Ina Steiner EcommerceBytes Blog
News and insight focusing on ecommerce.
by Ina Steiner, Editor of EcommerceBytes.com
Tue Feb 6 2018 17:13:56

Sellers in Two States Shocked by PayPal Tax Notice

By: Ina Steiner

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Some Massachusetts and Vermont residents are getting an unpleasant surprise in the mail this week from PayPal thanks to revenue-hungry legislators in their states. And beware, other states may follow.

Payment processors such as PayPal are required to send 1099Ks to customers who process $20,000-plus-200 transactions in a year. But some people are getting 1099Ks from PayPal for amounts as low as $600 with very few transactions.

That's because Massachusetts and Vermont retroactively passed new laws last year requiring payment processors to file 1099Ks for customers who processed at least $600 in 2017, no matter how little the number of transactions they processed. (We live in Massachusetts and follow small-business and tax issues, and we hadn't heard a word about this new law until today.)

Sellers who inquire about the surprise 1099Ks are reporting on forums that PayPal is telling them it is not sending the form to the Feds - we've got a question in to PayPal about this. We also asked PayPal why it didn't inform sellers of the change ahead of time (as a courtesy), since this came as a complete surprise to many sellers until they opened their mail this week.

Some may have little sympathy for those impacted, assuming they are tax evaders. But this also impacts people selling casually who are following IRS guidance about "Online Garage Sales" - see this page on the IRS website.

On one board, a seller noted he received a 1099K for $630. He said he had probably paid $1,000 for the items, so didn't profit from the sales. But given that the law is retroactive, someone in his shoes may not have considered whether they had receipts for the items before selling them online last year.

Such laws will likely push casual sellers towards local selling through classified sites and apps, including Craigslist and Facebook, unless / until lawmakers figure out a way to track cash transactions.

Note: To be clear, this isn't about state sales tax, it's about state income tax. See more info on 1099Ks in this post from 2012.

Update 2/8/18: See today's Newsflash article, "PayPal Advises Etsy Sellers on Dupe 1099K Tax Forms."

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by: Flying Childers This user has validated their user name.

Thu Feb 8 17:39:12 2018

Moonwishes- put down your pearls and get off your high horse.  Sheesh!  You act like everyone who's critical of the latest Government overreach is some kind of crook.  Get a grip!

All I meant was that according to the law that affected the credit card processing companies was that they had to report sellers to the IRS for whom they processed over $20,000 in gross sales.

AS A MATTER OF FACT, HERE'S WHAT ETSY HAS TO SAY ABOUT IT AS OF FEB. 8, 2018:

"Who gets 1099-K forms?

Etsy shop owners who use Etsy Payments to process over $20,000 in gross sales for more than 200 orders in a given calendar year.

If you have more than one Etsy shop, you’ll get a 1099-K for each one if their combined sales meet that threshold. "

So I'm sure you can now understand the confusion that exists.  DON'T BLAME YOUR FELLOW SELLERS FOR THE SCREW UPS OF ETSY, EBAY, PAYPAL AND BIG GOVERNMENT.  

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This user has validated their user name. by: Ming the Merciless

Thu Feb 8 18:42:10 2018

@FlyingChilders

"Moonwishes- put down your pearls..."

I hope you meant pearls of wisdom here though, if so, more than slightly out of context. Otherwise your misogyny is showing.

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by: Flying Childers This user has validated their user name.

Thu Feb 8 21:15:15 2018

Responding to Ming the Merciless- the expression "to clutch one's pearls"  refers to a situation in which a person, usually female, expresses her shock or dismay at a situation she finds crass, coarse or vulgar.   I don't think there is any misogynistic connotation of the saying, at least not that I've seen.    

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by: comments This user has validated their user name.

Fri Feb 9 13:34:47 2018

I exceed the threshold to be 1099'd and that is cool with me because I pay my taxes. I deserve my 1099

But a 1099 for someone who sells personal items is usually taking a loss and isn't a business. This is just as unreasonable as 1099ing homeowners who held garage sales.

If you want more revenue legalize marijuana in VT and start allowing its sale in MA. Leave the people alone! They are taxed 100 different ways on each product they buy before ultimately paying tax again at point of sale......no only to pay tax again on product disposal in the second hand market? It is not reasonable to make everyone save every receipt in case they decide to resell in the future!

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by: timeaftertime This user has validated their user name.

Sat Feb 10 09:23:34 2018

Thank you Ina for the update:  ''Discussion on industry boards indicate that some sellers had been unaware of their obligation to pay taxes on income unless they received a 1099K, which is the problem the new laws are trying to tackle.''

As I hear so often on Judge Judy, ''Coulda, woulda, shoulda.''

Unaware?  How can people be unaware they are supposed to report income ?

My favorite spot for this is the Puppies for Sale column in the newspaper. The revenooers should start with these people, if they are looking for tax evaders. Neighbor's dog has 9 ''Golden Doodle'' pups @ $1K and instantly we are talking big bucks!  

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by: timeaftertime This user has validated their user name.

Sat Feb 10 09:25:27 2018

@comments - Forget marijuana, look at the racket with used cars .  Every time an automobile is sold, there is sales tax that must be paid.  Should not sales tax on the ORIGINAL purchase be sufficient ? but no.  

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by: Postthoughts This user has validated their user name.

Sat Feb 10 12:53:29 2018

I sold some items for my elderly neighbor who could not afford oil to heat his home.  I sold the items under my personal account thinking that  it was far below the IRS garage sale rules and it would not be reported.  It was not income and he was selling items he hasn't used in years. I deducted the fees and gave him 100% of the proceeds.

I was one of those people that was shocked to receive the 1099 because the sales added up to $630.15.  I do keep records for my selling account, not this personal account which I only use for buying until now.  What a mess and time sucker this turned out to be. That $630.15 was not all profit as you know.  Of course I had to deduct Paypal fees, ebay final value fees, ebay final value shipping fee, refunds and postage plus the cost of the packing materials which I did not charge him for.  

I will be paying the taxes on my good deed because I know, he doesn't have the money.  My own sales this year were awful.  I'm hoping my other deductions will be enough to offset the loss.  I guess it's true, no good deed goes unpunished.

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This user has validated their user name. by: Marie

Sat Feb 10 17:00:58 2018

@postthoughts

I think this retroactive part of the new rules for these states is way out of line.  But unfortunately that is just my own opinion.

You will be OK.  There are some things you can do to have the proper records.  I'm happy to give you some ideas on how to do that.

First go to your personal PP account.  Under reports you will find a detailed transaction report that you can download.  I put mine into Microsoft Excel.  If you aren't familiar with this program, maybe one of your friends or family members could help you.

From this report you will be able to ID those transactions you did for your friend and the PP costs associated with them.  You could build another worksheet where you put your sales and your cost of sales [COGS].  Your gross sales will come from the PP reports, then you would have columns for each of your different costs.  Ending with your Net Income.  Sales minus all your costs.

So in your sales report you create you would have a column for stuff like this.

Gross Sales
Less Direct costs:  Ebay Fees
                             PP Fees
                             Shipping Costs
                             Material or Product costs
                             Other Costs
Net Income [gross sales minus all your costs]

You can create receipts if necessary for the dates you paid your neighbor.  Those receipts for the money you gave your neighbor would be categorized on the worksheet as Material or Product Costs.

This really is simple.  If I've confused the heck out of you, just let me know and I'll try to do a better job if you are interested in creating the records you will need.

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