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Another option is to use Form 8949 and Schedule D if you want to be super explicit about the cost basis of your items. This technically treats your personal items as capital assets. For each item (or group similar items together): 1. Report the sales price from eBay (what's on the 1099-K) 2. Report your original purchase price as the cost basis 3. Subtract to show the loss Since these are personal items though, you can't claim the losses against other income. But it does clearly show the IRS why the 1099-K amount doesn't result in taxable income.
Wouldn't Schedule D be more appropriate for things like stocks or real estate? I've never heard of using it for selling used personal items. Seems like overkill compared to just using Schedule 1.
You're right that Schedule D is most commonly used for investments, but it can actually be used for any capital asset - which technically includes personal property. It's definitely more detailed than the Schedule 1 approach, and probably overkill for most situations. The Schedule 1 method that others mentioned is simpler and works perfectly fine for most people selling personal items at a loss. I just wanted to offer another technically correct option, especially for people who want to be extremely thorough in documenting everything. Either approach is valid - it just depends on how detailed you want to be.
Has anyone had the IRS actually question their 1099-K reporting when using Schedule 1 for personal items? I did this last year and now I'm freaking out because I just got a notice asking for more information about the "other income" I reported.
I had this happen! Don't panic - it's just a verification notice. I sent back a simple letter explaining these were personal household items sold at a loss on eBay, included a list of what I sold with estimated original purchase prices, and that was it. Never heard anything else from them after that.
Just wanted to add - NEVER pay money to the IRS that you don't actually owe! Once you give them money it's incredibly hard to get it back. What you should do: 1) Call the IRS using the number on your notice 2) Explain that you agree with their correction but haven't received any refund yet 3) Ask them to process the correct refund amount without requiring an amendment 4) Get a confirmation number and the name of who you spoke with Also, ignore the urge to file an amended return in this case - it will only delay things further. The IRS knows there was an error and has already identified the correct amount. An amendment would just confuse matters more.
Thank you for this clear advice! I've been stressing about this for weeks. Do you know if there's any downside to just waiting for them to process the corrected refund? I'm worried about penalties or something if I don't respond fast enough.
There's no downside to waiting for them to process the corrected refund, but there is a time limit for responding to their notice - usually 30 days from the date on the letter. So you should definitely call them before that deadline passes. As long as you respond within the timeframe specified on the notice, you won't face any penalties for this type of correction.
Make sure you keep checking your transcript on the IRS website to see what's happening with your return. Just go to irs.gov and create an account if you don't have one. The transcript will show if they've processed your return and when to expect your refund. Much more reliable than the "Where's My Refund" tool which often doesn't update for these kinds of special situations.
Another hairstylist here! Don't forget about tracking your tips accurately. Many new stylists don't realize you need to report ALL tips, even cash ones. The IRS has gotten much better at estimating industry-standard tip rates, so they may flag your return if the numbers seem too low. I recommend keeping a daily log of all tips received. There are some good apps specifically for this. It seems tedious but becomes habit quickly.
Ugh, I was hoping nobody would mention tips lol! How exactly does the IRS even know about cash tips though? And what apps do you recommend for tracking?
The IRS uses statistical analysis of your industry and location to estimate expected tip ranges. If you report significantly less, it can trigger questions. They also look at lifestyle indicators compared to reported income. For tracking, I use TipSee which lets you log daily, categorize by service, and generates reports for tax time. Some POS systems like Square have built-in tip tracking too. The key is consistency - even just a simple note in your phone each day works if you stick with it. Better to track and report properly than deal with potential penalties later!
Just to add another perspective - don't forget about state-specific tax deductions too! Depending on your state, there might be additional deductions or credits available for small businesses or self-employed cosmetologists. For example, in my state, I can deduct the full cost of my continuing education requirements even if they're not directly related to cosmetology but help me run my business better (like taking a basic accounting class).
This is a great point! I'm in Colorado and discovered we have a specific "small business deduction" that many self-employed people miss. Each state has different rules too - some allow you to deduct state licensing fees while others don't. Definitely worth checking your state's department of revenue website or asking a local tax pro.
One thing to check - are you sure you filled out the NEW version of the W-4 correctly? In 2020, they completely changed the W-4 form and removed the allowances system. If you filled it out thinking it still had allowances (putting "0" when the form doesn't ask for that anymore), that might explain the confusion. The new form is totally different and really confusing. Also, did you put anything in Step 2 about multiple jobs? That's where you indicate if you have more than one employer now, which affects withholding calculations. Many people miss this part.
You know what, that could actually be part of the problem. I didn't realize the W-4 had changed that significantly. I did fill out a paper form when I started and I remember putting "0" for allowances, but maybe that wasn't even the right field on the new form. I definitely didn't check anything about multiple jobs because my first job had already ended when I started this one. Do you think that could have somehow triggered zero withholding?
That could absolutely be the issue. The new W-4 doesn't have a place for "0 allowances" anymore, so if you were filling out an old form or using old terminology on the new form, it might have confused your payroll department. Even though your jobs weren't simultaneous, the Step 2 checkbox helps the withholding system account for your total annual income. Without it checked, the system might have been withholding as if this was your only income for the year, and depending on your pay rate, that might result in little or no withholding if the projected annual amount would be under the standard deduction.
This happened to my wife last year! Check if they have you classified as an independent contractor instead of an employee. Some companies do this "accidentally" to save on their end of payroll taxes. If they did, you'll see no Social Security or Medicare taxes withheld either. In that case, you should've received a 1099 instead of a W-2, and they definitely messed up.
That's a good point. If they gave you a W-2 but treated you as an independent contractor for withholding purposes, that's definitely something the IRS would be interested in knowing about. Companies can get in big trouble for misclassifying employees.
They definitely gave me a W-2, not a 1099. And they are withholding Social Security and Medicare taxes correctly - it's just the federal income tax that's showing $0. So I don't think I'm being classified as an independent contractor. It seems more like some kind of specific error with just the federal income tax withholding.
Kolton Murphy
Anyone tried FreeTaxUSA? After using TurboTax for years and feeling ripped off by their constant upselling, I switched last year and it handled my rental property and side business perfectly. Federal filing is free and state was only $15. Just wondering if others have had good experiences with it for situations like OP's.
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Evelyn Rivera
β’I've used FreeTaxUSA for the last three years including for my small business (Etsy shop) and rental property. It's handled everything perfectly and I've never had an issue. The interface isn't as pretty as TurboTax but it asks all the same questions and I've gotten identical results when I've compared them side by side. Saved me like $120 each year.
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Julia Hall
Another thing to consider is timing. CPAs get absolutely slammed during tax season and many won't take new clients after February. If you're considering going the CPA route, start calling around NOW to get on someone's calendar, especially with your small business component. The good ones book up extremely early.
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