Has anyone solved the 1099K issue?

[Marc Morfei]

There have been previous threads about the new 1099K IRS reporting requirements for sales on Reverb, eBay, etc. This is not a general rant, I have a specific question: Has anyone figured out how to handle this on your income tax form?

Brief background: Starting this year, if you have sales totaling more than $600, Reverb or other similar sites issue an IRS form 1099K to report the income. Obviously none of us want to pay taxes on selling some used guitar. It's not "income" - we had to spend money to buy it in the first place. Fortunately, it looks like we will not have to pay taxes on that. Here is what Reverb says on the website:

"Receiving a 1099-K from Reverb doesn't mean you'll have to pay income tax on what you've sold. We're required to issue 1099-Ks to every US seller who meets the federal or state threshold, but everyone's tax situation is different. For example, say a Reverber bought a guitar for $1,600 in 2019 and sold it for $1,000 in 2021. Reverb would still have to report the $1,000 payment on a 1099-K, but the seller would have no taxable income on this transaction to report since the resale amount was less than the original purchase price."

There have been countless news articles written about this, and they all say the same thing. A few examples:

https://www.1040.com/blog/2019/7/12/selling-stuff-online-taxes-for-etsy-ebay-letgo-and-more
"When you sell personal used belongings for an amount that’s less than you originally paid, you’re in luck: You won’t owe taxes on the money you make. If you sell a pair of $50 running shoes for $15, you don’t have to pay taxes because the amount you received was less than the original price."

https://www.cnbc.com/2021/03/26/its-going-to-get-harder-to-avoid-telling-the-irs-about-income-from-online-sales.html
"If your sales are akin to having a garage sale — i.e., you unload belongings for less than what you originally paid — there typically is no reason to report what you pulled in, said Weston at the American Institute of CPAs. Essentially, there is no “income” to report."

https://www.washingtonpost.com/business/2022/01/21/venmo-paypal-new-income-reporting-requirement/
"Unless you are in the business of selling secondhand items, you will not be taxed for offloading that old living room furniture or the bed you’ve had since college. If you’re selling personal items at a loss, the reporting doesn’t affect you. For instance, if you purchased a dining-room table for $1,000 and sold it for $600, this amount would not be subject to income tax..."

So far so good. But Reverb or eBay will still send you a 1099K form that reports the sale as income. And there is NO PLACE on that form, or anywhere on the primary 1040 tax form as far as I can tell, for you to enter the offsetting cost of the item to show you did not make a profit. Here is the 1099K form:



Using the example above from Reverb, let's say I bought a guitar for $1,600 and sold it for $1,000. Reverb issues a 1099K form reporting the $1,000 gross income. Let's say I still have the original receipt for $1,600. What do I do with it? I can find NO PLACE on any of these tax forms to enter that information. Has anyone solved this?

Please don't say "hire an accountant." That would cost more than the amount at stake here. This is an issue that will potentially affect a great number of us. Someone here must know how to handle it. Thanks for any helpful info!!!

 

[knavel]

I would have thought 1040 Schedule D - Capital Gains and Losses. At least that's what buying and selling is, a capital gain or a capital loss, just like with stocks, real estate, etc. I wouldn't treat it as "ordinary income " unless buying / selling were my business, in which case I would think of Schedule C, Profit or Loss from Business.

 

[bgmacaw]

This link has some accountant type info on it: https://taxschool.illinois.edu/post/1099k/

But, basically, it looks like an audit trap being set up to capture hobby and part-time income....

 

[Killing Floor]

My understanding of this is that when you buy an item and use/own it and sell it later for less then the real cost of that item the money transferred is revenue but not income. If you sell for more real value then you originally acquired it for the delta between those 2 numbers is the income. That is how it has worked in the past. The fact that Reverb (and many others) now report the transaction total is the only difference this year.

And if you happen to play a gig with that gear you can depreciate the value, but that requires a more complex tax return and additional declarations.

 

[knavel]

Fortunately, it looks like we will not have to pay taxes on that.

There have been countless news articles written about this, and they all say the same thing.

