End of PayPal Friends and Family

[mh9162013]

A few years back the state of Ohio kicked back our return and claimed that we owed them more money.

Out of curiosity, was it the state of Ohio that you dealt with or a third party collecting taxes on behalf of the state of Ohio?

I have complete confidence that the IRS will use those 1099s to demand more money from taxpayers... regardless of evidence to the contrary.

While I don't share your cynicism, if you are somehow right, that's all the more reason to avoid getting those 1099s generated in the first place.

 

[Peartree]

Out of curiosity, was it the state of Ohio that you dealt with or a third party collecting taxes on behalf of the state of Ohio?

It was absolutely the Ohio Department of Taxation and not a third party.

 

[mh9162013]

It was absolutely the Ohio Department of Taxation and not a third party.

I just asked b/c I had a similar situation as yours, but I was dealing with a third party; they were horrendous to deal with and made the IRS seem polite and reasonable in comparison.

 

[jderimig]

Getting or not getting a 1099 doesn't determine when you're a business that owes taxes on your transactions.

Also, even if you get a 1099, that doesn't mean you have any taxable income. All that represents is the incomplete fact that the IRS thinks you earned taxable income and the onus is on you to either pay what you owe or to explain to the IRS why they're wrong. It's this latter obligation that I take issue with and it's an obligation that anyone may potentially have to deal with regardless of whether they're a business or not.

You are correct. The IRS doesn't care if you are business or not. All they care about is income. If you get a 1099 the IRS will/can assume its income unless you can prove otherwise.

Edit: Here is how it will work. A computer program will flag everyone with a 1099 from Paypal that hasn't declared it on their tax return, easy code. An automatic letter will go out to the 5-10 million people affected showing an underpayment of $120 to ??? what ever 15-25% of their 1099 amount is. 30-50% will just send a check without a challenge. The others will ignore and accrue penalty and interest. After enough accrual after a few years one of the new IRS agents will call and you better have your receipts.

 

[Woody's Workshop]

I don't pay taxes. I don't make enough. I don't make ANY Taxable income. I live on 1108 SS & 86.50 SSI a month. How I make ends meet is still a wonder to me.
Back to taking pictures of more rockets to sell......

Edit: I don't pay Income Taxes.
Sales Tax is probably where I pay the most Taxes. Well wait a minute.
I don't pay ANY medical related expenses, and food is sales tax free here.
My insurance is free, and they provide me rides to and from doctors and procedures.
Not sure what tax I pay the most of. Unless there is a poor mans tax......

 

[cls]

Just another in a long list of reasons to not use PayPal.

Venmo and Zelle generate the 1099s, too.

The county and state tax goons have been trawling the flea markets for years.

All of them hate untracked transactions. I use cash for many purchases. How long will that be legal!?

 

[jderimig]

I don't pay taxes. I don't make enough. I don't make ANY Taxable income.

You pay the corporate taxes that are passed down to you in the form of higher prices for goods and services.

You buy gas? You are paying taxes.
You buy anything made in China? You are paying tariffs.
Use a phone? You are paying taxes.
Buy tires? You are paying excise taxes.
Use medical equipment? You are paying a 3% medical equipment tax.
the list goes on and on.

 

[Hobie1dog]

You are correct. The IRS doesn't care if you are business or not. All they care about is income. If you get a 1099 the IRS will/can assume its income unless you can prove otherwise.

Edit: Here is how it will work. A computer program will flag everyone with a 1099 from Paypal that hasn't declared it on their tax return, easy code. An automatic letter will go out to the 5-10 million people affected showing an underpayment of $120 to ??? what ever 15-25% of their 1099 amount is. 30-50% will just send a check without a challenge. The others will ignore and accrue penalty and interest. After enough accrual after a few years one of the new IRS agents will call and you better have your receipts.

you scare me talking like that.

 

[cwbullet]

My alarm went off today. I am looking for IMR 4350, Winchester 748, and Alliant Bullseye. I found a site with it in stock and placed an order. They accepted Paypal and looked legit. No payment when through. They emailed me back and ask for Paypal F&F. No legitimate business would do that. SCAM!

Avoid Primo Primers.

 

[cerving]

If you have a business, PayPal gives you some pretty comprehensive data throughout the year. I use it to do my business taxes, etc. ALL payment processors are going to take their 3%... IMHO PayPal gives you some reason to use their services vs. some of the others.

BTW jderimig, I feel your pain with the tariffs. I just bought a reel of OOP parts, maybe the last one in existence, and the distributor tacked on 15%. It was still worth it vs. re-engineering products once again...

 

[jadebox]

There is some misinformation in this thread.

