PayPal Tax Forms Question for the vets

[scatttcat]

Hi everyone,

So I am by no means a large seller, only Ebay and BrickLink, but with my current numbers this year I am thinking I will break 20k in PayPal for the first time and therefore get a 1099 from PayPal.

This leads me to some questions about how that is calculated and about charging tax that I am hoping some Veteran's can help me with!

1) When PayPal tallies up this gross 20k and decides if you get a 1099 or not, are they tallying totals with or without their fee? Also same question with that automated eBay tax that is charged. I see PayPal's fee & Ebay's automated tax immediately deducted on each transaction so I assume what is left of gross income is what is used towards the 20k total? Or am I mistaken?

Basically you get $20 in PayPal. eBay deducts their tax and PayPal deducts their fee and you are left with $19.50 (for simplicity sake). Does that mean the $19.50 is used toward your 20k PayPal limit? Or the original $20?

2) For sellers who charge tax via eBay, does the buyer see that as a different tax from eBay's state tax?? Every time I have bought something I really don't think so, but I can't remember forsure. I remember correctly, there is just one line item a buyer sees for tax charges (meaning my tax + eBay's tax are combined). Is this correct?

 

Thanks for the help!

[LegoMan1212]

1099 is strictly Revenue.  Paypal wouldn't know what consists of "state taxes" or anything else for that matter. And their fee that they take would be an expense of yours.

Form 1099-K (Payment Card and Third Party Network Transactions) is used by credit card companies and third-party processors, like PayPal and Amazon, to report payment transactions they process for retailers. It reports the gross amount of the transactions, but doesn't include any adjustments for credits, refunds, discounts, or fees.

Edited July 6, 2020 by LegoMan1212

[Jackson]

1 hour ago, scatttcat said:

 

2) For sellers who charge tax via eBay, does the buyer see that as a different tax from eBay's state tax?? Every time I have bought something I really don't think so, but I can't remember forsure. I remember correctly, there is just one line item a buyer sees for tax charges (meaning my tax + eBay's tax are combined). Is this correct?

 

 

What is the “my tax” you’re talking about?

[scatttcat]

57 minutes ago, LegoMan1212 said:

1099 is strictly Revenue.  Paypal wouldn't know what consists of "state taxes" or anything else for that matter. And their fee that they take would be an expense of yours.

Form 1099-K (Payment Card and Third Party Network Transactions) is used by credit card companies and third-party processors, like PayPal and Amazon, to report payment transactions they process for retailers. It reports the gross amount of the transactions, but doesn't include any adjustments for credits, refunds, discounts, or fees.

Welppppp, that makes sense and lines up with this other article I read saying how you can deduct the PayPal fee as an expense. Thanks!

21 minutes ago, Jackson said:

What is the “my tax” you’re talking about?

Sorry, if I chose to charge a tax on my item.

So lets say I charge $4 and eBay also automatically includes their $4 tax. Does the buyer see $8 in tax? Or a line item breakdown of $4 + $4?

 

Make sense?

[scatttcat]

1 hour ago, LegoMan1212 said:

1099 is strictly Revenue.  Paypal wouldn't know what consists of "state taxes" or anything else for that matter. And their fee that they take would be an expense of yours.

Form 1099-K (Payment Card and Third Party Network Transactions) is used by credit card companies and third-party processors, like PayPal and Amazon, to report payment transactions they process for retailers. It reports the gross amount of the transactions, but doesn't include any adjustments for credits, refunds, discounts, or fees.

So do you know of any way to grab this information from PayPal?
 

They have a very simplistic reporting section on their website, but basically here's an example:

My latest Ebay transaction was:

$16.60 of gross income
$15.82 after PayPal fee deduction

Well in PayPal's exportable report it reports $15.82 of income... where as the $16.60 is ACTUALLY being used towards deeming if I get a 1099-k (because its before the fee as you / IRS stated)...

......so basically PayPal's reporting tool is completely useless in terms of figuring out how close to a 1099-K you are or not? 🙄

[SLL]

Will paypal issue 1099 per total “payment received” or total “payment received” plus tax?

[Jackson]

40 minutes ago, scatttcat said:

Sorry, if I chose to charge a tax on my item.

So lets say I charge $4 and eBay also automatically includes their $4 tax. Does the buyer see $8 in tax? Or a line item breakdown of $4 + $4?

 

Make sense?

I don't understand. If eBay is already collecting the sales tax for the buyer's state, what tax are you also collecting?

[BillyBricks]

9 hours ago, Jackson said:

I don't understand. If eBay is already collecting the sales tax for the buyer's state, what tax are you also collecting?

I think he is talking about this: 

[scatttcat]

5 hours ago, BillyBricks said:

I think he is talking about this: 

yes that section, I guess I would be curious why anyone would add tax here when eBay does it automatically now?