The reason I stripped down your post to the above examples is that they get to the real point here, namely the outrage of having an increased paperwork load, which given the complexity of federal tax forms, already has a huge risk of error for which the filer can be punished financially and even criminally.

The fact of the matter is that you are right, not much of what turns up on a 1099-K is taxable because of the "basis" (key word in tax) of the good. You paid $1600; you sell for $1000. That's a capital loss of $600. Not tax payable. But you still have to put it on paper, and if audited, be prepared to prove it.

But where is the evidence that you paid $1600 for that guitar on Craigslist? Oh, you bought it on eBay--but after a few months the listing disappears from the net, how do prove that you paid $1600 for that guitar in 2015? How many receipts do you have from those garage sales where you got your collection of amps?

Stocks, by contrast, are largely all dematerialized so if you have a Schwab account it tells you your basis and actual gain or unrealized gain at any given time.

Things to keep in mind on those certain first Tuesdays in November.

 

[knavel]

My understanding of this is that when you buy an item and use/own it and sell it later for less then the real cost of that item the money transferred is revenue but not income. If you sell for more real value then you originally acquired it for the delta between those 2 numbers is the income. That is how it has worked in the past. The fact that Reverb (and many others) now report the transaction total is the only difference this year.

And if you happen to play a gig with that gear you can depreciate the value, but that requires a more complex tax return and additional declarations.

1) The first part I put in bold - it's capital gain not ordinary income. It's important to have an understanding of the basic tax terms of art. I haven't had a math class since I was 15, but I did taka tax class in law school and it helped to clarify my thinking.

2) I think you can only do that if you present your gigging as a business and file Schedule C. Also, I recall that there was a tax case where a symphony violinist who plays Stradivarius sorts of violins depreciated an expensive vintage violin bow and the IRS came up with some sort of regulation when something doesn't depreciate like, e.g., a delivery van, even if used for a business. If so, that approach might apply here, particularly with vintage gear.

 

[Marc Morfei]

The reason I stripped down your post to the above examples is that they get to the real point here, namely the outrage of having an increased paperwork load, which given the complexity of federal tax forms, already has a huge risk of error for which the filer can be punished financially and even criminally.

The fact of the matter is that you are right, not much of what turns up on a 1099-K is taxable because of the "basis" (key word in tax) of the good. You paid $1600; you sell for $1000. That's a capital loss of $600. Not tax payable. But you still have to put it on paper, and if audited, be prepared to prove it.

But where is the evidence that you paid $1600 for that guitar on Craigslist? Oh, you bought it on eBay--but after a few months the listing disappears from the net, how do prove that you paid $1600 for that guitar in 2015? How many receipts do you have from those garage sales where you got your collection of amps?

Stocks, by contrast, are largely all dematerialized so if you have a Schwab account it tells you your basis and actual gain or unrealized gain at any given time.

Things to keep in mind on those certain first Tuesdays in November.

Thanks, yes, right. The "increased paperwork load" is as clear as mud. The IRS 1099K instructions say nothing about about how it relates to the sale of personal items, or in what circumstances the reported income would not be taxable. Some of the other forms and schedules mentioned appear to be intended for businesses. Sale of personal property is not business income. Which leads back to my original question -- even if you can prove the "basis" (ie, the receipt for $1,600), where and how do you do that on your tax form? We're not in tax season at the moment, but next April I think there are going to be a million people asking this same question.

For myself, I'm just trying to decide if I can still use Reverb or not.

 

[24 track]

I have......live in Canada!

 

[schmee]

There have been previous threads about the new 1099K IRS reporting requirements for sales on Reverb, eBay, etc. This is not a general rant, I have a specific question: Has anyone figured out how to handle this on your income tax form?

