This is regarding the 2022 1099-K $600 threshold. The literature that says if you are selling your personal items casually you WON'T have to pay taxes is a bunch of horse hockey!!!
As a seller and a former CPA here is the real deal as to why it is such a burden:
I will use a recent sale of mine as an example:
Item sold for $30
Sales Tax $3.51
eBay Fees $5.70
Actual Shipping Out $9.04
On this transaction my actual earnings WITHOUT considering the cost of the item were $24.76. On my 1099-K eBay will report that I earned $43.01. So how do I deduct the $18.25 in expenses?
There are 2 ways to report the earnings:
As a casual or hobby seller on Schedule 1 of form 1040 or as a business on Schedule C.
If I don't report anything (like the literature is saying) it will raise a huge red flag with IRS and I become vulnerable to audit.
So I report the $43.01 on schedule 1. How do I deduct the expenses? I have to list them on Schedule A as an itemized deduction. If my total itemized deductions are less than the standard deduction, I cannot deduct anything and will have to pay taxes on the entire $43.01.
Scenario 2: I report it on Schedule C as a business. So I deduct all the expenses and have my $24.76 to report on my 1040. The problem is NOW I have to pay self employment tax on that $24.76 which is 15.3% PLUS my regular income tax rate on that $24.76.
There are other deductions that can be made on Schedule C and I did not include the cost of the item just to make my example simple.
For the small casual seller this is a no win situation. There will be millions that have no clue about the truth of reporting this income and will have a surprise when they file their 2022 taxes!
Congress has to Act to increase this threshold!
This is going to hurt the little man!