[thehutch]

PayPal has started collecting social security numbers or tax IDs from those who use goods and services to sell items in the U.S. This is part of a new federal requirement on such sites to report all sales income above $600 to the IRS. The previous threshold was $20,000 or 200 transaction per a year. PayPal users – and users of other sites like Etsy and eBay – will receive a 1099-k starting with the 2022 tax year (so you’ll get it in 2023). More on the requirement here.

I’m curious to hear from any accountants here about how best to minimize or eliminate any tax obligations when selling through the classified section on Head-Fi. Obviously this is a hobby and most of us aren’t making money buying and selling here. I depreciate just about every headphone or piece of gear I resell.

Will this requirement mean that anyone who sells more than $600 in items on PayPal will be forced to deal with it on their taxes? And what does this do to state sales tax obligations? Will states come after us if we don’t collect sales tax? Thanks.

 

[ckhirnigs113]

I'm bumping this thread to see how this will work when selling used audio equipment here and elsewhere and using PayPay to receive payment. Does anybody have more details on how this is going to work in our hobby?

 

[HiFiHawaii808]

PayPal has started collecting social security numbers or tax IDs from those who use goods and services to sell items in the U.S. This is part of a new federal requirement on such sites to report all sales income above $600 to the IRS. The previous threshold was $20,000 or 200 transaction per a year. PayPal users – and users of other sites like Etsy and eBay – will receive a 1099-k starting with the 2022 tax year (so you’ll get it in 2023). More on the requirement here.

I’m curious to hear from any accountants here about how best to minimize or eliminate any tax obligations when selling through the classified section on Head-Fi. Obviously this is a hobby and most of us aren’t making money buying and selling here. I depreciate just about every headphone or piece of gear I resell.

Will this requirement mean that anyone who sells more than $600 in items on PayPal will be forced to deal with it on their taxes? And what does this do to state sales tax obligations? Will states come after us if we don’t collect sales tax? Thanks.

I think it's a pain in the tail to have to deal with this accounting. Not sure how we need to file for it. Either create another schedule C with just audio gear that ends up with a loss and then combine it with other business income to offset profit elsewhere. Strange. I will end up being able to deduct the losses incurred on my audio purchases and resales against business income. Seems really dumb to me. I would have never done that had they not forced me to do it.

 

[ckhirnigs113]

It really is a pain. It's tempting to only deal with people you know and trust and stick to the "Friends and Family" option on PayPal. That would obviously severely limit the pool of buyers I'd be selling to. Otherwise, we all have to do some complicated accounting or resign ourselves to taking a substantial hit on the sale of used audio equipment.

 

[thehutch]

Yeah, I agree, “friends and family” probably the way to go – just deal with trusted folks here. No more risky than trades.

I briefly spoke to a CPA about this. He told me you could actually reduce your tax exposure if you list all of this as business income and write off everything you buy (or write off the loss on the sales, I’m not sure how that works).

BUT… he said that will only work for a few years. Eventually the IRS is going to audit you and there’s going to be a whole debate about is it a hobby or is it a business? I guess there are limits on how much you can write off for a hobby. And it’s also hard to prove you’re selling as part of a hobby.

It sounds like a complete mess unless you already have a complicated tax return, use a CPA and get audited regularly.

And of course this also raises the issue of sales tax. Some states require online sellers to collect sales tax from their residents even if you’re in another state (recent Supreme Court decision allows this).

 

[alpha80]

Longtime users with a known personality can hope to use F&F.

But that aside, the Biden administration really is going after the little guy, instead of their fat cat donors. Sad times:

 

[thehutch]

Technically George Bush is responsible for the reporting requirement applying to payment processors. It was one of the pay-fors in the Housing and Economic Recovery Act of 2008. This just lowers the threshold.

Nothing like a stimulus bill to to rewrite the tax code…

 

[HiFiHawaii808]

Yeah, I agree, “friends and family” probably the way to go – just deal with trusted folks here. No more risky than trades.

I briefly spoke to a CPA about this. He told me you could actually reduce your tax exposure if you list all of this as business income and write off everything you buy (or write off the loss on the sales, I’m not sure how that works).

BUT… he said that will only work for a few years. Eventually the IRS is going to audit you and there’s going to be a whole debate about is it a hobby or is it a business? I guess there are limits on how much you can write off for a hobby. And it’s also hard to prove you’re selling as part of a hobby.

It sounds like a complete mess unless you already have a complicated tax return, use a CPA and get audited regularly.

And of course this also raises the issue of sales tax. Some states require online sellers to collect sales tax from their residents even if you’re in another state (recent Supreme Court decision allows this).

I own a complex business and I have been audited and passed 2 full audits. I know how the IRS conduct audits and to prepare documentation that will pass their tests. I can easily write off all of my audio hobby expenses including travel to CanJams etc if I wanted and I would pass an audit. I never wanted to do this, but now that I have to report my audio transactions due to their ridiculous requirement to issue 1099 on small transactions, I am probably going to do it. This is what they wanted. This is what they will get.

 

[Raketen]

Per the article

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.

So the payment processors produce the forms, but it's not necessarily meaning you have to pay.

 

[thehutch]

Per the article



So it sounds like this is more like CYA from the likes of Paypal, et al... they don't face any liabilities if they force all users to participate (wheras with the $20k threshold, fewer users to police, most of whom probably had business accounts).

No it’s federal law. They must file a 1099k for every user who has more than $600 in transactions. It’s not PayPal’s fault. I’m sure they would have and maybe did lobby against it.

 

[Raketen]

No it’s federal law. They must file a 1099k for every user who has more than $600 in transactions. It’s not PayPal’s fault. I’m sure they would have and maybe did lobby against it.

Yeah, saw another article & edited my post, thanks for clarification.

 

[dougq]

I’m confused. Reading this sounds like if you are selling a used good for less than you paid this is not reportable income so no actual impact.

 

[thehutch]

I’m confused. Reading this sounds like if you are selling a used good for less than you paid this is not reportable income so no actual impact.

Except PayPal will send a form 1099k to the IRS saying you sold “X” dollars in merchandise last year. So you’re going to have to deal with it in some way when you file your tax return, either by claiming it was hobby income and trying to write off expenses associated with the hobby. Or by saying it was business income and writing off expenses. The latter is going to get you audited, eventually. The former is likely to do the same.

 

[SCBob]

Except PayPal will send a form 1099k to the IRS saying you sold “X” dollars in merchandise last year. So you’re going to have to deal with it in some way when you file your tax return, either by claiming it was hobby income and trying to write off expenses associated with the hobby. Or by saying it was business income and writing off expenses. The latter is going to get you audited, eventually. The former is likely to do the same.

Agree. Friends and Family transactions between trusted head-fiers avoids the mess.

 

[Raketen]

I’m confused. Reading this sounds like if you are selling a used good for less than you paid this is not reportable income so no actual impact.

Even if it doesn't cause complications with filing, I'm somewhat bothered by the prospect of giving paypal my SSN- I'm sure they're a huge target for hacking, so yet another vector for ID theft.

Really wish we had proper secure ID systems rather than using SSN as defacto ID for everything from finance to medical to employment etc...