Brief background: Starting this year, if you have sales totaling more than $600, Reverb or other similar sites issue an IRS form 1099K to report the income. Obviously none of us want to pay taxes on selling some used guitar. It's not "income" - we had to spend money to buy it in the first place. Fortunately, it looks like we will not have to pay taxes on that. Here is what Reverb says on the website:


There have been countless news articles written about this, and they all say the same thing. A few examples:




So far so good. But Reverb or eBay will still send you a 1099K form that reports the sale as income. And there is NO PLACE on that form, or anywhere on the primary 1040 tax form as far as I can tell, for you to enter the offsetting cost of the item to show you did not make a profit. Here is the 1099K form:

View attachment 983331

Using the example above from Reverb, let's say I bought a guitar for $1,600 and sold it for $1,000. Reverb issues a 1099K form reporting the $1,000 gross income. Let's say I still have the original receipt for $1,600. What do I do with it? I can find NO PLACE on any of these tax forms to enter that information. Has anyone solved this?

Please don't say "hire an accountant." That would cost more than the amount at stake here. This is an issue that will potentially affect a great number of us. Someone here must know how to handle it. Thanks for any helpful info!!!

Yeah, you pretty much have to set it up as a business to itemize deductions I think. It's a real load of BS for sure. So now anything you sell is income unless you start a business. And you pretty much have to show a profit every 3-4 years with that business or they will say it's a "hobby". My accountant said you dont send the 1099's in like you might a W9.
Fortunately I claim my music income for years now, so I will just add it in there I guess, along with deductions and mileage etc. Then claim a small profit every few years. The good news is those other years the loss actually helps my personal tax bill.

 

[knavel]

Thanks, yes, right. The "increased paperwork load" is as clear as mud. The IRS 1099K instructions say nothing about about how it relates to the sale of personal items, or in what circumstances the reported income would not be taxable. Some of the other forms and schedules mentioned appear to be intended for businesses. Sale of personal property is not business income. Which leads back to my original question -- even if you can prove the "basis" (ie, the receipt for $1,600), where and how do you do that on your tax form? We're not in tax season at the moment, but next April I think there are going to be a million people asking this same question.

For myself, I'm just trying to decide if I can still use Reverb or not.

I wouldn't work yourself up too much about it yet, as the forms for 2022 are not yet designed. If I got a 1099-K right now and had to deal with it in a return tomorrow it would be Schedule D (Capital Gain/Loss) in my instance.

In next year's forms there should hopefully be a provision for what someone has reported about you via a 1099-K process.

I definitely would avoid Reverb /eBay as you say and try as much as you can to sell here on these forums, Craigslist, etc. Unfortunately that only works best with the right kind of gear--e.g a 1954 Stratocaster on Craigslist is just inviting grief.

 

[Marc Morfei]

I wouldn't work yourself up too much about it yet, as the forms for 2022 are not yet designed. If I got a 1099-K right now and had to deal with it in a return tomorrow it would be Schedule D (Capital Gain/Loss) in my instance.

In next year's forms there should hopefully be a provision for what someone has reported about you via a 1099-K process.

I definitely would avoid Reverb /eBay as you say and try as much as you can to sell here on these forums, Craigslist, etc. Unfortunately that only works best with the right kind of gear--e.g a 1954 Stratocaster on Craigslist is just inviting grief.

Yeah, I'm trying to use CL for these and other reasons. But when I list something on Reverb it almost always sells within 1 week, and for more money. Might take me 6 months to sell on CL... Ah well, petty complaints....

 

[Killing Floor]

1) The first part I put in bold - it's capital gain not ordinary income. It's important to have an understanding of the basic tax terms of art. I haven't had a math class since I was 15, but I did taka tax class in law school and it helped to clarify my thinking.

2) I think you can only do that if you present your gigging as a business and file Schedule C. Also, I recall that there was a tax case where a symphony violinist who plays Stradivarius sorts of violins depreciated an expensive vintage violin bow and the IRS came up with some sort of regulation when something doesn't depreciate like, e.g., a delivery van, even if used for a business. If so, that approach might apply here, particularly with vintage gear.

You should declare your gig income in order to do this as I said. For most of my life I filed as a musician, both when I was a full-time and part-time. We worked with an EA who helped get it as good as legally possible. To your point, you can’t declare depreciation on gear unless you are also properly reporting income as a musician which you can do even part time. And since many of the gigs still pay cash, who am I to say when you should or should not report it. As long as there are $10K toilet seats on Air Force planes I adhere to the belief it is OK to push the limit on my own taxes. And as I said, an EA prepares mine so I trust them.