[terrymc4677]

1 hour ago, scatttcat said:

yes that section, I guess I would be curious why anyone would add tax here when eBay does it automatically now?

Fruitcake Tax

[KShine]

1 hour ago, scatttcat said:

yes that section, I guess I would be curious why anyone would add tax here when eBay does it automatically now?

I would expect that ebay wouldn't allow a double dip on state taxes to process.

[MarleyMoose]

31 minutes ago, KShine said:

I would expect that ebay wouldn't allow a double dip on state taxes to process.

 

 

[BillyBricks]

19 hours ago, LegoMan1212 said:

1099 is strictly Revenue.  Paypal wouldn't know what consists of "state taxes" or anything else for that matter. And their fee that they take would be an expense of yours.

Form 1099-K (Payment Card and Third Party Network Transactions) is used by credit card companies and third-party processors, like PayPal and Amazon, to report payment transactions they process for retailers. It reports the gross amount of the transactions, but doesn't include any adjustments for credits, refunds, discounts, or fees.

Where would this go on the Schedule-C as an expense? 

[Darth_Raichu]

4 hours ago, scatttcat said:

yes that section, I guess I would be curious why anyone would add tax here when eBay does it automatically now?

 

2 hours ago, KShine said:

I would expect that ebay wouldn't allow a double dip on state taxes to process.

IIRC, the tax table supersedes eBay auto tax collection.  Meaning, you want to leave the table unpopulated if you want eBay to automatically deduct taxes for those states.  I can't remember where I read that though and I am too lazy to research further

Also, I am useless for these tax discussions. Every year I pay $65 to get Turbotax Home & Business and just plug my numbers in

[KShine]

1 hour ago, Darth_Raichu said:

Also, I am useless for these tax discussions. Every year I pay $65 to get Turbotax Home & Business and just plug my numbers in

Hey, that is much better than most people do (I use H&RBlock online) - most pay $100's more to someone else to plug those numbers in.

[keymomachine]

5 hours ago, BillyBricks said:

Where would this go on the Schedule-C as an expense? 

I'm no accountant, I use H&R Block desktop every year and only just started selling last year, but this is my understanding of how to do it:

[stackables]

Following...I do my own taxes using H&R Block too but haven't really sold anything other than an item here and there.  I will probably need to separate what is for sale and what is in my pc soon. 

I have one general tax question.  I start selling some of my old toys/collectibles when I was a kid.  This includes sports cards.  How does one ever calculate the cost of such items?  I have no clue what my parents paid for my toys or sports cards.

[exciter1]

20 minutes ago, stackables said:

Following...I do my own taxes using H&R Block too but haven't really sold anything other than an item here and there.  I will probably need to separate what is for sale and what is in my pc soon. 

I have one general tax question.  I start selling some of my old toys/collectibles when I was a kid.  This includes sports cards.  How does one ever calculate the cost of such items?  I have no clue what my parents paid for my toys or sports cards.

I usually look through old pictures and I'll place value on the item based on how much fun I was having at the time.

[BillyBricks]

16 hours ago, keymomachine said:

I'm no accountant, I use H&R Block desktop every year and only just started selling last year, but this is my understanding of how to do it:

Thanks for taking the time to show this. Unfortunately, this isnt the way it looks on TurboTax (although I'm not married to using that) and where you have "Other Costs," I have something along the lines of "Other Costs related to preparing for sales." I've been doing research online but not coming up with clear answers. Maybe I should start my own thread instead of derailing @scatttcat further, but I am hoping I am doing something wrong with my taxes currently because, if not, I might be better off just setting my other sets on fire at this point:

In 2017, I sold a handful of sets. That was the first time I attempted this. In 2018, I sold more sets, but it was still only a few hundred dollars worth. Last year, I dove into Ebay and FB Marketplace and, after fees and shipping, took home over $12,000. These sales represented an average ROI of 98.5%, which I thought was pretty decent for where I want to be as a seller. As I do the taxes for this, however, I am at a loss (Figuratively and literally). With everything filled out (except for Paypal/Ebay fees, if that's a thing), TurboTax is showing me that, because I sold LEGO this year, I am going to need to pay an extra $3700 in taxes between Federal and State. When I subtract this from my profit from the year, the difference I am left with is $900 less than the tax credit I would have received without selling LEGO--so selling LEGO ended up costing me almost $1000? Any other small-time sellers who can provide some insight into what their end amounts look like would be helpful. I knew the tax man would be eating up my profits (and I may have blown it by not reporting my inventory in 2018), but I didn't think my hours of work would turn into a net loss.   

