Paypal reports me to the IRS

Ohmess

Ohmess

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Today I received my first ever 1099 from Paypal. I can't tell you how happy this makes me feel!

The form purports to report all of my sales of goods and services in 2021 that ran through Paypal. I only had two such transactions in 2021. The form reports gross sales, without taking into account Paypal's fees. So I will have to adjust the amounts reported to arrive at my amount realized from these transactions.

And as luck would have it, I have tax basis computations for the items involved in those sales. (Truth be told, I have impeccable records of the tax basis in each of the e9 parts I own). And, I have detailed records of the costs I incurred to package them for sale and to ship them.

So as it turns out, my basis in the goods I sold in those two transactions exceeded the amount realized from the sales.

I will therefore need to consult with my tax advisors as to the nature of these losses. Of course, because I am not in the trade or business of selling car parts, these losses are not derived from the sale of inventory. I wonder, do the hobby loss rules apply so that the loss is completely useless? Or, are my car parts held for investment, in which case I should prepare a carryforward schedule for these losses so that they can be available in the future to offset gains from the sale of other investment assets.
 
So we should do all our paypal transactions as friends and family and run the risk of being scammed by a scammer? And what are, "hobby loss rules?"

I can see why your happiness runeth over.
 
Hi Chris,

Sad to hear you have problems with PayPal.

What 1099 means?

Is there any alternative to PayPal except money transfer giving no protection?
Other side is PayPal protection is questionable. I was not able in all cases got money back.
 
CSteve - I am a retired CPA, so I fell back into the tax geek language I used to employ in my job.

In plain english, the hobby loss rules are the primary mechanism the IRS uses to deny deductions for expenses from hobbies against business income, investment income and income from wages. There are hundreds of cases dealing with horse breeding and horse racing, for example. These rules distinguish business like activities undertaken with a true profit motive from activities undertaken casually and for fun. They are the primary reason we cannot deduct the amounts we spend on our cars on our income tax returns.

Krzysztof - We in the US rely heavily on an income tax to pay for the costs of our government. We do not have a VAT. All US businesses report their income to the IRS and pay taxes on their income. Businesses also report the amounts they pay to their employees to the IRS and employees in turn pay income taxes. Investment firms and banks also report income from investments or retirement accounts so that these amounts are included in income (for invididuals).

Forms 1099 are used to report amounts that are presumed to be income. Individuals who receive forms 1099 must address the amounts reported on the income tax returns they file each years. We either have to explain why the amounts are not income, or pay tax on the amounts reported.

In general, there has been a strong backlash against reporting amounts that are not clearly income because it makes filing tax returns much more complicated. If the amounts reported on forms 1099 are not, in fact, taxable, then the process merely creates more work for taxpayers and income for the accountants who help them file tax returns.

But the purists are certain that there is unreported income in there somewhere. And they got their legislation enacted this year. IRS has been trying to get this done for more than a decade. For whatever reason, new tax legislation enacted this year ignored these problems.
 
What do you think of the VAT tax? Would it generate more legitimate income for the IRS? Is it a smoother, less complicated tax than the income tax? Is it harder to cheat on a VAX tax?

Steve
 
CSteve said:
What do you think of the VAT tax? Would it generate more legitimate income for the IRS? Is it a smoother, less complicated tax than the income tax? Is it harder to cheat on a VAX tax?

Steve
Click to expand...
In Greece, there are businesses with two sets of prices. You can pay one price with a credit card and pay VAT, or you can use the alternative price list, cash only. Same in Hungary I have seen, and some other places as well.

VAT can be cheated just as much as income tax.

SC
 
Hi All - I started this thread because I strongly suspect many of us will get these 1099s. I believe they are being sent out in response to a change in the tax law. So, Jay - Yes, they are doing what they are required to do by law.

As to whether the VAT would raise more legitimate income, absolutely. The primary reason we don't have a VAT in the US is because of the fear it will be too easy for our government to raise and spend even more profilgately than they do today (and yes, that is possible). The other reason is that a VAT is regressive. In particular, young families, retirees and people living on a fixed income would be hit hardest by a VAT. And with respect to retirees, they spent their entire working lives funding the government throught taxes on their income; if we shift the way we fund our government to a VAT, they will be taxed a second time on money that has already been taxed.

Scott - one problem with the cash transaction avoidance mechanism is that it only works for the end consumer of an item. If a buyer intends to incorporate a component into something he then sells, he is liable for VAT on his sale, but is then entitled to a credit for the VAT he paid on the component. In this way, he only pays VAT on the "Value Added" that he creates. The actually makes cheating on VAT somewhat more difficult.

To Stan's question - which is hugely important to us here - none of the transfers between friends I did on paypal last year were reported.

To those who do not know, we here have adopted an informal practice on this site of selling parts using friend and family payments so as to avoid the cost of the Paypal fees. This practice now also has the advantage of allowing us to avoid dealing with the IRS on our parts sales.

As to Kzrysztof's question on protection, the group here strongly discourages those who might come here and try to take advantage of us. We call out both cars and parts that are not properly represented, and if you mistreat a member here and fail to make it right, there are a large number of us who will encourage you to leave, and if you stay will not do business with you or help you with car problems. I have lost money on only one transaction in ten years on the forum, and that person is no longer here. This is actually one of the things I love about this place. The majority of the people here are trustworthy, and doing business on the basis of trust is much more efficient and so much more enjoyable.
 
Hi!

First of all thanks for putting more light on the topic. It's also common here that any transaction might be questioned as potential income.

My question about alternative to PayPal was not related to This Forum. I'm aware and finding extreme helpful Members are providing their feedback about sellers.

It's just great, user-driven mechanism protecting other Members from being cheated buy anyone.

I was rather asking about alternative for purchases at other locations line eBay, eBaykleinanzeigen, other forums etc.

It looks - despite PayPal con's - there is nothing more existing around for non-commercial purchases which is giving any protection for the buyer.

Thanks Guys!
 
I try to use international bank transfers these days. Can do it off my online bank account and fees are less than paypal. I use my paypal so infrequently that my bloody credit card details expired. Had to ask my wife to send a forum member some cash. Lucky I hadn't bought a 38 Petri :D
 
What if the Seller You would like to buy from is complete stranger (not even on any forum) and only accepting bank wire transfer?

Is there any official Buyer protection behind?

For shops and eBay there is some protection (e.g. credit card - pay back)
 
Probably varies bank to bank. I had a guy here try to scam me on Gumtree - it's like CraigsList - if you know what I mean. I rang bank next day and they cancelled the payment. I'd also add the level of customer service was higher than you get from paypal. I had an issue like you describe so I paid half up front and half on delivery. That one worked out fine.
Another factor is how much are you spending.
 
Ohmess said:
Hi All - I started this thread because I strongly suspect many of us will get these 1099s. I believe they are being sent out in response to a change in the tax law. So, Jay - Yes, they are doing what they are required to do by law.
Click to expand...

Yay! I sold $8K in parts on paypal last year. Mostly to friends. All e9 owners are my friend! :)
 
This all raises the question of how we sell parts. We should create some forum guidelines/recommendations which include using friends and family between well-known members.
 
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