2. misc-audio
  3. 126811-2278

Potential Tax Liability

I have a friend who inherited many electronic items including those of the audiophile variety. Through ads on this site and others, he sold about $60k worth of equipment within this year.   He is not a dealer and does not have a business, either physically or on paper.  Most of the payment transactions were made through PayPal. He is now worried about potential tax liability. Sometimes he created invoices. Sometimes the money was sent through PayPal's "Friends and Family" option. The money was transferred from PayPal to his bank account periodically. It suddenly occurred to him about possibly having a tax liability.    Made me curious too.   Would these proceeds need to be declared as income to the IRS?
kodak805

Showing 3 responses by jea48

jea48
4,313 posts
 

Good chance your friend will get a 1099 from PayPal. If so PayPal will also send a copy to the IRS. I would imagine the person that does his taxes will have to fill out a form explaining the money from the sale of the estate items. Also probably proof of inheritance of the items sold.


Quote: 

What is Internal Revenue Code (IRC) Section 6050W?

Under the IRC Section 6050W, PayPal is required to report to the IRS the total payment volume received by US account holders whose payments exceed both of these levels in a calendar year:

  • US$20,000 in gross payment volume from sales of goods or services in a single year
  • 200 separate payments for goods or services in the same year
 

IRC Section 6050W applies to all payment processors, including PayPal. Our goal is to help PayPal sellers understand and comply with the requirements.

https://www.paypal.com/webapps/mpp/irs6050w

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jea48
4,313 posts
 

Al (almarg),

Thanks, I did read it wrong.

"AND"...... Capital letters too, and I still missed it.


PayPal is required to report gross payments received for sellers who receive over $20,000 in gross payment volume AND over 200 separate payments in a calendar year.

Jim

jea48
4,313 posts
 
The 1099-K is meant to ensure that those that do business online report their income.

https://plantingmoneyseeds.com/3-things-your-home-business-should-know-about-the-paypal-1099-k/

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If I remember correctly EBay/PayPal, (EBay at the time owned PayPal), was forced by the IRS to send out a 1099-K to sellers that sold items that totaled over $20,000 or 200 transactions in a calendar year period. More importantly A 1099-K had to be sent to the IRS. Problem was the number of people that did not have an actual business on file with the state and or local governing body. They didn’t have a state sales tax permit or a federal ID number for the business. Why would the state let alone the IRS worry about some guy running a small business out of his home? The government wasn’t getting their piece of the pie. With the 1099-K not only do they get their due income tax and state/local sales tax money they know who might be running a business under the radar of the IRS, state, and local government. It’s all about getting their piece of the pie.

As for the OP’s friend I would be willing to bet he will get a 1099-K from PayPal. PayPal knows nothing about where the guy got the merchandise he listed on EBay that sold for over $60,000 so far this year. He will then have to pay the person who prepares his taxes to straighten out the mess with the IRS. One thing for sure I wouldn’t just throw the 1099-K in the garbage can when it comes.

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