new 1099-K rules

[cjedmonton]

Originally Posted by BobC

That is actually a great question, but not sure I'll be able to give you a definitive answer without more info.

First, am I correct to assume you, or the business you use the PayPal account for, are a cash basis taxpayer? If not and you report as an accrual basis taxpayer for tax purposes, I'd say you pick up the sale/income on your 2021 return. But if you are a cash basis taxpayer, you are supposed to pick up the sale/income in the year you actually receive the.cash, or it is at least made available for you to do what you want with it.

In your case it sounds like PayPal shows they received your money and credited your account for it in 2021, which initially sounds like you should then pick it up on your 2021 return. But because they're holding it and not letting you have access to it till 2022, it ends up sounding like you a shouldn't pick it up till your 2022 tax return. The problem is we don't know how PayPal internally looks at this, and whether they consider this your money for 1099 reporting purposes when they first receive it, or when they later remove the hold on it. So in this case, here's what I would do.

First off, see if you can get a phone number or email address you can contact PayPal at. Then contact them and simply ask them, for 1099 reporting purposes do they consider money received on your account one year, but put on hold and not actually released to you till the following year, reported on your 1099 in the year they received the money for you, or the year they actually released it to you. And then just report it in 2021 or 2022 based on what they tell you. And if they tell you they report it in the following year, which will be 2022 for you, you should be able to double check that by looking to see that questionable sales amount gets included on your 1099 for 2022, along with any other sales you have during the balance of 2022.

Now if you can't get through to PayPal, or you can, but no one can then answer your question, I'd just include that sale on your 2022 tax return. And again, you should be able to then double check it to see that they included the sale on your 1099 form for 2022 as well. If it ends up that they didn't include that sale on the 2022 form 1099, that means they must have considered that sale as being received by you in your 2021 tax year after all. But since you didn't include it on your 2021 tax return, go ahead and just add the sale on to what they did report on your 2022 form 1099, and include it all on your 2022 tax return. The IRS won't question you for reporting more sales than what is reported on the 1099(s) you get for a particular year. And since you really didn't have the ability to access the money from that sale till 2022, I don't think an IRS agent would fault you for waiting till then to pick it up on your 2022 tax return, even if PayPal didn't put it on your 1099 for 2022.

One more point going back to you, or anyone else, that is an accrual basis taxpayer. Regardless of whether or not you are an accrual or cash basis taxpayer, the people/entities that are preparing and sending these 1099-K forms to you, and the IRS, are doing so based strictly on the cash basis. So if you are on the accrual basis, chances are the sales income you are reporting on your return will not agree to what is being reported to you on the 1099-K form(s) that you receive. As long as the sales you report on the tax return are equal to or greater than sales reported on the 1099-K form(s) you received for that year, you should be fine. But if the accrual basis sales you report on your return turn out to be less than the total sales reported to you on the 1099-K form(s) you received for that year, you may want to make some adjustment, or at least a notation, on your tax return so the IRS doesn't ended up contacting you about some under reported income.

Sorry for the long answer, but if if you want it to be right, and so you know what to do................

I greatly appreciate the detailed response!

Finally got a response from Paypal on this. They said it is reportable on the 2021 term since that is when the buyer sent the funds, even if they are not yet available to me.

The parcel is still en route, thus the hold until it is delivered. However, the buyer completed the transaction on their end in 2021, so that’s how they said it will be viewed.

Watch me claim it for 2021 and then get a 1099 for the 2022 tax year anyway (assuming no other sales for the year). That’s a mess I don’t want.