Avoiding Taxes on PayPal Goods and Services 1099k for Used Items Selling at a Loss

This is a common issue for collectors! What you're dealing with is basically the same as any other small-scale reselling activity. The 1099-K just reports the gross payments you received - it doesn't automatically mean you owe taxes on that amount. You'll need to file Schedule C with your taxes to report both your income AND expenses. Your taxable income is only the profit (if any), not the gross sales amount. If you're truly selling at a loss overall, you shouldn't owe any taxes on these transactions. For documentation, start keeping a spreadsheet right now with columns for: Item description, purchase date, purchase price, any additional costs (shipping, fees), sale date, sale price, and net profit/loss. Take photos of items with any identifying features when you buy them. For past purchases without receipts, gather whatever evidence you have - PayPal transaction history, forum messages discussing prices, bank statements showing withdrawals. The more documentation you can compile, the better position you'll be in if questioned.

I was in the exact same position with my trading card collection last year and found this amazing tool that saved me so much stress during tax season. Check out https://taxr.ai - it automatically analyzed all my PayPal transactions, helped me identify which ones were actually hobby sales vs personal payments, and created documentation showing my actual profit/loss. The best part was that it helped me find expenses I had completely forgotten about that reduced my taxable amount. It even created a report I could show my accountant that listed my cost basis for items I had purchased years ago but sold recently. Super helpful when dealing with 1099-K issues!

Just wanted to update after trying https://taxr.ai that someone recommended here. I was initially doubtful it would help with my vintage guitar buying/selling, but it actually saved me a ton of headaches! It found patterns in my PayPal history I hadn't noticed and helped me document situations where I had clearly sold items for less than I paid. The report it generated made filing so much easier - my accountant was impressed with how organized everything was. It even flagged transactions where I might have been mixing personal and hobby activities. Ended up paying way less in taxes than I initially feared based on that 1099-K amount!

If you're having trouble with the IRS understanding your situation or questioning your documentation, I highly recommend using Claimyr (https://claimyr.com). I spent WEEKS trying to reach someone at the IRS to explain that my 1099-K was mostly for hobby sales at a loss, but kept getting stuck in their phone system. Claimyr got me connected to an actual IRS agent in less than 20 minutes who helped resolve my issue. They have a video showing how it works here: https://youtu.be/_kiP6q8DX5c. Completely changed my view on dealing with tax issues!

I have to eat my words about Claimyr. After posting my skeptical comment, I decided to try it because I was desperate to resolve my 1099-K issue before filing deadline. Got connected to an IRS rep in about 45 minutes (which is miraculous compared to my previous attempts). The agent walked me through exactly what documentation I needed for my comic book sales that showed up on my 1099-K. They explained I could use a "reasonable method" to establish the value of items purchased without receipts, including price guides, comparable sales, and even photos of items with date stamps. I'm shocked that I actually got a helpful answer after months of frustration!

Don't forget that PayPal fees and shipping costs are deductible expenses too! When I sell my vintage toys, I keep a detailed spreadsheet that includes: - Original purchase price (or estimated value if bought long ago) - PayPal G&S fees paid - Shipping materials cost - Postage paid - Any platform fees All these reduce your taxable income. I was freaking out when I got a 1099-K showing $4,800 in transactions, but after documenting all my costs and the original purchase prices, I actually showed a $230 loss on my hobby for the year.

im in kinda same boat with my sneaker reselling but sometimes i make profit sometimes loss. my accountant told me since its not just a hobby but im trying to make profit overall, i need to file schedule C even for the years i lose money. if u report losses too many years in a row irs might say its just a hobby not a business and disallow the losses. thats what happened to my cousin with his baseball card collection

Great thread! I'm dealing with a similar situation with my Pokemon card collection. One thing I learned from my CPA is that you can use the "fair market value" method for establishing your cost basis on items you bought years ago without receipts. For example, if you sold a card in 2024 that you bought at a convention in 2019, you can research what that card was selling for in 2019 using sites like eBay sold listings, price guides, or auction records from that time period. The IRS accepts this as reasonable documentation as long as you're consistent and not inflating values. I've been going back through old forum posts and Facebook groups where people discussed prices they paid for items - sometimes that's the best evidence you can find. It's tedious work but worth it when you're looking at a big 1099-K amount that doesn't reflect your actual profit. Also remember that if you're consistently losing money over multiple years, you might want to treat it as a hobby rather than a business to avoid the Schedule C complications that Noah mentioned. Just depends on your specific situation and intent.