[Phil B]

23 minutes ago, BillyBricks said:

<snip>

In 2017, I sold a handful of sets. That was the first time I attempted this. In 2018, I sold more sets, but it was still only a few hundred dollars worth. Last year, I dove into Ebay and FB Marketplace and, after fees and shipping, took home over $12,000. These sales represented an average ROI of 98.5%, which I thought was pretty decent for where I want to be as a seller. As I do the taxes for this, however, I am at a loss (Figuratively and literally). With everything filled out (except for Paypal/Ebay fees, if that's a thing), TurboTax is showing me that, because I sold LEGO this year, I am going to need to pay an extra $3700 in taxes between Federal and State. When I subtract this from my profit from the year, the difference I am left with is $900 less than the tax credit I would have received without selling LEGO--so selling LEGO ended up costing me almost $1000? Any other small-time sellers who can provide some insight into what their end amounts look like would be helpful. I knew the tax man would be eating up my profits (and I may have blown it by not reporting my inventory in 2018), but I didn't think my hours of work would turn into a net loss.   

Doing the math on the above: If you took home $12,000, assuming this is Gross Profit, and it is an ROI of ~100%, than that means that your COGS was $4k and $8k was "profit". So even if you have to pay $3700 in taxes over that $8k (which sounds almost European as it is close to 50%) you are still at a profit of $4300 ... not at a net loss

[Phil B]

26 minutes ago, BillyBricks said:

<snip>

In 2017, I sold a handful of sets. That was the first time I attempted this. In 2018, I sold more sets, but it was still only a few hundred dollars worth. Last year, I dove into Ebay and FB Marketplace and, after fees and shipping, took home over $12,000. These sales represented an average ROI of 98.5%, which I thought was pretty decent for where I want to be as a seller. As I do the taxes for this, however, I am at a loss (Figuratively and literally). With everything filled out (except for Paypal/Ebay fees, if that's a thing), TurboTax is showing me that, because I sold LEGO this year, I am going to need to pay an extra $3700 in taxes between Federal and State. When I subtract this from my profit from the year, the difference I am left with is $900 less than the tax credit I would have received without selling LEGO--so selling LEGO ended up costing me almost $1000? Any other small-time sellers who can provide some insight into what their end amounts look like would be helpful. I knew the tax man would be eating up my profits (and I may have blown it by not reporting my inventory in 2018), but I didn't think my hours of work would turn into a net loss.   

Doing the math on the above: If you took home $12,000, assuming this is Gross Revenue, and it is an ROI of ~100%, than that means that your COGS was $4k and $8k was "profit". So even if you have to pay $3700 in taxes over that $8k (which sounds almost European as it is close to 50%) you are still at a profit of $4300 ... not at a net loss

On a $8k profit, assuming you are properly deducting your COGS and other fees (as per the example above), depending on your tax bracket, I would expect you pay between $2k-$2.5k in taxes. $3.7k sounds like it goes against the entire $12k, which could be correct if I misread your statement above and your "took home over $12,000" means gross profit.

[Darth_Raichu]

30 minutes ago, BillyBricks said:

In 2017, I sold a handful of sets. That was the first time I attempted this. In 2018, I sold more sets, but it was still only a few hundred dollars worth. Last year, I dove into Ebay and FB Marketplace and, after fees and shipping, took home over $12,000. These sales represented an average ROI of 98.5%, which I thought was pretty decent for where I want to be as a seller. As I do the taxes for this, however, I am at a loss (Figuratively and literally). With everything filled out (except for Paypal/Ebay fees, if that's a thing), TurboTax is showing me that, because I sold LEGO this year, I am going to need to pay an extra $3700 in taxes between Federal and State. When I subtract this from my profit from the year, the difference I am left with is $900 less than the tax credit I would have received without selling LEGO--so selling LEGO ended up costing me almost $1000? Any other small-time sellers who can provide some insight into what their end amounts look like would be helpful. I knew the tax man would be eating up my profits (and I may have blown it by not reporting my inventory in 2018), but I didn't think my hours of work would turn into a net loss.   

So help me follow the story here.  Your pre-tax profit after COGS was subtracted is $12k. You were taxed $3700 which was roughly 25%, ok.  Meaning your clean take home after tax was $8300.  You were saying you would have gotten $9200 in tax credit back had you not sell LEGO (ie loss of $900 due to LEGO selling).  Is that correct?

[keymomachine]

2 hours ago, BillyBricks said:

Thanks for taking the time to show this. Unfortunately, this isnt the way it looks on TurboTax (although I'm not married to using that) and where you have "Other Costs," I have something along the lines of "Other Costs related to preparing for sales." I've been doing research online but not coming up with clear answers. Maybe I should start my own thread instead of derailing @scatttcat further, but I am hoping I am doing something wrong with my taxes currently because, if not, I might be better off just setting my other sets on fire at this point:

It seems like you may be doing this wrong? This is a grab of the actual Schedule C form. I would hope you maybe also have a spreadsheet recording each sale and the expenses/profits for each sale? It really shouldn't matter if you've reported inventory before. I didn't sell anything before 2019, but came into the year with inventory so I reported it now. It doesn't really matter what year you bought it, you're just trying to derive the cost of the goods you sold.  I can calculate my COGS easily from my sales SS, it's just buy-in cost+shipping costs+paypal fees+ebay fees, so then I can check it against what I came up with on the Schedule C.

