4 Common Misconceptions About Form 1099-K

Updated for tax year 2023.

If the new 1099-K reporting thresholds have you confused as an eBay seller, you’re not alone. But don’t worry — eBay and TaxAct® have partnered up to help you separate fact from fiction.

Below we’ll address some common misconceptions you might have heard about these changes and the truth about how your taxes could be affected.

Misconception 1: This is a new tax that I will have to pay on my profits.

The truth: This change is not a new tax imposed on online sellers but a new reporting requirement for eBay and other online marketplaces. Any income derived from a sale has always been reportable income for eBay sellers.

Previously, and continuing for 2023, you will only receive Form 1099-K from eBay if you hit $20,000 in gross payments and 200 transactions annually (the only exceptions would be if your state has a lower threshold or you were subject to backup withholding). The IRS has lowered this threshold for tax year 2024, meaning eBay and other marketplaces must report gross sales that equal or exceed $5,000 on a Form 1099-K beginning in tax year 2024.  This is part of a phase-in process by the IRS to eventually implement a $600 threshold in 2025.

Due to these changes, many sellers who have not received a Form 1099-K before will begin receiving the form in the coming tax years. eBay and TaxAct have partnered to help you understand the changes and how to report them on your income tax returns.

Misconception 2: All the transactions on my 1099-K are taxable.

The truth: Receiving a Form 1099-K doesn’t automatically mean you’ll owe income tax on the gross sales amount reported to you. You are taxed on your net income, but a 1099-K only shows your gross receipts. The amounts reported on Form 1099-K do not consider your cost basis and any adjustments for fees, refunds, credits, etc.

If you sold an item at a net loss against its original cost basis, you should report it as a loss on Schedule 1 or Schedule D. You will not be responsible for any income taxes on the sale.

When filing your tax return, use your Form 1099-K as an informational document to help you fill out Schedule C to report business profit and losses (if you are a sole proprietor) or Schedule D to report capital gains and losses (if you are a casual seller). Then make any necessary adjustments to make your tax return consistent with your own records. That’s why good bookkeeping is key.

Misconception 3: I’m only a casual seller, not a business, so I don’t need to report my sales profits as income.

The truth: Taxable income includes any income made from sales, whether you’re a casual seller, hobby seller, or a business.

For example, let’s say your hobby is thrifting old pieces of furniture, and sometimes you flip them for a profit. Last year, you bought a used piece of furniture for $100, restored it, and sold it on eBay for $700. This gives you a $600 profit. Unlike a business, as a hobby seller, you cannot deduct expenses incurred before the sale, such as the cost of restoring the furniture, but expenses on the actual sale (like any eBay fees) can be added to your cost basis to reduce your gain.

If casual selling becomes a regular profitable occurrence, the IRS may start to consider your hobby to be a formal business. Turning your hobby into a business could make you eligible for certain business tax deductions.

You can check the IRS’s guidelines for determining when a hobby becomes a business here. If you have questions about the differences between hobby selling and business selling, TaxAct Xpert Assist℠ ¹ is an add-on feature that allows you to connect with a tax expert and get your questions answered in real time.

Misconception 4: I will be paying tax on all items I sell, even if it’s at a loss.

The truth: Income is determined by deducting expenses from the final sale price and determining if the transaction yielded a profit or a loss. Only the profit is considered taxable income, so you won’t owe any taxes on something you sell at a loss or for less than what you paid. We may sound like a broken record here, but for this reason, be sure to practice good bookkeeping for your taxable and nontaxable sales as an online seller.

We’ll look at a nontaxable transaction this time. Imagine you bought a new bike for $1,000 last year and then sold it on eBay for $700 this year. Because you sold the bike at a loss, there would be no income to be recognized on this sale even though the transaction may be reported on the 1099-K you received from eBay. Instead of reporting the sale as income, you would report it as a loss using either Schedule 1 or Schedule D.

For more information about how to report capital asset gains and losses on your tax return, check out our comprehensive guide to capital gains taxes.

The bottom line

While the 1099-K changes this year may be confusing for casual sellers and small businesses who have never seen this form before, TaxAct and eBay are doing our best to keep you and other sellers informed and prepared for next tax season.

In the meantime, eBay is advocating for their online sellers by fighting this legislation on your behalf. You can learn more about eBay’s efforts by checking out eBay Main Street.

eBay and its affiliates do not provide legal, tax, or accounting advice. This material is being provided for informational purposes only and is not intended as, and should not be relied upon for, legal, tax, accounting, or other professional advice. Please consult your own legal, tax, and accounting advisors for advice specific to your situation

¹TaxAct Xpert Assist is available as an added service to certain users of TaxAct’s online, consumer prepared 1040 product. Service hours limited to designated scheduling times and by expert availability. Some tax topics or situations may not be included as part of this service. View full TaxAct Xpert Assist Terms and Conditions.

All TaxAct offers, products and services are subject to applicable terms and conditions.

IRS CIRCULAR 230 DISCLOSURE: Any U.S. tax advice contained in this communication is not intended to be used for the purpose of either (i) avoiding penalties that may be imposed, and (ii) supporting the promotion of any matters addressed.