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Another kick in the junk for US based PayPal users

Dan S
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CajunTiger CajunTiger
I think you are blowing this out of proportion. Are they selling the Pelaton for a profit? Do you do this frequently?
Guy buys new Pelaton for $5000...uses it for a year and sells it to his neighbor for $2500.
He didn't make $2500 in income...he lost $2500. Unless he depreciated the Pelaton in previous years...there is nothing to be concerned with here. Just because you received a 1099 doesnt mean you have to report a profit on your tax return...or report anything for that matter. The only guy that should be concerned is the one that gets a hundred 1099's yet he reports no income.

Are you sure? I think that if you fail to report income on a 1099, there's a pretty good chance that the IRS will catch it and send you a bill. I think it might be automated. This has happened to me a couple of times when I lost track of a 1099 reporting a small amount of consulting income. There was no penalty, but I had to file revised taxes and pay the extra tax.

I agree that they won't owe tax if they didn't profit. But I don't think they should just ignore the 1099, and it's definitely an inconvenience.
 
CajunTiger
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Dan S Dan S
Are you sure? I think that if you fail to report income on a 1099, there's a pretty good chance that the IRS will catch it and send you a bill. I think it might be automated. This has happened to me a couple of times when I lost track of a 1099 reporting a small amount of consulting income. There was no penalty, but I had to file revised taxes and pay the extra tax.

I agree that they won't owe tax if they didn't profit. But I don't think they should just ignore the 1099, and it's definitely an inconvenience.

Everyones situation is different, but it is what it is. I meant just because you receive a 1099 doesnt automatically mean you have to report additional income. In the example I quoted, Im assuming he probably lost money selling his personal Pelaton so if anything the results are lower taxes not more. I highly doubt not providing additional reporting related to a single 1099 for an insignificant $ amount would trigger an audit...if it did they would be contacting millions of additional tax payers every year. Regardless, PayPal is legally obligated to report so blaming them is barking up the wrong tree.
 
Dan S
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CajunTiger CajunTiger
I highly doubt not providing additional reporting related to a single 1099 for an insignificant $ amount would trigger an audit...if it did they would be contacting millions of additional tax payers every year.

No, not an audit, I didn't say that. I was just saying that the omission would probably be caught, and they would get a notice of an error on their return, and a bill for an additional payment if they just ignored the income from the 1099. They would need to report it on the appropriate schedule, along with the cost basis, and indicate that it was a capital loss. I agree it's not the end of the world, just an inconvenience.

I suspect that the IRS does send out millions of notices each year to people who make mistakes on their returns. As I mentioned, I've received several over the years. It's not a big deal, just extra work.
 
asrnj77
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Dan S Dan S
No, not an audit, I didn't say that. I was just saying that the omission would probably be caught, and they would get a notice of an error on their return, and a bill for an additional payment if they just ignored the income from the 1099. They would need to report it on the appropriate schedule, along with the cost basis, and indicate that it was a capital loss. I agree it's not the end of the world, just an inconvenience.

I suspect that the IRS does send out millions of notices each year to people who make mistakes on their returns. As I mentioned, I've received several over the years. It's not a big deal, just extra work.

Yes, exactly. I didn’t say they would owe money, actually I said they wouldn’t because they sold at a loss but you need to file a schedule C or D. Ignoring a 1099 on your return will almost certainly get you flagged. It’s an automated algorithm. There is no thought involved.

For what it’s worth many other states are now exploring adding new legislation to lower reporting amounts. I imagine eventually there will be an outcry that low income/seniors/etc are being penalized by having to file confusing and expensive tax filings for one time sales under $1000. Somebody from the IRS or state governments will make an adjustment but until Grandma is on the news talking about her 1099 for selling her deceased husbands electric wheelchair, it’ll probably remain the same
 
Wryfox
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Donn Chambers Donn Chambers
The IRS covers potential taxes on sales of items in Publication 525: "if you sold an item you owned for personal use, such as a car, refrigerator, furniture, stereo, jewelry, or silverware, your gain is taxable as a capital gain."

So then if I sell anything at a capital loss, I should be able to claim those losses as well? Only seems fair...
 
Wryfox
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Redwes25 Redwes25
I know how much I spend on the watches but the real key is to make sure the Wife doesn't.

That's the REAL audit we all try to avoid...😲
 
gatorcpa
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Wryfox Wryfox
So then if I sell anything at a capital loss, I should be able to claim those losses as well? Only seems fair...
Who said life was fair?
Losses from selling collectible assets are deductible capital losses that enter the netting process described above provided that the taxpayer held the collectible for investment purposes rather than personal purposes. If the taxpayer was holding the collectible for personal purposes, the loss realized on a sale of the collectible is a nondeductible personal loss. Whether the taxpayer was holding the collectible as an investment asset or as a personal asset depends on the taxpayer's intent for holding the asset.
https://www.thetaxadviser.com/issues/2019/nov/taxation-collectibles.html

As I have said before, Uncle Sam is happy to be your partner when you win, but when you lose, you are on your own.
gatorcpa
 
Flintlock
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OllieOnTheRocks OllieOnTheRocks
I don't know the tax rules in the US. But in the UK and you sell personal possessions, up to if I recall £8k per item, you do not pay any forms of capital gains, as it doesn't contribute towards income. If however, the tax office have reason to believe it is not just "a hobby" and instead a business, then they will of course tax you on the full income, minus expenses. I should imagine this must be the same is USA? There must be thresholds you have to breach in order to have to declare it on a tax return?
Yes, the US has a hobby class of income where the income is only taxed at the income tax rate. If business income, there are are also retirement and medical taxes adding a bit over 15% to the basic amount.
 
Flintlock
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kkt kkt
If you sell several watches and have losses from the sale of some of them, do those losses offset the gains you made on others?
Yes, if both gains and losses are in the same tax year they are netted.
 
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