For the most part, little has changed with how you report your income to the IRS.

The only difference is that now, if you received incidental income from, for example, a yard sale, and you receive a 1099K that includes that sale, you need to add a couple of things to your regular 1040, Schedule 1 to avoid paying taxes on that income.

See:

Understanding Your Form 1099-K | Internal Revenue Service

Form 1099-K reports payments from payment apps or online marketplaces when the gross payment amount is more than $600 and from credit, debit or stored-value cards. Use it to help figure and report your correct income on your tax return.

www.irs.gov

 

[mh9162013]

you need to add a couple of things to your regular 1040, Schedule 1 to avoid paying taxes on that income.

For an average individual who doesn't sell things online as their primary means of earning income, this a major hassle. This means paying taxes on nontaxable income, or spending extra time preparing/filing yours taxes. Awesome.

 

[jadebox]

For an average individual who doesn't sell things online as their primary means of earning income, this a major hassle. This means paying taxes on nontaxable income, or spending extra time preparing/filing yours taxes. Awesome.

It is literally just numbers in two blocks on your Schedule 1. If you receive a 1099K and aren't selling anything at a profit, just enter the amount from the 1099K in those two fields.

Your probably should also keep some record of the yard sale or whatever, but it is unlikely you would ever need it.

 

[mh9162013]

Your probably should also keep some record of the yard sale or whatever

Sounds like more work to do your taxes.

No thanks.

 

[KenECoyote]

For me as a collectibles seller (and hoarder lol), this is a nightmare. I have items I bought years ago that I'd like to sell, but I don't have a receipt for what I paid any longer.

So if I paid $300 + sales tax for the item and sell it for $600, the government wants to charge me income tax on the $600?!?

And don't forget that eBay and PayPal also charges you a selling fee. Ugh.

 

[mh9162013]

So if I paid $300 + sales tax for the item and sell it for $600, the government wants to charge me income tax on the $600?!?

That's not the worst part. The worst part is buying it for $300, then selling it for $299, but the IRS thinks you have $300 in taxable income until you go through the time and effort of proving otherwise.

 

[SecondRow]

So if I paid $300 + sales tax for the item and sell it for $600, the government wants to charge me income tax on the $600?!?

No, the govt wants to tax you for the 600 minus what you paid for it. This has always been the case. The difference is now they have a way to catch people.

 

[KenECoyote]

No, the govt wants to tax you for the 600 minus what you paid for it. This has always been the case. The difference is now they have a way to catch people.

I don't have receipts for most of the stuff I bought years ago (some decades).

Also isn't that only if you declare yourself as a business?

 

[mh9162013]

Also isn't that only if you declare yourself as a business?

I don't think being a business makes a difference. And it gets worse.

Based on my understanding of the the tax code, if you're a business and buy an item for $300 and sell it for $299, you get a $1 tax deduction...or somehow can use that $1 loss to your advantage. But if you're an individual and conduct the same transaction, you can't take advantage of that $1 loss.

Whether you're a business or individual taxpayer, if you buy an item for $300 and sell it for $600, you're supposed to pay taxes on that $300 income. As a business, you'll keep careful records of the cost basis of that item, so you can easily explain to the IRS that your taxable income is $300 and not $600. Many individuals won't have those records, so they'll have to pay taxes on the $600 in "income," even though what's taxable is only $300.

I've heard anecdotally that for small, limited transactions, you can just write in certain amounts on the proper form and it will be enough. For example, that you paid $300 for something, but sold it for $299, so you lost money on the sale. But I'm sure there comes a point where the IRS won't be ok with just seeing a number inside a small box on a form and will want an actual receipt. And when the IRS wants a receipt, the audit process begins.

Also, even if this anecdotal information is true, what if you use Paypal for many other transactions, such as selling old rockets on message boards, FB marketplace sales, getting paid from a freelance client, etc. All the IRS sees is a giant dollar amount. The onus is on you to parse out every. single. transaction. to explain what is and isn't taxable. And if taxable, what the cost basis is, so you can prove what's actually taxable income.

So, who wants to play tax roulette with the IRS, where winning equals not paying taxes you don't owe and losing equals getting audited?

 

[SecondRow]

I don't think being a business makes a difference. And it gets worse.

Based on my understanding of the the tax code, if you're a business and buy an item for $300 and sell it for $299, you get a $1 tax deduction...or somehow can use that $1 loss to your advantage. But if you're an individual and conduct the same transaction, you can't take advantage of that $1 loss.

