PayPal 1099 - bad news for MA and VT residents

[BobC]

Originally Posted by bobbyw8469

I sell about $30,000 worth of cards on Ebay that I pay $33,000 for. Am I running a business? Or is it a hobby? Hell, you can sell just 2 Hank Aaron rookies and exceed their monetary threshold.

To receive the 1099-K form at year-end that reports your proceeds to the IRS, in addition to having to have at least $20,000 of sales, you also need to have at least 200 transactions. So just two sales would not necessarily trigger the party responsible for preparing the 1099 forms to generate for you under those circumstances. The two states mentioned by the OP have put forth there own requirements for reporting such income to them. That doesn't mean those sales are also being reported to the IRS but, I would guess that as long as whoever is preparing the 1099 forms to send to those states is doing that, they'll probably just go ahead and send them to the IRS as well. Just because the IRS rules don't require someone to send them a 1099 with your sales on it doesn't mean they can't go ahead and do it anyway.

Here's a link to another article that nicely spells out what the IRS is looking for in determining if you are a hobby or a business, in more straightforward language. You have to look at the various considerations the IRS uses and review each situation separately for the specific facts and circumstances.

https://www.kahnlitwin.com/blogs/tax...bby-a-business

The big rule of thumb that is most often followed is the "3 out of 5 years of income" rule, which is what is most commonly referenced when someone talks about the "Hobby Loss Rule". But, even if you have fewer than 3 years of income in the prior 5 years, you can still argue that the intent was to be a business and be profitable if you can show a good reason why the losses occurred. Just not as easy an argument to win with the IRS.

[bobbyw8469]

Originally Posted by BobC

To receive the 1099-K form at year-end that reports your proceeds to the IRS, in addition to having to have at least $20,000 of sales, you also need to have at least 200 transactions. So just two sales would not necessarily trigger the party responsible for preparing the 1099 forms to generate for you under those circumstances. The two states mentioned by the OP have put forth there own requirements for reporting such income to them. That doesn't mean those sales are also being reported to the IRS but, I would guess that as long as whoever is preparing the 1099 forms to send to those states is doing that, they'll probably just go ahead and send them to the IRS as well. Just because the IRS rules don't require someone to send them a 1099 with your sales on it doesn't mean they can't go ahead and do it anyway.

Here's a link to another article that nicely spells out what the IRS is looking for in determining if you are a hobby or a business, in more straightforward language. You have to look at the various considerations the IRS uses and review each situation separately for the specific facts and circumstances.

https://www.kahnlitwin.com/blogs/tax...bby-a-business

The big rule of thumb that is most often followed is the "3 out of 5 years of income" rule, which is what is most commonly referenced when someone talks about the "Hobby Loss Rule". But, even if you have fewer than 3 years of income in the prior 5 years, you can still argue that the intent was to be a business and be profitable if you can show a good reason why the losses occurred. Just not as easy an argument to win with the IRS.

Then the IRS has no clue as to how competitive the baseball card market actually is.

[BobC]

Originally Posted by bobbyw8469

Then the IRS has no clue as to how competitive the baseball card market actually is.

Virtually every business market is competitive. The IRS doesn't need to have a clue, nor care one iota. All they know is that if you have net income, regardless of what/where it is from, you should be reporting and paying them tax on it.