Digital Payment and Seller FAQs
I’ve never heard of a 1099-K. What is that form?
Form 1099-K is an IRS form that shows money received from certain third-party sites, such as payment apps, rideshare services, or other credit or debit card processing sites. If you have enough payments that fall into this category, Venmo, Facebook Marketplace, eBay, Etsy, or whichever service you work with will send you the form mentioned above by January 31.
The platform I used asked me to fill out a W-9. Why is that?
The W-9 form is used to get an official record of your Social Security number (or other tax ID number). If the app or online site you use is required to send you a 1099-K, they need to have documentation of your tax ID on Form W-9.
Do I have to pay tax on the amount that will be reported in 1099-K?
It depends. If your form reports money transferred for personal use, you won’t owe taxes, but you may have a few extra steps on your tax return. If you’ve sold an item and made money on the sale (called a capital gain), then you may owe taxes. However, you likely won’t pay taxes on the total amount shown on your 1099-K.
For example, your form may show a $100 transaction for the comic book you sold, but for your taxes, you’ll factor in what you originally paid plus any fees, which would likely lower your taxes owed. Find out more about capital gains.
How can I get ready for my tax filing next year? What do I need to do now?
You may want to keep receipts in certain cases. In other cases, you won’t need to do anything. For example, if you sold your $500 designer boots for $300 through a consignment app, you won’t have to report the loss for the sale, and you won’t have taxable income.
If you’re reselling collectibles, it’s helpful to know what you paid for them. Don’t have your receipt? Don’t worry. There are other ways to estimate this information.
I’m not running a business, just clearing out stuff I don’t need. How do I report this?
If you’re not running a business, it makes it a little easier. If you’re selling items for less than what you bought them for, you won’t get to take money off your taxes. But, if you made money on your sale(s), you’ll report it to the IRS on Form 8949 and Schedule D.
I no longer file a tax return due to my status (retired, disabled, etc.) and am just selling personal items. Will I have to file one now?
If you haven’t been required to file taxes, it may be because your income was under a certain amount. If you have capital gains, like the ones described in the questions above, that income may push you over the limit. Review how much you have to make to file taxes.
I buy and sell mostly related to my hobby. Will I be considered a small business owner now?
No one factor determines if you should be considered a business. If you make a profit is one consideration, but there are actually several others, including your expertise and the time you spend on your activity. To dig deeper into whether or not the IRS may see you as a business, review our post on hobby taxes.
Final note: You’ll report hobby income on your tax return, but you won’t be able to deduct hobby expenses.
What if I am running a business? How will that change my taxes?
If you’re selling as part of business activities, you’ll have a few new considerations for your taxes. This includes paying estimated taxes and filing Schedule C. Sound daunting? Don’t fret! Block Advisors, a part of H&R Block, has the expertise to cover all your small business tax needs.
Learn more about Block Advisors small business tax services.