 

[Boreas]

As I mentioned in a previous post, the IRS is not looking for more work to do. They are understaffed. If they decide to audit someone, they want a sizable return in that effort.

Just like anything else, there are things that can raise red flags and trigger audits, but it isn't going to be a $400 gain on Reverb. But if they see numerous sales amounting to $40k in sales, they may come looking, if you are showing no capital gains or income from a business. If all of these sales are going to be declared as losses, then be prepared to prove it with receipts. They will be looking for suspicious patterns and fairly large thresholds to trigger audits. We just aren't privy to that information.

But Average Joe who sells one or two guitars a year for a loss or minimal gain isn't likely to trigger an audit. Keep in mind, most people never get audited in their lifetime, unless something raises a big red flag.

My recommendation is if you sell many guitars, at least keep records. I keep everything on a big-ass spreadsheet. Every instrument I have ever bought or sold, and the prices of each, serial numbers, pix, details - even keep track of what strings are on it and when they were changed! I either save actual receipts (or images) or I save the listing link AND web data in a file for each instrument purchased or sold on eBay if I don't get an actual receipt. You can also do screen shots for documentation.

Bottom line is, don't fear the IRS, but respect them. Do your best to document stuff and comply and it is unlikely you will ever do any hard time.

 

[hdvades]

I can't help the OP, but this right here from Wikipedia...

Form 1099-K is sent out to payees by a payment settlement entity (such as a bank) if there are more than 200 such transactions and the gross payments exceed $20,000.[1] This threshold will be reduced in 2022 to $600 with no minimum number of transactions.

smh

 

[SRHmusic]

Schedule C seems right. You can put hobby and personal business income there, AFAIK. But find an accountant friend and ask them.

A few relevant links:

Form 1099-K Decoded for the Self-Employed - TurboTax Tax Tips & Videos

The IRS Form 1099-K tracks income received through third-party payment methods, like credit credits, PayPal, and other payment services. Here’s what you need to know about this form and how to avoid any surprises come tax season.

turbotax.intuit.com

What Is a 1099-K? Who Gets One and How It Works - NerdWallet

A 1099-K is a transaction record from third-party payment networks such as Venmo. The objective is to ensure people report their business income on their taxes.

www.nerdwallet.com

 

[Bluego1]

If you’re just a home player and you sell a guitar and you get a 1099k, you’ll report the 1099k amount on schedule D and then enter your basis (basically what you paid for it). It’s probably a loss, which will be disallowed. If you don’t know what you paid, just put your basis equal to the amount on the 1099k so no gain or loss is generated.
Don’t do a schedule C unless you’re buying and selling enough that it is a business. Or if you’re a performing musician for whom that guitar was a business asset subject to depreciation, etc. in which case you’re already doing a schedule C.
If they don’t revise the schedule D to have a line item for 1099k, just write or type in “from form 1099k” in the description of the item you sold.

 

[Masmus]

As I mentioned in a previous post, the IRS is not looking for more work to do. They are understaffed. If they decide to audit someone, they want a sizable return in that effort.

Just like anything else, there are things that can raise red flags and trigger audits, but it isn't going to be a $400 gain on Reverb. But if they see numerous sales amounting to $40k in sales, they may come looking, if you are showing no capital gains or income from a business. If all of these sales are going to be declared as losses, then be prepared to prove it with receipts. They will be looking for suspicious patterns and fairly large thresholds to trigger audits. We just aren't privy to that information.

You're right they're probably not going to audit you but I have had the IRS run my return through a computer and and send me a bill for an increase without needing any additional labor from them. If you ignore a 1099 this is likely and they will ask that you send more money or provide proof (receipts) which should be easy if you are an actual business. If you are an individual that has collected guitars like I have since I was a teen I certainly don't have those receipts.

So to recap I don't think you'll be audited but I'd still expect a bill from the IRS unless you have proof of what you paid for it originally. Any IRS agents or Tax attorneys out there? It would be great to know what is actually happening.

