Just got my first 1099-K from Depop/PayPal sales. What do I need to do with it?

This is a common question now that the reporting threshold dropped to $600! The 1099-K just reports gross payments you received, not your actual profit or loss. Here's what you need to do: You'll report this income on Schedule C (Profit or Loss from Business) with your tax return. But don't panic - you can also deduct the original cost of the items you sold as "Cost of Goods Sold" on that same form. If you sold personal items for less than you paid, you'll likely end up showing little to no taxable profit. Keep good records of what you sold and what you originally paid for those items. If you don't have exact figures for what you paid, make reasonable estimates based on what similar items would have cost new. You'll also want to track any other expenses related to your selling activity - shipping costs, packaging materials, seller fees that Depop or PayPal charged you. These are all deductible business expenses that reduce your taxable income.

I went through this exact same thing last summer with clothes I sold on Poshmark. I was totally confused until I found https://taxr.ai which helped me understand what to do with my 1099-K. Their system analyzed my form and explained exactly how to report it properly. The key thing I learned is that when you're selling personal items for less than you paid, you need to document your "cost basis" (what you originally paid) to show you didn't actually make a profit. The tool walked me through calculating this and showed me where to put everything on my tax forms. It also helped me identify shipping costs and seller fees I could deduct.

Just wanted to follow up - I ended up trying taxr.ai after getting my 1099-K from Etsy and I'm actually impressed. It made the process super simple and showed me exactly which expenses I could deduct that I hadn't even thought about (like a portion of my internet bill since I sell online). The best part was that it explained everything in plain English instead of tax jargon. I was surprised to find out that I could count the original purchase price of my handmade supplies against the income. Ended up only paying taxes on my actual profit, which was way less than the amount on my 1099-K. Definitely gonna use it again next year.

If you're having trouble reaching the IRS to ask questions about your 1099-K (like I was), I discovered this service called Claimyr that got me through to an actual IRS agent in about 15 minutes instead of waiting on hold for hours. It's at https://claimyr.com and they have a demo at https://youtu.be/_kiP6q8DX5c I was so frustrated trying to figure out how to handle multiple 1099-Ks from different platforms, and the IRS website wasn't clear for my situation. I tried calling but kept getting the "call volume too high" message and getting disconnected. Claimyr got me through to a real person who answered all my questions about how to report income from selling personal items vs. actual business income.

I need to eat my words. After my skeptical comment, I was still struggling with my 1099-K issues and getting nowhere with the IRS, so I tried Claimyr out of desperation. I'm shocked to say it actually worked perfectly. Got connected to an IRS agent within 20 minutes who explained exactly how to handle the situation with my eBay 1099-K. Turns out I was overthinking it - since I was just selling personal items at a loss, I needed to report it on Schedule C but would end up with zero tax liability after accounting for the original cost. The agent was super helpful and even emailed me some guides specific to online sellers. Saved me a ton of stress and possibly from making a mistake on my return.

Quick tip that helped me: take photos of your sold items next to the shipping label before sending them out. This creates documentation linking specific items to specific sales, which is super helpful if you ever get audited. I learned this after getting a 1099-K from Mercari last year. Also, the IRS doesn't care about the 1099-K itself as much as whether you're reporting all your income correctly. So even if you're just barely over the threshold, make sure you're tracking everything. Better to over-document than under-document!

Possibly dumb question but which tax software handles these 1099-K situations the best? I've used FreeTaxUSA in the past but not sure if it can handle this stuff properly.

Hey Kayla! I just went through this exact situation last month with my Vinted sales. The $600 threshold caught me off guard too. Here's what I learned: First, don't stress about being just over the threshold - the IRS doesn't have different rules for small amounts. You'll need to report it the same way whether it's $643 or $6,430. Since you're selling personal items from your closet, you'll likely qualify for what's called "personal use property" treatment. This means you can claim the original purchase price as your cost basis, and if you sold items for less than you paid (which sounds like your situation), you may end up with little to no taxable income. Here's what you need to do: 1. Report the 1099-K income on Schedule C 2. Document your cost basis for each item (original purchase price) 3. Deduct any selling expenses (shipping, Depop fees, PayPal fees) 4. The difference is your actual taxable profit Keep receipts if you have them, but reasonable estimates are acceptable for personal items you've owned for a while. I used old credit card statements and even photos of similar items online to estimate what I originally paid. The key is showing the IRS that while you received $643 in payments, your actual profit was much less (or possibly zero) after accounting for what you originally spent on those clothes.

Thanks for sharing your situation, Kayla! I went through something very similar last year with my Depop and Mercari sales. The 1099-K definitely caught me by surprise too since I was just decluttering my closet. One thing that really helped me was creating a simple spreadsheet to track everything. I listed each item I sold, what I got for it, and my best estimate of what I originally paid. For clothes I couldn't remember the exact price, I looked up similar items at the stores where I usually shop and estimated based on what they would have cost when I bought them. Don't forget about all the fees you can deduct! Depop takes a 10% fee, PayPal charges processing fees, plus any shipping costs you paid. These all reduce your taxable income. I was surprised how much these added up - it made a big difference in my final tax liability. Since you're only $43 over the threshold, you're in a really manageable situation. Most people in your position end up with very little taxable income once they account for their original costs and all the fees. The important thing is just making sure you report it properly so the IRS can match up your return with the 1099-K they received from PayPal.