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One thing nobody mentioned yet - since your wife is now getting 1099-Ks, she should consider treating this as an actual small business going forward if she's going to continue selling. That means: 1. Track all expenses separately 2. Consider filing for a business tax ID instead of using her SSN 3. Keep good inventory records from the start 4. Set aside about 15-20% of profits for estimated tax payments I started selling vintage medical equipment on eBay as a side hustle in 2022, and it's so much easier when you treat it as a business from day one rather than trying to sort it out later.
Thanks for this advice! Do we need to do anything special for sales tax collection? The items were sold to buyers in different states.
Good news - you don't need to worry about sales tax collection. eBay now automatically collects and remits sales tax in all states that require it. That's one headache they've taken off sellers' plates in recent years. Just focus on your income tax obligations - reporting the income on Schedule C, deducting your costs and expenses, and paying tax on the net profit. If you continue selling regularly, you might need to make quarterly estimated tax payments, but for a one-time cleanout of old inventory, you'll likely be fine just reporting it on your annual return.
Don't overthink this. I've been selling on eBay for 15+ years. The 1099-K is just reporting the money that went through their platform. It doesn't mean you owe taxes on that full amount. Your wife needs to file Schedule C with the 1099-K amount as her gross receipts, then deduct: - Cost of goods sold (what you paid originally) - eBay fees - Shipping costs - Packaging materials - Home office if you qualify - Portion of internet/phone used for business - Mileage for post office trips Regarding documentation - credit card statements, bank records, or even photos of the items with notes about purchase price are better than nothing. The IRS just wants to see you made an honest effort. And they absolutely don't care that you bought it and she sold it - married couples share property all the time.
Just a reminder that PPP has specific requirements for forgiveness. Make sure you're documenting how you use the funds! For sole props with no employees, it's actually pretty straightforward: You can claim up to 8 weeks of your average weekly net profit from Schedule C as "owner compensation replacement" (this would be your entire loan amount if you have no other eligible expenses). Keep records showing you transferred the PPP funds to a personal account as "owner compensation" over an 8-24 week period. The remainder can be used for business rent, utilities, etc. but keep ALL receipts and documentation. Some lenders are really scrutinizing sole prop forgiveness applications.
Do you happen to know if health insurance premiums for yourself (the sole prop) count as eligible expenses for the remaining 40%? I've been getting conflicting information.
For sole proprietors with no employees, health insurance premiums for yourself do NOT count as an additional eligible expense for the 40% portion. This is because health insurance for the owner is already factored into your net profit calculation on Schedule C. The eligible expenses for the 40% portion are limited to business mortgage interest, rent or lease payments, and utilities that were in place before February 15, 2020. The rules are a bit different for businesses with employees, which is probably why you've been seeing conflicting information. Always best to check with your specific lender since they'll be the ones processing your forgiveness application.
Has anyone actually received PPP as a sole proprietor without employees and also having a W2 job? I'm in the exact same boat (full-time job + side business as sole prop) and my bank (Chase) keeps giving me the runaround saying I don't qualify. They're saying because I have W2 income, my side business hasn't been "substantially affected" enough to qualify.
I got PPP for my sole prop photography business while having a full-time W2 job. Your bank is wrong - there's nothing in the PPP rules that disqualifies you for having W2 income. Try applying through a smaller bank or credit union, or one of the fintech lenders like BlueVine or Kabbage. I applied through BlueVine after BofA gave me similar pushback and was approved in 3 days.
Just wanted to add another option - I was able to amend my return with my 1099-NEC by downloading all my tax info using the IRS's "Get Transcript" tool online, then using that data to file an amendment through H&R Block's free online version. TurboTax isn't the only game in town, and their upselling tactics are getting worse every year. I had the exact same issue where they wanted me to upgrade just to fix a simple mistake. The H&R Block interface was pretty easy to use, and they didn't charge me anything for a basic amendment involving a 1099-NEC correction. Just make sure you have all your original tax data and the correct 1099-NEC information before starting the amendment process with any service!
Thanks so much for this suggestion! Did you need to create a new account with H&R Block or could you somehow import your return from TurboTax? I'm worried about having to re-enter all my information from scratch.
You do need to create a new H&R Block account, and unfortunately there's no direct import from TurboTax. However, you don't have to re-enter everything from scratch either. What I did was download my tax return transcript from the IRS website (the "Get Transcript" tool), which had all my basic info already included. Then in H&R Block, I just had to enter the main details from my original return based on that transcript, plus the correct 1099-NEC information. It took maybe 30-45 minutes total, which was worth it to avoid paying TurboTax's premium fee. They make the amendment process pretty straightforward, especially for correcting income on a 1099-NEC.
has anyone tried just waiting for the IRS to send a letter? i had a missing 1099-NEC last year and eventually got a letter from them saying i owed more money. i just paid the difference online and didnt have to file an amendment at all. saved me the headache of figuring out how to do an amended return.
That's actually not a great approach because the IRS will charge you interest and penalties if they catch the mistake first. When you file your own amendment, you can often avoid the penalties (though you'll still owe interest on any unpaid tax). Plus, having the IRS send you notices can increase your audit risk.
Remember that even if there's no income showing on transcripts, your client might still have had filing requirements. I had a client who was self-employed making just enough to require filing (Schedule C with net earnings over $400 triggers SE tax filing requirements), but not enough to receive 1099s or trigger third-party reporting. For reconstructing income, I've had good luck with clients keeping things like appointment books, calendars, or customer lists even when they don't have financial records. Sometimes these can help establish activity levels that can be used to estimate income.
Don't bank statements expire after 7 years? How would someone even get statements from 10 years ago to reconstruct income?
Most banks only provide online access to 7 years of statements, but they often retain records for longer periods. Your client can request older statements directly from their bank - there's usually a fee, but many banks can produce statements from 10+ years ago if needed. This can be extremely valuable for income reconstruction. If bank statements truly aren't available, there are alternative approaches: industry standard rates applied to known work activity, client's recollection of approximate customer counts and average charges, third-party records (like appointment books or contracts), and even client's lifestyle expenses during those periods can establish baseline income needed to maintain that lifestyle.
Has anyone had success with requesting First Time Abatement (FTA) for penalties on multiple years of unfiled returns? I'm wondering if it only applies to the earliest year or if it can be used across multiple tax years.
FTA typically only applies to one tax year - usually the earliest one with penalties. However, I've had success requesting reasonable cause abatements for the additional years by documenting why the client failed to file (medical issues, natural disasters, bad advice from previous accountants, etc). Worth trying for all years, but expect FTA to only work for one.
Malik Johnson
For anyone who finds this thread later - I recommend planning ahead for next year! Set a calendar reminder 2-3 weeks before the deadline. I've been using the IRS-approved "Free File Fillable Forms" for my 7004 extensions which is completely free, but you need to set up an account ahead of time and it can be a bit clunky to use if you're rushing.
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Isabella Ferreira
ā¢Free File Fillable Forms includes Form 7004? I thought those were only available for individual returns like 1040s. Can you really use it for S-corps?
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Ravi Sharma
Don't forget that filing an extension only extends your time to FILE, not your time to PAY any taxes due. Make sure you're still paying your estimated tax liability by the original deadline to avoid penalties and interest, even if you're extending the actual filing.
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Connor O'Neill
ā¢Thanks for the reminder! My S-Corp doesn't have any tax liability (all profits pass through to my personal return), but this is definitely important for C-Corps or S-Corps with certain types of taxes due.
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