Has anyone solved the 1099K issue?

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Askwhy

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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.
Thanks to the one person who actually answered the question :).
 

Askwhy

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A good accountant is worth their weight in gold.
Not incorrect but for something simple like this, if you normally could file your own and now go to an accountant, i would say that is not the case. You may end up spending more than even just not attempting any offset of the 1099.
This is why it was such a stupid way of enforcement (the law didn't change), as opposed to selective auditing. Tons of angst and/or extra expense for little actual revenue over what could be achieved by targeted correspondence audits. Idiocy.
 

knavel

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Thanks to the one person who actually answered the question :).
Thanks. What I was thinking about after I answered that was whether this year's tax forms would have a provision to deal with this in a 1040-EZ. The EZ presupposes the filer has no schedules.

The upshot would be that a guy who has a $45k in salary and nothing else can't file the EZ. But if he wants to deal with the $850 gross in junk he sold that year on eBay in terms of showing it was not $850 windfall but something he had a tax basis in of, e.g , $1000 and therefore owes nothing this year on and has a carry over of $150 next year in deductions on capital gains, he has to file a regular 1040 with schedules.

Fat chance that person can work this out without a specialist. That's why heretofore the threshold was $20k in sales before this had to be accounted for.

Elections have consequences.
 

SRHmusic

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Yes documentation (evidence) is everything.

Still I find it simply wrong that most everyone should somehow be required to engage tax advice. Here in the UK one doesn't even have to prepare a tax return for earned income under £100,000. When a return has to be prepared it takes minutes not weeks. This is because the tax system here isn't riddled with the results of special interest, lobbying, pork, welfare and on and on.

One thing that no one ever mentions is the federal government is so very often the employer of the otherwise unemployable. This includes the IRS.

Unless you get to the Silicon Valley oligarch level if a human even looks at your tax info it will likely be one of those otherwise unemployable sorts and there's a decent chance that person will know less about the IRS code than you do. Just think of your last experience at the DMV and the IQ of the person you dealt with. It cuts both ways because as we all know, one cannot reason with an idiot; but you can also get lucky and have things that count against you be completely overlooked.
Yeah we really could use a simplified tax code.

But I would not paint government employees with such a broad brush. I know several that are serious experts on things, and the only times I needed to talk to people at the IRS they were both courteous, competent and efficient. YMMV with a state DMV though!
 

archtop_fjk

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While I largely agree that the average tax filer shouldn’t worry too much about this since the IRS is focusing on bigger fish, it begs the question - why the threshold change to $600? In fact, why not make it $0? There’s nothing magical about $600. If the flood of 1099K data is too much, then the government should switch back to the old rule. At least it would help me pay for my car’s $5 / gallon gasoline…
 

geoff_in_nc

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Let me throw a wrench into the works....
Let's say I buy a guitar for $500, and put a few hundred bucks of upgraded hardware on it, and spend many hours refinishing it myself. I then sell it for $1200. Is the upgraded hardware now part of the basis? Does my time go with with that to offset what I receive when I sold it?
 

Askwhy

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Thanks. What I was thinking about after I answered that was whether this year's tax forms would have a provision to deal with this in a 1040-EZ. The EZ presupposes the filer has no schedules.

The upshot would be that a guy who has a $45k in salary and nothing else can't file the EZ. But if he wants to deal with the $850 gross in junk he sold that year on eBay in terms of showing it was not $850 windfall but something he had a tax basis in of, e.g , $1000 and therefore owes nothing this year on and has a carry over of $150 next year in deductions on capital gains, he has to file a regular 1040 with schedules.

Fat chance that person can work this out without a specialist. That's why heretofore the threshold was $20k in sales before this had to be accounted for.

Elections have consequences.
Could not agree more. I doubt it will be doable on the 1040EZ. Idiocy.
And for reference i am absolutely for Reverb, Ebay, et al collecting and remitting sales tax as i think that makes sense and is the best way to do it. Actual revenue too.
 

knavel

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Could not agree more. I doubt it will be doable on the 1040EZ. Idiocy.
And for reference i am absolutely for Reverb, Ebay, et al collecting and remitting sales tax as i think that makes sense and is the best way to do it. Actual revenue too.
Thanks, although I made a bad typo - in my hypothetical it should say that the guy who made $45K can file the EZ (not "can't"); unless he wants to deal with the 1099s from Reverb and eBay. Then he'll have to file the full 1040 with the schedules. The problem for Mr. Hypothetical to me is if someone sells >$600 and thereby must file a standard 1040 as 1040EZ can't deal with that so if he files the 1040EZ he's taking a legal risk.

