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There has been quite a lot of chatter recently about sites like Paypal and Venmo being required to provide sellers with 1099 forms. (Link) The first part of the question is whether the $600 threshold for sending a 1099 form is from their total sales, or their "profit" (after comparing sales and purchases).

For example, say a person uses a Paypal account to sell used items from their household (small-ticket items like used clothing). Over the last year, this person sold items for a total of $800. They also sometimes uses the same Paypal account to purchase items, about $500 for the year. They did not receive a 1099, nor is one available for download. Is this because their net income from Paypal was $800-500 = $300?

Relatedly, is this person required to claim this income on their taxes? The whole sales total of $800? Just the $300 net?

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The 1099K reporting threshold is pretty high - $20K (gross proceeds) or 200 transactions. It doesn't sound like you were able to go over that threshold, so you might not receive the 1099 from them.

That doesn't mean that you don't have to report the income on your tax return - you still need to report it if you have gains (even on sale of personal property) or if you're running a business.

If you do get a 1099, you'll need to report the transaction on your tax return for matching purposes, even if you didn't have gain. The IRS will get the 1099 which only includes gross proceeds, so if you actually lost money - you'll have to show how and why. You would do that on either Schedule D, Form 4979, or Schedule C - depending on your circumstances. That loss may or may not be deductible.

The net income is the gross proceeds minus cost of purchase of the item. From your description it is not clear that the $800 sale and the $500 purchase are for the same item.

Net income can be categorized differently for income tax purposes. For example, capital gains on sale of a personal asset or an investment, hobby income for someone who occasionally sells stuff, or business income for someone who is trading for profit. Each of these categories has different rules on what and how can be deducted from gross proceeds, how to handle losses, and even what taxes and rates of taxes to pay (for example, if you're a trader you'd be subject to SE tax as well as the regular income tax, but can deduct losses from your other regular income).


Note: as the user mhoran_psprep correctly noted, starting from tax year 2022 the threshold will be $600 and the transactions threshold has been removed entirely, so basically it will be the same as other 1099-MISC/NEC forms. For this question it is not yet relevant, but for tax returns for years 2022 and on that would be the new threshold. More info on the IRS website.

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  • Is it true then, that a person must claim all income from everything they sell, even if it's not a commercial enterprise but just passing on things like shoes their kid outgrows? Since the items were purchased initially with taxed income and almost certainly sold at a lower price point, this hardly seems like income. Also, the sales and purchases are all for different items. Not related
    – nuggethead
    Commented Feb 4, 2022 at 1:15
  • In 2022 the threshold is now $600. Commented Feb 4, 2022 at 1:21
  • @nuggethead, some US states have "defined" sales tax as sales and use tax and that does include private sales such as yard sales, flea market sales, person-to-person sales. If one considers the purchase price and depreciation, AND itemizes these costs (within certain constraints, contact a tax expert), one might be able to recoup losses, but the labor involved boggles the mind.
    – fred_dot_u
    Commented Feb 4, 2022 at 1:36
  • So, @fred_dot_u_2 the entire amount in sales counts as income unless this taxpayer wants to prove through depreciation and purchase price, saving receipts and all of that, that it was not actually profit? Also there is no SALES tax in this question - some us states have none
    – nuggethead
    Commented Feb 4, 2022 at 1:41
  • @mhoran_psprep thanks, added a note to mention this.
    – littleadv
    Commented Feb 4, 2022 at 2:55
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The conversations you see online are about the changes that started in 2022, for the taxes you are going to file in 2023. What changed is that more people will be receiving 1099's from PayPal and other similar services. Instead of needing $20,000 in transactions, or 200 transactions; they will now be sending 1099s if the amount exceeds $600.

If you receive one you will have to address it on your tax forms.

Pay attention to the information from the service provider regarding which transactions count. The IRS and the service providers say that people who use it to split meals, rent, or utilities will not have to worry about things.

If you have been selling items for a profit, then you should have been reporting this on your taxes. You have to document your expenses to reduce the taxable income. None of this is changed by the 1099 threshold. The 1099 has always been only a part of the process. PayPal never had a window on all your transactions or all your expenses.

Over the last year, this person sold items for a total of $800. They also sometimes uses the same Paypal account to purchase items, about $500 for the year. They did not receive a 1099, nor is one available for download. Is this because their net income from Paypal was $800-500 = $300?

If these was there only PayPal transactions in 2021, they wouldn't receive a 1099 under the rules applicable to 2021.

Relatedly, is this person required to claim this income on their taxes? The whole sales total of $800? Just the $300 net?

But they still need to address this if they were running a business using these types of accounts.

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