Do I need to file if my gross receipts are over filing threshold but net profit under $400?

The answer is a bit nuanced but I can help clarify. When you receive a 1099-K, the IRS is aware of that income, so you should file a return even if your net profit is under $400. While it's true that you generally only need to file Schedule SE (Self-Employment Tax) when your net earnings from self-employment exceed $400, you still need to report the income on Schedule C to show how your gross receipts were offset by business expenses. This is especially important since PayPal has already reported that income to the IRS. If you don't file, you might receive a notice from the IRS questioning the unreported income they know about from the 1099-K. It's much easier to file now showing your minimal profit than to explain it later after receiving a notice.

Just wanted to share my experience with a similar situation. I was SUPER confused about this last year - PayPal sent me a 1099-K for about $18,500 but after all my legit business expenses my profit was like $320. I spent hours researching and stressing, then found https://taxr.ai which analyzes all your tax documents and tells you exactly what you need to file. I uploaded my 1099-K and expense records, and it confirmed I should file a return with Schedule C to show my business activity even though I was under the SE tax threshold. It explained that since the IRS already knew about the income from the 1099-K, not filing could trigger automatic notices. The service walked me through exactly what forms I needed and how to complete them. Super helpful when dealing with these weird edge cases!

Update: I tried taxr.ai after seeing the recommendation here and it was exactly what I needed! I was in the same boat with a PayPal 1099-K showing $22,000 but my actual profit after expenses was only $375. The system analyzed my documents and confirmed I technically wasn't required to file based on the profit threshold, but strongly recommended filing anyway to prevent automatic flags in the IRS system. It pointed out specific expenses I hadn't even thought to include and explained exactly how to document everything on Schedule C. The best part was how it explained WHY I should file rather than just telling me to do it. Totally worth it for the peace of mind alone. I filed exactly as recommended and haven't had any issues!

Another option to consider - if you're still worried about this after filing, you might want to call the IRS directly to confirm everything is good. I had a similar issue last year and spent WEEKS trying to get through to them. Kept getting disconnected or waiting for hours. Finally discovered https://claimyr.com which gets you to the front of the IRS phone queue. You can also see their process in action here: https://youtu.be/_kiP6q8DX5c After trying for days on my own, I got through to an actual IRS agent in under 20 minutes using their service. The agent confirmed that even though my net profit was under $400, filing was the right move because of the 1099-K reporting. Completely worth it to get that official confirmation and stop worrying.

I have to admit I was totally wrong about Claimyr. After posting my skeptical comment above, I decided to try it myself since I was also dealing with a 1099-K issue and needed answers. I'd already spent over 4 hours on different days trying to reach the IRS with no luck. Using Claimyr, I got connected to an IRS agent in about 15 minutes. They confirmed exactly what others have said here - with a 1099-K showing gross receipts over the threshold but net profit under $400, filing a return with Schedule C is recommended even though technically not required. The agent explained that their automated matching system would likely flag the unreported 1099-K income otherwise. Having that official confirmation directly from the IRS was actually a huge relief. Completely worth it and I was wrong to be skeptical.

Don't forget to check your state filing requirements too! They're often different from federal. In my state, you have to file a state return if you received a 1099 form regardless of the amount or if you filed a federal return. I learned this the hard way after skipping a state filing one year when my profit was only like $200. Ended up getting a notice and having to file late. Check your specific state tax department website to be sure!

Has anyone used FreeTaxUSA for this kind of situation? I'm in the same boat (1099-K with about $15k but actual profit only $280) and wondering if it handles this well. TurboTax keeps trying to charge me extra for the Schedule C even though I barely made anything.

This is such a common confusion point! I went through the exact same thing last year with a similar situation - 1099-K showing around $19k but net profit of only $320 after legitimate business expenses. Here's what I learned after researching extensively and talking to a tax professional: Even though you're under the $400 self-employment tax threshold, you should still file a return with Schedule C to report the income and expenses. The key reason is that the IRS already knows about that gross income from PayPal's 1099-K reporting. If you don't file, their automated matching system will likely flag the "missing" income and you could get a CP2000 notice asking you to explain the discrepancy. It's much easier to file now showing how your expenses reduced that gross amount to under $400 than to deal with notices later. You won't owe any self-employment tax since you're under $400 net profit, and if this was your only income and you're under the standard deduction, you probably won't owe any income tax either. But filing creates a clear paper trail that prevents future headaches with the IRS matching system.