I'm not for Reverb and eBay collecting tax. It makes those sites more uncompetitive against a Craigslist or FB Marketplace. State taxing agencies especially in high state tax states that run up and down each coast (Oregon being a noble exception) are more aggressive than the IRS these days.
 

Askwhy

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Thanks, although I made a bad typo - in my hypothetical it should say that the guy who made $45K can file the EZ (not "can't"); unless he wants to deal with the 1099s from Reverb and eBay. Then he'll have to file the full 1040 with the schedules. The problem for Mr. Hypothetical to me is if someone sells >$600 and thereby must file a standard 1040 as 1040EZ can't deal with that so if he files the 1040EZ he's taking a legal risk.

I'm not for Reverb and eBay collecting tax. It makes those sites more uncompetitive against a Craigslist or FB Marketplace. State taxing agencies especially in high state tax states that run up and down each coast (Oregon being a noble exception) are more aggressive than the IRS these days.
Yes but it makes a more level playing field for the brick and mortar stores in those areas. More so amazon/wayfair etc. than the music specific sites but same theory. I understand your point though.
 

knavel

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Yes but it makes a more level playing field for the brick and mortar stores in those areas. More so amazon/wayfair etc. than the music specific sites but same theory. I understand your point though.
I don't see it as a leveling of the playing field: Music stores are businesses; a guy with equipment from his playing days in the basement is a casual seller who does not get tax deductions and depreciation write offs, wholesale prices, etc.
___
Sorry it took me a while to close out this discussion; I got banned for a while.

Over time I've provided copyright and tort law explanations as well as litigation advice that I am paid by the hour to give in my practice. While in this instance tax isn't among my main skillsets I understand how the legal aspects work certainly well enough to focus the discussion.

Never a word of thanks for any of this from whoever has access to the admin console. But man how fast acting that person was was when I stated fact (I looked at who voted for the law that had the rider that resulted in 1099-Ks and simply reported the fact. No opinion whatsoever.)

Lesson learned and henceforth I won't participate discussions where I tap into my legal knowledge anymore and let people work out those things on their own and their own cost no matter how simple and unnecessary that might actually need to be. If I don't get re-banned henceforth I'll keep things to arguing that candy apple red is a better color than lake placed blue.
 

Askwhy

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I don't see it as a leveling of the playing field: Music stores are businesses; a guy with equipment from his playing days in the basement is a casual seller who does not get tax deductions and depreciation write offs, wholesale prices, etc.
___
Sorry it took me a while to close out this discussion; I got banned for a while.

Over time I've provided copyright and tort law explanations as well as litigation advice that I am paid by the hour to give in my practice. While in this instance tax isn't among my main skillsets I understand how the legal aspects work certainly well enough to focus the discussion.

Never a word of thanks for any of this from whoever has access to the admin console. But man how fast acting that person was was when I stated fact (I looked at who voted for the law that had the rider that resulted in 1099-Ks and simply reported the fact. No opinion whatsoever.)

Lesson learned and henceforth I won't participate discussions where I tap into my legal knowledge anymore and let people work out those things on their own and their own cost no matter how simple and unnecessary that might actually need to be. If I don't get re-banned henceforth I'll keep things to arguing that candy apple red is a better color than lake placed blue.
I meant online businesses collecting and remitting local sales tax as leveling, not idiotic changes to 1099 reporting threshold so i do not disagree with you. Sad about simple facts getting you banned but consider how many on these forums think the tax issues are reverb/ebay's fault and inflation is caused by greedy tube and amp manufacturers and vendors without ever looking deeper. "1984" and "Idiocy" weren't supposed to be documentaries, lol.
 

Masmus

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I still think the most likely outcome of selling gear as an individual that you don't have receipts for is, when the 1099 goes to the IRS a computer there will make an automatic adjustment to the tax you owe. You will be sent an amended return showing your additional "income" and if you don't want to pay the additional tax you will have to prove what it cost. I have had something similar happen to me, I wasn't audited, the IRS didn't spend any money to increase my tax other than printing and mailing the amended return. I could have fought it but it would have cost me more than the additional fee. It will be interesting to see how this actually plays out.
 

