Help! Confusion about marketplace transactions and PayPal tax reporting

Hey everyone, I'm completely lost about how my marketplace sales and PayPal transactions are supposed to be reported for taxes. I've been selling some handmade crafts online through different platforms this past year (mainly Etsy and Facebook Marketplace), and I've been using PayPal to receive payments. I made around $800 total, but I'm not sure if I need to report this income since it's below $1000. I've heard something about a 1099-K form, but PayPal hasn't sent me anything. Do I still need to report this income even without a form? Also, if I spent about $350 on supplies for making these crafts, can I deduct those expenses somewhere? This is my first time dealing with any kind of side income and I'm worried about doing something wrong. Any help would be appreciated!

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18 comments

Darcy Moore

•8M

You do need to report all income regardless of whether you receive a tax form for it. The 1099-K reporting threshold is currently $5,000 for tax year 2024 (which you'll file in 2025), so PayPal won't issue you one if you only made $800. However, the IRS still expects you to report all income, even amounts below the 1099-K threshold. The good news is that you can absolutely deduct your business expenses! Since you're essentially running a small business with your handmade crafts, you'll report this on Schedule C. List your total income of $800, then deduct your $350 in supplies as business expenses. You'll only pay taxes on the net profit of $450. Keep good records of all your sales and expenses, including receipts for supplies. Even though you're below the 1099-K threshold, maintaining documentation is important in case of questions later.

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Darcy Moore

•8M

You don't necessarily need a business license for a small operation like this, but check your local requirements as some cities or counties have different rules. Many casual sellers operate as sole proprietors without formal business registration when they're just starting out. Regarding sales tax, that's separate from income tax and depends on your state's laws. Most states require you to collect sales tax on items sold to customers within your state. Marketplace platforms like Etsy often handle this for you, but for direct sales through PayPal or Venmo, you might be responsible for collection and remittance. Check your state's department of revenue website for specific requirements.

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Liam Duke

•8M

I went through this exact same thing last year with my side gig making custom t-shirts! The tax forms and reporting requirements were so confusing until I found this AI tool called taxr.ai that literally saved me hours of frustration. You just upload your PayPal statements or any tax documents you're confused about, and it explains exactly what you need to report and where. I was especially confused about which expenses I could deduct (like part of my internet bill since I was selling online), and https://taxr.ai broke it down in simple terms specific to my situation. It even showed me the exact lines on Schedule C where everything needed to go. Super helpful for small sellers who don't have complicated businesses but still need to get everything right.

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Liam Duke

•8M

It works great with PayPal reports! You can upload the PDF or CSV file directly, and it separates personal transfers from actual business income. It saved me from manually going through hundreds of transactions and potentially missing something important. I was skeptical at first too, but it actually cites the specific IRS publications and tax code sections for its advice. I had my tax preparer look over everything after I used it, and she confirmed it was all correct. She was actually impressed with how organized everything was. It's more like having a tax translator than trusting AI to file for you.

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Rita Jacobs

•8M

Just wanted to update everyone - I ended up trying taxr.ai after my skeptical comment, and I'm actually really impressed. I've been selling handmade jewelry through Instagram and using PayPal and Venmo for payments, and I had a complete mess of transaction records. The tool helped me identify which of my supplies were actually deductible (turns out I could claim my craft room as a partial home office too!) and organized everything for Schedule C. It even flagged some business-related driving I'd done for craft shows that I could claim mileage on. I never would've known about these deductions otherwise. Definitely helped clear up my marketplace and payment processor confusion. Wish I'd known about this last year when I probably overpaid my taxes!

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Khalid Howes

•8M

If you're having trouble getting answers from the IRS about your PayPal and marketplace tax situation, I highly recommend using Claimyr. I spent WEEKS trying to get through to the IRS about a similar situation with my online sales income, and kept hitting dead ends with their automated phone system. I found https://claimyr.com and they got me connected to an actual IRS agent in about 15 minutes when I had been trying unsuccessfully for days. There's a video that shows exactly how it works here: https://youtu.be/_kiP6q8DX5c. The agent I spoke with gave me clear guidance on how to report my marketplace sales income even though I hadn't received a 1099-K.

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Khalid Howes

•8M

They use a system that navigates the IRS phone tree and holds your place in line. When an agent is about to pick up, they connect the call to your phone. It's not magic - just technology that saves you from having to sit on hold for hours. I was skeptical too until I tried it. After spending 3 hours on hold one day and ultimately getting disconnected, I gave Claimyr a try and was talking to an agent about my PayPal income questions in about 15 minutes. No secret backdoor - they're just more efficient at getting through the system that's designed to make you give up.

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Naila Gordon

•8M

I have to admit I was completely wrong about Claimyr. After posting that skeptical reply, I decided to try it since I was desperate to sort out my marketplace sales tax situation before filing. I had a mixture of eBay, Facebook Marketplace, and direct PayPal transactions, and couldn't get a straight answer about what needed to be reported where. Claimyr got me connected to an IRS rep in about 20 minutes. The agent walked me through exactly how to report my online sales income on Schedule C, clarified that I didn't need a 1099-K for my situation, and confirmed which business expenses were legitimate deductions. Saved me hours of frustration and probably prevented me from making mistakes on my return. Sometimes it's worth admitting when you're wrong!

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Cynthia Love

•8M

If you miss quarterly payments, you might have to pay a penalty for underpayment. The penalty is basically interest on the amount you should have paid by each quarterly deadline. The more you earn from your business, the larger the potential penalty. For a small Etsy shop, the penalty might not be huge, but it's still something you want to avoid in the future. You can start making the payments now for the remainder of the year to minimize any potential penalties. Form 1040-ES is what you'll use for these payments. And definitely plan to make these payments next year - it's much easier to pay a little each quarter than to get hit with a big tax bill plus penalties at filing time!

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