[BillyBricks]

Thanks for the responses, guys; I appreciate you taking the time for someone who was apparently not being clear while also maybe not knowing what he was talking about.

1 hour ago, Phil B said:

Doing the math on the above: If you took home $12,000, assuming this is Gross Revenue, and it is an ROI of ~100%, than that means that your COGS was $4k and $8k was "profit". So even if you have to pay $3700 in taxes over that $8k (which sounds almost European as it is close to 50%) you are still at a profit of $4300 ... not at a net loss

On a $8k profit, assuming you are properly deducting your COGS and other fees (as per the example above), depending on your tax bracket, I would expect you pay between $2k-$2.5k in taxes. $3.7k sounds like it goes against the entire $12k, which could be correct if I misread your statement above and your "took home over $12,000" means gross profit.

Although I like to think of myself as having the math skills of someone beyond a junior-high student, maybe I have been thinking about ROI wrong this whole time, which is embarrassing but something I need to admit if it's true. Wouldn't 4K for COGS and 8K profit be a 200% return ((12k-4k)/4k)? So, for example, a sale I had today had my buy-in price of about $29 and revenue after all appropriate fees were removed of about $120. What would be ROI?

3 hours ago, Darth_Raichu said:

So help me follow the story here.  Your pre-tax profit after COGS was subtracted is $12k. You were taxed $3700 which was roughly 25%, ok.  Meaning your clean take home after tax was $8300.  You were saying you would have gotten $9200 in tax credit back had you not sell LEGO (ie loss of $900 due to LEGO selling).  Is that correct?

$12,000 was what I kept after deducting fees, shipping, etc. from the prices people paid, but that's not what I report since IRS wants to know the overall sales (right?), which means I reported my total of about $14,000 for income. From the $12,000, about half was profit over the prices I paid for the items (after removing costs for materials, too), so profit in 2019 was a bit under the $6,000 mark. Take away the roughly $3700 from my profit and I am down to a bit over $2300 in profit on the year, which is hundreds of dollars less than I was about to receive from the Federal government if I hadn't been selling LEGO. 

1 hour ago, keymomachine said:

It seems like you may be doing this wrong? This is a grab of the actual Schedule C form. I would hope you maybe also have a spreadsheet recording each sale and the expenses/profits for each sale? It really shouldn't matter if you've reported inventory before. I didn't sell anything before 2019, but came into the year with inventory so I reported it now. It doesn't really matter what year you bought it, you're just trying to derive the cost of the goods you sold.  I can calculate my COGS easily from my sales SS, it's just buy-in cost+shipping costs+paypal fees+ebay fees, so then I can check it against what I came up with on the Schedule C.

Could I be doing things wrong? Absolutely. I've never had to do this before for a "side job," so this would have probably made sense to be a year when I went back to a CPA since, in the past, my taxes have been super easy and definitely didn't require someone else to basically input my W2. I didn't think prior inventory had an effect, but I wasn't sure. I keep track of all of those things in their own separate columns on a spreadsheet, too, so I know exactly what money is coming in and what money is going out. Here is an example from part of a SS where I have sales:

I think my biggest issue right now (other than being somewhat of a dumbass) is figuring out where to input the fees I paid to Ebay/Paypal, right? 

[Phil B]

3 minutes ago, BillyBricks said:

Although I like to think of myself as having the math skills of someone beyond a junior-high student, maybe I have been thinking about ROI wrong this whole time, which is embarrassing but something I need to admit if it's true. Wouldn't 4K for COGS and 8K profit be a 200% return ((12k-4k)/4k)? So, for example, a sale I had today had my buy-in price of about $29 and revenue after all appropriate fees were removed of about $120. What would be ROI?

 

Yeah I got my profits and revenues all mixed up, and my later edit didn't make it any better. If you have $8k in profit on $4k in COGS, you have a 200% ROI, basically what you say. So in this case, with a 100% ROI, you would have $6k in COGS and $6k in profit. Still, to continue the point, if your total revenue is $12k (or $14k before fees), you will report the $14k, but then also report $2k in fees, and $6k in COGS, and you would only be taxed on the $6k that remains, which would be ~$1.5k (assuming 25% effective tax rate). If you are seeing $3.7k in taxes, then you haven't deducted your costs and are being taxed on the total revenue. It's either that you entered something wrong, or your tax software is calculating your taxes incorrectly.