THX1123

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Is everything taxed in the Land of the Free?
I think I paid a tax tax on my lowered taxes last year. That put me into another tax bracket, which meant I owed another tax tax on the difference between what tax I would have paid and what tax I should have paid. I deducted part of that increased tax burden as non-taxable, and therefore owed another tax on what tax I could have paid vs. what tax I might have paid. Then I sold a guitar for $605 dollars on Reverb that I purchased for $1000 but I couldn't report the capital loss so I owed another tax tax on the original tax in addition to the sales tax I paid when I bought the guitar, which was not offset by the taxes collected when I sold the guitar.

The only way I can see to avoid this conundrum is to pay people more than they are paying for guitars I sell in the future. This is to say I am buying a guitar I already own by paying the buyer more than I paid for the guitar, but then immediately giving it away. That way every transaction is a documentable capital loss and I can never have taxable income that I can then be taxed again for by selling at a loss.
 
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mad dog

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It's proving the basis that will be difficult or impossible. Case in point. I purchased a guitar a couple years ago for cash. No intent to resell, no receipt. Also, at that time, I was not aware there ever would be reporting by Paypal. And I am not a business.

Last week, I sold that guitar. For a loss. Buyer paid me via Paypal. Then I read about this new reporting thing. So Paypal will no doubt issue the form. How am I supposed to prove that it was a loss, rather than pure profit? Or will I have to take it on the chin and pay tax on a guitar which has already lost me money?
 

chris m.

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Here is what I do: see this IRS link regarding hobby income--


Most of us that play gigs and buy/sell gear but have actual day jobs should consider this other stuff as a hobby, not an actual business.
The key issue here is that if it is a legitimate business (see the IRS' nine discriminating factors) then you are allowed to use costs such as depreciation, expenses, etc., to offset income-- not just from the business but also from your day job income.

However, for most of us, since it's just a hobby, we are supposed to report the income, but not the expenses.

Here's what I do, however. I keep a little gig/gear book, with handwritten notes in it. Let's say we do a gig, and the venue manager gives me a check for $300 and a 1099 in my name. I write down that I collected $300, but that I only got $50 because the rest was split among the band members, and that I also spent $10 on gas. So that I netted $40. Note, however, that I'm not trying to write off the depreciation on all my music gear as an offset-- that would only be kosher for an actual business, not a hobby.

If I buy a piece of new or used gear, I write it down in the book. If I buy pickups for it I write that down. If I sell it later, I write that down, and estimate any net surplus I got out of it if I actually realized a surplus. So let's say I buy a guitar for $400, put $150 of upgrades into it, and sell if for $700. In my little book I'm going to show a net income of $150. I don't even get into the transaction fees, postage and handling, etc., although I certainly could.

If those were the only two transactions for the year I would report $190 of miscellaneous income and I feel I could successfully defend myself in the extremely rare event of an audit. My notebook would be Exhibit A for my defense. At worst I would have to pay some back taxes and interest that wouldn't amount to a whole lot, but no one would be able to demonstrate that I was intentionally evading taxes or attempting to defraud the U.S. gov't.

It would be annoying if a couple little transactions meant I could no longer use the 1040-EZ, but that hasn't been the case for me for years. I've been filing the full 1040, using TurboTax, for years.

But here's what really annoys the IRS. Let's say I go buy a big, beautiful Boston Whaler with a nice trailer. I take it fishing with my buddies on every weekend. I even manage to get a commercial fishing license, maybe even manage to sell some fish legally to a wholesaler. I earn maybe $1,000 from selling wholesale fish but meanwhile my boat cost me $100,000 to get it, and another $5,000 a year to maintain it. The IRS is not going to be happy if I try to claim depreciation and maintenance costs on my boat to offset not just the income from selling the fish, but also the income from my 9-5 day job that actually pays all my bills. This is a HOBBY, not a business, according to their criteria. That's what's going to get you in hot water, not a little miscellaneous income. It's the sketchy deductions they don't like. Calling your guitar playing and trading a business rather than a hobby is what's going to get you in trouble unless it lines up well with their nine differentiating criteria.

As a related example, they allow charitable deductions. We write checks to various charities, which is easily documented, but we also give a ton of used clothes and household items to a local church. We are allowed to claim the value of those donations as a legitimate charitable deduction. But I always err on the low side of what I would expect to get for this stuff at a garage sale. It amounts to a few hundred bucks a year as an additional deduction. I don't think the IRS is going to care much. But if one year I were to claim $5,000 because I decided to give the church all my appliances and household good, let's say to sell my house and move into a van, you can bet in that scenario I would take pictures of everything and ask the church to sign an itemized receipt that I would prepare, listing the items I gave them.
 
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