 

[Marc Morfei]

If you’re just a home player and you sell a guitar and you get a 1099k, you’ll report the 1099k amount on schedule D and then enter your basis (basically what you paid for it). It’s probably a loss, which will be disallowed. If you don’t know what you paid, just put your basis equal to the amount on the 1099k so no gain or loss is generated.
Don’t do a schedule C unless you’re buying and selling enough that it is a business. Or if you’re a performing musician for whom that guitar was a business asset subject to depreciation, etc. in which case you’re already doing a schedule C.
If they don’t revise the schedule D to have a line item for 1099k, just write or type in “from form 1099k” in the description of the item you sold.

Thanks

 

[Maguchi]

There have been previous threads about the new 1099K IRS reporting requirements for sales on Reverb, eBay, etc. This is not a general rant, I have a specific question: Has anyone figured out how to handle this on your income tax form?

Brief background: Starting this year, if you have sales totaling more than $600, Reverb or other similar sites issue an IRS form 1099K to report the income. Obviously none of us want to pay taxes on selling some used guitar. It's not "income" - we had to spend money to buy it in the first place. Fortunately, it looks like we will not have to pay taxes on that. Here is what Reverb says on the website:


There have been countless news articles written about this, and they all say the same thing. A few examples:




So far so good. But Reverb or eBay will still send you a 1099K form that reports the sale as income. And there is NO PLACE on that form, or anywhere on the primary 1040 tax form as far as I can tell, for you to enter the offsetting cost of the item to show you did not make a profit. Here is the 1099K form:

View attachment 983331

Using the example above from Reverb, let's say I bought a guitar for $1,600 and sold it for $1,000. Reverb issues a 1099K form reporting the $1,000 gross income. Let's say I still have the original receipt for $1,600. What do I do with it? I can find NO PLACE on any of these tax forms to enter that information. Has anyone solved this?

Please don't say "hire an accountant." That would cost more than the amount at stake here. This is an issue that will potentially affect a great number of us. Someone here must know how to handle it. Thanks for any helpful info!!!

We're just gonna have to keep receipts and records on guitars bought and sold. I don't sell stuff much and haven't sold anything in a coupla years but kept receipts on everything I've bought since around the 1990s. Not for tax purposes so far, but just want to know how much I bought a guitar, amp or pedal for so I will know how the original price lines up with what I ask for it if I ever do decide to sell it. It's just a huge mailing type envelope with receipts in paper clips in my filing cabinet. Ain't no thang!

 

[Old Verle Miller]

The reason I stripped down your post to the above examples is that they get to the real point here, namely the outrage of having an increased paperwork load, which given the complexity of federal tax forms, already has a huge risk of error for which the filer can be punished financially and even criminally.

The fact of the matter is that you are right, not much of what turns up on a 1099-K is taxable because of the "basis" (key word in tax) of the good. You paid $1600; you sell for $1000. That's a capital loss of $600. Not tax payable. But you still have to put it on paper, and if audited, be prepared to prove it.

But where is the evidence that you paid $1600 for that guitar on Craigslist? Oh, you bought it on eBay--but after a few months the listing disappears from the net, how do prove that you paid $1600 for that guitar in 2015? How many receipts do you have from those garage sales where you got your collection of amps?

Stocks, by contrast, are largely all dematerialized so if you have a Schwab account it tells you your basis and actual gain or unrealized gain at any given time.

Things to keep in mind on those certain first Tuesdays in November.

This is not tax advice (that's what I pay someone for) but if you buy an asset for $1,600 and it's used in your "business" (i.e., professional performer), it can be expensed in that year to offset income for that year or if you're more financially sophisticated it can even be depreciated over 7 years. (I would consider that a waste of time unless you already have a complex tax filing.)

Depreciation rules on things like amplifiers does not recognize that they may actually go up in market value. The tax rules say they should be straight-line depreciated over 7 years.

So if you declared it as an expense the year you bought it to reduce your taxable income, the gain from the sale is ordinary income and as knavel pointed out, you'll need to document it. If you didn't declare it as a deduction, it's still going to be a capital gain.

This is where professional tax advice is required to help you decide what deductions you can or should or shouldn't take advantage of. There are too many other factors that can make a difference and the damn regulations change all the time.

Documentation is everything.

YMMV.