Up to date for tax 12 months 2023.
If the new 1099-K reporting thresholds have you ever confused as an eBay vendor, you’re not alone. However don’t fear — eBay and TaxAct® have partnered up that can assist you separate truth from fiction.
Under we’ll handle some widespread misconceptions you may need heard about these adjustments and the reality about how your taxes may very well be affected.
False impression 1: This can be a new tax that I must pay on my earnings.
The reality: This alteration will not be a brand new tax imposed on on-line sellers however a brand new reporting requirement for eBay and different on-line marketplaces. Any revenue derived from a sale has at all times been reportable revenue for eBay sellers.
Beforehand, and persevering with for 2023, you’ll solely obtain Type 1099-Ok from eBay when you hit $20,000 in gross funds and 200 transactions yearly (the one exceptions could be in case your state has a decrease threshold otherwise you have been topic to backup withholding). The IRS has lowered this threshold for tax 12 months 2024, which means eBay and different marketplaces should report product sales that equal or exceed $5,000 on a Type 1099-Ok starting in tax 12 months 2024. That is a part of a phase-in course of by the IRS to ultimately implement a $600 threshold in 2025.
On account of these adjustments, many sellers who haven’t obtained a Type 1099-Ok earlier than will start receiving the shape within the coming tax years. eBay and TaxAct have partnered that can assist you perceive the adjustments and methods to report them in your revenue tax returns.
False impression 2: All of the transactions on my 1099-Ok are taxable.
The reality: Receiving a Type 1099-Ok doesn’t routinely imply you’ll owe revenue tax on the product sales quantity reported to you. You’re taxed in your web revenue, however a 1099-Ok solely reveals your gross receipts. The quantities reported on Type 1099-Ok don’t think about your value foundation and any changes for charges, refunds, credit, and many others.
In case you offered an merchandise at a web loss towards its unique value foundation, you must report it as a loss on Schedule 1 or Schedule D. You’ll not be liable for any revenue taxes on the sale.
When submitting your tax return, use your Type 1099-Ok as an informational doc that can assist you fill out Schedule C to report enterprise revenue and losses (if you’re a sole proprietor) or Schedule D to report capital beneficial properties and losses (if you’re an informal vendor). Then make any crucial changes to make your tax return according to your individual information. That’s why good bookkeeping is vital.
False impression 3: I’m solely an informal vendor, not a enterprise, so I don’t must report my gross sales earnings as revenue.
The reality: Taxable revenue consists of any revenue comprised of gross sales, whether or not you’re an informal vendor, pastime vendor, or a enterprise.
For instance, let’s say your pastime is thrifting outdated items of furnishings, and generally you flip them for a revenue. Final 12 months, you purchased a used piece of furnishings for $100, restored it, and offered it on eBay for $700. This provides you a $600 revenue. Not like a enterprise, as a pastime vendor, you can not deduct bills incurred earlier than the sale, resembling the price of restoring the furnishings, however bills on the precise sale (like every eBay charges) may be added to your value foundation to cut back your achieve.
If informal promoting turns into an everyday worthwhile prevalence, the IRS might begin to think about your pastime to be a proper enterprise. Turning your pastime right into a enterprise may make you eligible for sure enterprise tax deductions.
You’ll be able to verify the IRS’s tips for figuring out when a pastime turns into a enterprise here. You probably have questions in regards to the variations between pastime promoting and enterprise promoting, TaxAct Xpert Assist℠ 1 is an add-on function that permits you to join with a tax professional and get your questions answered in actual time.
False impression 4: I will likely be paying tax on all gadgets I promote, even when it’s at a loss.
The reality: Earnings is set by deducting bills from the ultimate sale value and figuring out if the transaction yielded a revenue or a loss. Solely the revenue is taken into account taxable revenue, so that you gained’t owe any taxes on one thing you promote at a loss or for lower than what you paid. We might sound like a damaged report right here, however for that reason, you should definitely apply good bookkeeping in your taxable and nontaxable gross sales as a web based vendor.
We’ll have a look at a nontaxable transaction this time. Think about you purchased a brand new bike for $1,000 final 12 months after which offered it on eBay for $700 this 12 months. Since you offered the bike at a loss, there could be no revenue to be acknowledged on this sale although the transaction could also be reported on the 1099-Ok you obtained from eBay. As a substitute of reporting the sale as revenue, you’ll report it as a loss utilizing both Schedule 1 or Schedule D.
For extra details about methods to report capital asset beneficial properties and losses in your tax return, try our complete information to capital beneficial properties taxes.
The underside line
Whereas the 1099-Ok adjustments this 12 months could also be complicated for informal sellers and small companies who’ve by no means seen this manner earlier than, TaxAct and eBay are doing our greatest to maintain you and different sellers informed and prepared for subsequent tax season.
Within the meantime, eBay is advocating for his or her on-line sellers by preventing this laws in your behalf. You’ll be able to study extra about eBay’s efforts by trying out eBay Main Street.