Mrs. Lee got a 1099 from PayPal and keeps bad records. Now what?

[Rick Lee]

I warned her this was going to happen and today it did. She has an encyclopedic knowledge of what stuff can sell for on eBay and some Chinese fashion chat boards. So she finds bargains and flips the items. She had $29k in PayPal "income" and she has a shaky Excel sheet on what she paid for most items, eBay and PayPal fees paid, shipping and that's about it. There's probably 20 miles for each round trip to the post office. She's had plenty of disputes and returns too. How does she reconcile this? And what's the best way to keep it all straight going forward?

[asphaltgambler]

Rick - good luck..............IRS may not have received their 'copy' of the 1099. That happened to me once - thankfully

[qikcpa]

shell have to file as self employed and pay the extra 15.3% self employment tax on any profits in addition to your regular income tax rate.

all is not lost. if she paid for stuff with a credit card or paypal account there should be a paper trail. make her finish the spreadsheet. each sale item should have a cost. difference is profit. put it all on sch c with her other expenses. heck you may find after all the dust settles and you write off the repairs to the company car she has a loss that offsets your other income and generates a refund.

moving forward she should have one credit card and a bank account that are all business income and expenses. then transfer profits to your personal account. this is not a requirement but makes some of the yearend nuts and bolts stuff easier. next step would be something like quickbooks or mint to track it for her.

strategically, if the benefits outweigh the costs, she should look at setting up an s-corp to run the profits through.

[M.D. Holloway]

I know a guy...just say'n

[aschen]

Cant you just do a good faith estimate on all this stuff and organize it into a slightly less shaky spreadsheet. Will the IRS care that much if they get motivated enough to audit?


I know nothing about tax code stuff obviously, but it strikes me as a sad state if you need a cpa to flip a couple doz items on ebay.

[Cajundaddy]

Time to plug all the numbers into quickbooks or other accounting software to track all sales and expenses. Taxes on $29k in income certainly makes this worthwhile.

[qikcpa]

some other options would include her sending a 1099 of equal value to a relative to get the deduction, board meetings on cruise ships, writing off the dog as an employee, racing slicks, ignorance (ie what 1099?) or my personal favorite...conscientious objector to tax laws as unconstitutional.

you could however write off the prorata share of household expenses (rent/interest/repairs/interwebs, etc ) as a home office.

[Rick Lee]

She had 263 transactions. I'm gonna call that 200 round trips to the post office and to the stores where she bought the stuff she flipped.

[qikcpa]

youll also want to confirm whether the 1099 is at gross sales price or net of fees. if its at gross sales price you need to deduct the paypal/ebay fees.

you should look at cell phone usage and computer equipment

and cats. we have a lots of folks writing off their cats if their in the sales/marketing pictures.

[Rick Lee]

PayPal 1099s don't deduct anything - not fees, returns, holds, nothing.

[red-beard]

Originally Posted by Rick Lee

I warned her this was going to happen and today it did. She has an encyclopedic knowledge of what stuff can sell for on eBay and some Chinese fashion chat boards. So she finds bargains and flips the items. She had $29k in PayPal "income" and she has a shaky Excel sheet on what she paid for most items, eBay and PayPal fees paid, shipping and that's about it. There's probably 20 miles for each round trip to the post office. She's had plenty of disputes and returns too. How does she reconcile this? And what's the best way to keep it all straight going forward?

Ebay sends out an e-mail for every purchase. Sort her inbox for find all of the purchases. This would be the Material Cost of goods sold.

Shipping: Credit card receipts is where I'd go.

Paypal should have records of the money coming in, which would be the gross revenue. You might also be able to see this in the e-mail inbox.

Driving, she needs to keep records. She could look at the number of shipments, multiply by the 2 way distance and then use that mileage for taxes.

Going forward, she is running a business. She needs Quickbooks. She can use the online version where you can record the information using phones, tablets and PCs.

[MBAtarga]

If she gets audited, how will IRS look upon all of these "made up" numbers for travel/mileage, etc - with no true records? I'd probably do the same in this situation, but my understanding is they expect a written record of mileage, etc. - correct?

[Rick Lee]

Originally Posted by MBAtarga

If she gets audited, how will IRS look upon all of these "made up" numbers for travel/mileage, etc - with no true records? I'd probably do the same in this situation, but my understanding is they expect a written record of mileage, etc. - correct?

Well, it really is 11 miles RT to the post office. We know how far it is to each of the stores she frequents. She prints all her shipping labels online and it all goes from the same post office. She does it all on a credit card, so it's not hard to prove she was there and on which days. It's too far to walk, so she had to drive. I'm not really worried about that. I'm worried about her just now starting to think about it and I wanted to get our documents all gathered and mailed off to the CPA this weekend.

[wdfifteen]

^^
I've never been audited, but just keep mileage on a spreadsheet. Top of the page has beginning and ending mileage for the year and there is one column for date and one for business miles. I don't get real particular about the exact date, but I estimate miles pretty closely. My accountant says its just fine. It wouldn't be hard to create from scratch with the info Ms Lee has.

[qikcpa]

just advise mrs lee that youll be filing separate now that your internet friends informed you that tax jail allows conjugal visits. everything will be just fine.

[jrj3rd]

Better call Saul

[LeeH]

You can download the entire year's activity from Paypal as a comma delimited file and open with Excel. May be easier to start there and add columns for COGS. Postage paid will appear on the sheet too when bought through eBay. You can re-sort the spreadsheet by payee to bunch the postage amounts together to add them up easier. I'm sure there's some fancy way Excel pros use to automate pulling those numbers, but the sorting is quick and easy.

Yes, to deductions for mileage, portion (NOT 100%) of phone and internet. Don't forget packing material, office supplies, etc. Mileage will probably be a huge number at $.575/mile.

IRS came out with a simplified home office deduction a couple of years ago. $5 per square foot up to 300 square feet. I've read the home office deduction isn't quite the red flag for being audited that it once was because so many people are self employed from home now. The minor detail of this deduction is that the area is supposed to be used "exclusively" for business purposes. Technically, if you pay personal bills and check Pelican from that area, it does not qualify.

[69 Soft Targa]

Will she be continuing through 2016?

It may be as simple as using the accounting available on ebay.

A couple years back a free program called "Outright" appeared.

It now has an annual fee of around $100 and also GoDaddy bought them out.

In ebay look in Applications for GoDaddy Bookkeeping or Outright.

It will auto import your ebay and PayPal info and it's simple to track expenses such as Mileage & COGS.

If I recall correctly there will be printable reports and Schedule C worksheet etc.

Check it out

[Rick Lee]

Thanks. Will look into that. I think she's all done figuring out expenses and we're ready to mail stuff in.