Whether you're a business or individual taxpayer, if you buy an item for $300 and sell it for $600, you're supposed to pay taxes on that $300 income. As a business, you'll keep careful records of the cost basis of that item, so you can easily explain to the IRS that your taxable income is $300 and not $600. Many individuals won't have those records, so they'll have to pay taxes on the $600 in "income," even though what's taxable is only $300.

I've heard anecdotally that for small, limited transactions, you can just write in certain amounts on the proper form and it will be enough. For example, that you paid $300 for something, but sold it for $299, so you lost money on the sale. But I'm sure there comes a point where the IRS won't be ok with just seeing a number inside a small box on a form and will want an actual receipt. And when the IRS wants a receipt, the audit process begins.

Also, even if this anecdotal information is true, what if you use Paypal for many other transactions, such as selling old rockets on message boards, FB marketplace sales, getting paid from a freelance client, etc. All the IRS sees is a giant dollar amount. The onus is on you to parse out every. single. transaction. to explain what is and isn't taxable. And if taxable, what the cost basis is, so you can prove what's actually taxable income.

So, who wants to play tax roulette with the IRS, where winning equals not paying taxes you don't owe and losing equals getting audited?

Agree with all of this. The IRS code defines gross income as “all income from whatever source derived” and they mean it. You borrowed $5 from someone and never paid it back? That’s income. Someone bought you dinner? That’s income. You sold some of your stuff? That’s income.

Whether it’s taxable is another thing. Maybe the money was a gift, maybe you sold the items for less than you paid for them. In the past, it was never pragmatic to capture all that as income, especially at such small amounts. But now a subset of that income has become easier to capture, to the individual taxpayer’s detriment. Because the burden of proving it’s not taxable income falls on the individual, rather than the IRS to show there was income in the first place.

 

[SecondRow]

This is gonna screw over everyone who goes out to dinner with friends where they put it all one check and everyone Venmos their share to the payer. Which is a very common occurrence.

 

[mh9162013]

But now a subset of that income has become easier to capture, to the individual taxpayer’s detriment. Because the burden of proving it’s not taxable income falls on the individual, rather than the IRS to show there was income in the first place.

Just quoted to add extra emphasis on your great point.

I still have hope that the new $600/1 transaction threshold will be modified to be a bit more accommodating to the casual seller and/or user of third party transaction services. Sure, it may not go back to the $20,000/200 transaction threshold, but maybe a $5000/50 transaction threshold would be a decent compromise?

 

[KenECoyote]

Feels like government trying to punish hardworking people who do things by the book.

Meanwhile they're possibly funding some of those that do things under the table and then claim they need government assistance.

 

[cwbullet]

Feels like government trying to punish hardworking people who do things by the book.

Meanwhile they're possibly funding some of those that do things under the table and then claim they need government assistance.

I agree, but here a bunch of folks avoiding taxes by using cash and paypal transactions. Some follow the law and report the income. Some don’t.

I think it is time to simplify our tax code so we don’t need to snoop. National sales tax could be one means.

 

[mh9162013]

Feels like government trying to punish hardworking people who do things by the book.

I'm cynical about Congress, but I don't think that's what happened here.

I think someone took the, "let's try to help the IRS go after tax cheats" mandate a bit too far by reducing the 1099 threshold to such an absurd level.

Here's my current theory: I think it was probably some congressional staffer's attempt at malicious compliance.

 

[cls]

I'd like to believe that our representatives are still responsive to their constituents.

Maybe we could all write letters to them and get them to change the law.

(This is obviously pennywise, and they're letting $trillions go elsewhere... That's why the IRS should staff up to audit the complicated returns.)

 

[jderimig]

I'd like to believe that our representatives are still responsive to their constituents.

Maybe we could all write letters to them and get them to change the law.

(This is obviously pennywise, and they're letting $trillions go elsewhere... That's why the IRS should staff up to audit the complicated returns.)

The American people need to pool their money together and hire lobbyists to represent them in Congress.

 

[cls]

rican people need to pool their money together and hire lobbyists to represent them in Congress.

We all have one or another Congress critter that we actually like and want to keep. What's needed is term limits for the lobbyists!! And no more revolving door better government and industry. Tough talking there...

 

[Antares JS]

I think it is time to simplify our tax code so we don’t need to snoop. National sales tax could be one means.

@cwbullet be spitting facts here.

 

[jderimig]

We all have one or another Congress critter that we actually like and want to keep. What's needed is term limits for the lobbyists!! And no more revolving door better government and industry. Tough talking there...

If I were King I would ban ex-congresspeople from lobbying or working for any company doing significant business with the government for 7 years. Then raise congressional salary but tie it to congressional approval rating. We can only dream.