How to specify cost of items when adding 1099k in my tax return

Thanks for the advice! But do I need to file Schedule C if I'm not actually running a business? I thought this was just a hobby. And if I do file Schedule C, does that mean I have to pay self-employment tax on everything?

The IRS looks at factors like regularity of activity and profit motive, not just whether you call it a business. Based on your consistent selling that generated over $11,000, they would likely classify this as a business activity requiring Schedule C, not a hobby. Yes, filing Schedule C means you'll need to pay self-employment tax on your net profit (sales minus expenses). However, the benefit is you can deduct all legitimate expenses including estimated cost of goods sold, shipping supplies, platform fees, mileage for picking up inventory, and even a portion of your phone/internet if used for this activity. Many sellers find they actually come out ahead by properly deducting all these expenses compared to reporting as a hobby.

Does it work for casual sellers too? I sometimes sell stuff on eBay but not regularly enough to call it a business. Got a 1099-K this year for about $2,300.

I'm skeptical about using AI for tax stuff. How does it actually prove what you paid for items if you don't have receipts? Seems like the IRS would want actual documentation.

Yes, it absolutely works for casual sellers. It helps you determine whether you need to file as a business or a hobby based on your specific situation. For smaller amounts like $2,300, it analyzes if you're better off reporting on Schedule C or as miscellaneous income, depending on your specific sales patterns and profit margins. The AI doesn't create proof out of nothing, but it helps you build a reasonable estimation method that's defensible in case of questions. It suggested documenting current market values for similar items, taking photos at thrift stores, and creating a consistent valuation method based on category and condition. The IRS accepts reasonable estimates when exact records aren't available as long as you have a systematic approach. It also helps you maintain better records going forward so you're prepared next year.

Wait, what is this service? How does it get you through to the IRS when nobody can get through? Sounds sketchy.

There's no way this actually works. I've tried calling the IRS for two years straight and couldn't get a human. If this service can magically get through, they must be doing something shady. No way I'm giving my info to some random company.

It's not magic - they use technology that continually redials and navigates the IRS phone tree until it gets through to a representative. When a rep answers, you get a call connecting you directly. It's completely legitimate and you're talking to actual IRS employees. They don't need any of your personal tax info at all. They're just connecting the call - you do all the talking with the IRS directly. I was skeptical too but desperate after wasting hours trying to get through myself. The IRS is just severely understaffed, and Claimyr basically waits in the phone queue for you instead of you having to do it yourself. I got specific guidance straight from an IRS representative about my exact situation with the 1099-K.

Thanks for the notebook tip - that's a great idea! I'll definitely start doing that. But what's this Section 1244 thing you mentioned? Is that something that would apply to my situation with just selling stuff online as a side thing?

I misspoke about Section 1244 - that's actually for losses on small business stock and wouldn't apply here. What I meant was that resellers can use the "Cost of Goods Sold" section on Schedule C to account for your inventory costs. The notebook method works great for casual sellers. I recommend categorizing items by type and condition, which helps establish a pattern. For example, "vintage t-shirts - good condition - $3-5 each" or "collectible figurines - mint condition - $10-15 each." This creates a reasonable framework for your estimates. Starting this practice now will make next year's taxes much easier, and having some documentation is always better than none.

TurboTax works ok for this but isn't great. It asks for cost of goods sold as a total number rather than helping you itemize. I found FreeTaxUSA actually handled my small eBay business better and asked more relevant questions about inventory and costs. Plus it's way cheaper.

I used TurboTax last year for my Etsy 1099-K. It was decent but I had to manually create my own spreadsheet for tracking cost of goods sold. It doesn't really help with estimating costs when you don't have receipts - you just enter your total estimate. If you're worried about documentation, you might want something more specialized or at least create your own tracking system alongside TurboTax.