields View Post
    These new rules just step up enforcement for all those businesses using Venmo/Zelle/PayPal etc. as their payment processors.
    Keegan, from all I have read it seems that Zelle is a different animal as they never "possess" the funds, i.e., the transfer is direct from bank to bank and does not flow thru Zelle, which was set up by six of the largest banks in the country. https://www.zellepay.com/faq/does-zelle-report-how-much-money-i-receive-irs

    As to the nightmares this is going to cause, the sense I get is that it is massive. The shear volume of reporting is going to be overwhelming to the IRS and the fear is that a LOT will be reported that isn't actually related to whether it was a taxable transaction. The comments on the "cost basis" vs. the sale price would be correct, so record keeping will be absolutely an issue. The problem is that a lot of folks have bought tools years/decades ago and often for cash or otherwise and have no record of the cost. To say that this is going to create HUGE problems is an understatement.
    Last edited by John Keeton; 02-01-2023 at 11:56 AM.

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  10. #10
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    I really donít like it. I read about this a while back just after I sold an item I had for decades that put me over the 600 limit for the year. Nothing Iíve ever sold on eBay was at or for a profit but just to clear out used accumulated stuff I had moved on from. Former hobby stuff mostly. It put an end to my infrequent selling on eBay. Iím hoping that this is unpopular enough that political pressure will cause the IRS to modify the ruling soon at least for individuals selling personal property.
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    I don't think the IRS will care if you sold a few planes. A few tens of thousands of dollars of "misc" might be a different story.
    Last edited by Alan Rutherford; 02-01-2023 at 2:26 PM.

  12. #12
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    We take puppy deposits with Paypal and Zelle, but we also do a Lot of other business with them. Taxable income is reported, but I can see questions coming up. It's not like the IRS is really capable of doing more than the not enough they're able to do now.

  13. #13
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    My understanding is Paypal Friends and Family won't trigger a 1099-K because it isn't supposed to be used for payment for goods and services.

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    Quote Originally Posted by Alan Rutherford View Post
    I don't think the IRS will care if you sold a few planes. A few tens of thousands of dollars of "misc" might be a diffferent story.
    Hmmmm.....I think I will let you test that theory, Alan!! Far more trusting of the IRS than am I and I actually was employed by them early in my career.

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  15. #15
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    Quote Originally Posted by Brian Elfert View Post
    My understanding is PayPal Friends and Family won't trigger a 1099-K because it isn't supposed to be used for payment for goods and services.
    Brian, there are two main problem levels with the new Regs. First is the new and HUGE burden being placed on PayPal and Venmo and their lack of software, employees, structure, etc. to deal with the reporting requirements and do it correctly. Then, the IRS will get millions of 1099Ks on top of the millions they already get and, likewise, will not have the resources with which to deal with them correctly. With all the possibilities for human error, it would be hard to assume that this will all work as conceived.

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