Navigating 1099-Ks for small sellers

Seller Ledger on November 7, 2023

As of the writing of this article, it appears likely that the lowered 1099-K threshold of $600 in gross payment amount will go into effect for tax year 2023. This is causing much anxiety among small sellers, and with good reason.

Update

Shortly after posting this article, the IRS once again delayed implementation of a lowered sales threshold.

To help illustrate how much confusion and complexity is about to be created for small online sellers, we did research to identify some pretty common scenarios sellers might encounter that make for very interesting 1099-Ks and tax returns.

For example:

Inconsistent Gross Amount calculations

1099-Ks have been around since 2011. But did you know that, after 12 years, different platforms are still using different calculations in terms of what gets included in the Box 1 amount? See several examples as we look at the treatment of sales tax.

Selling personal items among your business inventory

Do you track your personal sales separately from your business sales? Because eBay, Poshmark and others don’t. You get a single 1099-K for all sales on each platform. Yet what if you sold some personal items at a loss? Personal items don’t get treated the same as normal business sales. We took a deep dive into this scenario, to help walk sellers through what to do.

Consignment sales

As a reseller of someone else’s items, you may be collecting the full amount of the sale, which will be reported on your 1099-K. Except your income is really only the commission you receive from the sale. How are you supposed to account for this? Learn more as we share what we’ve uncovered.

Disclaimer

Don’t stress

Our intent in pulling these example together is not to increase fear or anxiety. We believe there is ample evidence that the entire situation is imperfect, and what the IRS cares the most about is that you pay the correct amount of tax that your business owes. With reasonable bookkeeping, it shouldn’t be too hard to handle these scenarios. At Seller Ledger, we pull in your detailed sales and expense information to make this as simple as possible. We also offer a 30-day free trial, no credit card required.

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Make yourself heard

It is our belief that Congress does not fully understand the unnecessary complexity they have created, especially for small sellers. So, we encourage sellers to get involved and send a message to Congress. Click either of the buttons below to be taken to a place to make your voice heard:

eBay Mainstreet
1099K Fairness

If you find more interesting 1099-K scenarios that you’d like to see explored, shoot us an email at support@sellerledger.com and we’ll do out best to get to the bottom of it.

1099-Ks are inconsistent – but that’s ok

Seller Ledger on November 6, 2023

Back when we first launched, we wrote a blog post about 1099-Ks and where sellers can expect to find the amounts that make up the total in Box 1a (Gross amount of payment card/third-party network transactions.) At the time, we were referencing eBay’s calculations.

But, as we approach the end of the tax year, we’ve learned that different platforms calculate their Box 1a amounts differently, often around whether or not sales tax collected is included.

1099-K

Below is a sample of our findings – if you discover more and want to pass them along, we’re happy to update the list.

Sales tax NOT included in Box 1a

For example, the following platforms indicate in their documentation that sales tax is likely NOT included in the gross amount reported to the IRS:

Ebay

In their help page, eBay states: “Additionally, Form 1099-K does not include the sales tax when it is automatically collected and remitted by eBay.”

Poshmark

This support page from Poshmark states: “Your Form 1099-K will only include income as calculated by gross sales (including fees, refunds, and cancelled orders) on the Poshmark platform.”

Etsy

Their help page is a bit less clear, stating that the gross sales includes “Sales tax collected by you.” However, just below that, they make this statement: “In some cases, Etsy collects sales tax from buyers and remits it to tax authorities on behalf of sellers. If Etsy has collected tax on your behalf, these amounts won’t appear on your 1099-K form.”

Sales tax included in Box1a

However, other platforms either don’t spell it out very clearly or imply the opposite – that sales tax collected IS included in the Box 1a amount:

Amazon

There does not appear to be an easy-to-find, definitive answer, but this thread on their discussion board indicates that sales is included.

Mercari

This page from their help center states that their Unadjusted Gross Payment combines various amounts, including: “Sales tax charged to buyer (a separately stated sales tax paid by the Buyer at the time of purchase and remitted directly to the state under Mercari’s sales tax registration)”

Square, Shopify and likely most shopping cart platforms

A quick search finds this discussion from the Shopify community stating that their 1099K had sales tax included. And another from Square users bringing up the exact same point

Disclaimer

The content in this page should not be construed as legal or tax advice. Please consult an attorney or tax professional regarding your specific tax situation.

Creating confusion

The IRS’s own instructions for Schedule C provides a great starting point for confusion. Looking at the instructions for Line 23 (expenses for taxes and licenses,) you will find the following two statements:

You can deduct the following taxes and licenses on this line.

  • State and local sales taxes imposed on you as the seller of goods or services. If you collected this tax from the buyer, you must also include the amount collected in gross receipts or sales on line 1.

and

Do not deduct the following.

  • State and local sales taxes imposed on the buyer that you were required to collect and pay over to state or local governments. These taxes are not included in gross receipts or sales nor are they a deductible expense. However, if the state or local government allowed you to retain any part of the sales tax you collected, you must include that amount as income on line 6.

Clear as mud, right?

Adding to the confusion, there are statements from some “experts” that it’s critical to have your tax return line up with the forms that the IRS receives. But if you are a multi-channel seller, and the IRS receives multiple 1099-Ks that are based on different calculations, how are you supposed to get your amounts to line up?

It is unlikely that members of Congress understood the full potential for inconsistency when they introduced Form 1099-K for the 2011 tax year. Yet it has remained relatively unchanged for the last 12 years. And now, with the threshold for “gross amount” dropping to $600, this confusion will impact more small sellers than ever.

It doesn’t have to be a big deal

From our perspective, what’s most important is that you get to the correct amount of tax owed. That’s where good bookkeeping comes into play. If you are a multi-channel seller facing the possibility of receiving multiple 1099-Ks that included different numbers (like sales tax,) it becomes critical to have the order-level details (product price, any discounts, shipping, sales tax collected, fees charged, etc) broken out and properly categorized so that you can sub-total by any or all of them. This way, should anyone come asking, you can produce accurate reports of every total, and even drill down to the specific transactions behind them.

With Seller Ledger, we automatically import order-level details from the top online sales channels, along with banks and credit cards, to help you produce a Schedule C tax report that is accurate for your business. Anyone can try Seller Ledger free for 30-days, no credit card required.

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Import Poshmark sales history into Seller Ledger

Seller Ledger on October 10, 2023

Today Seller Ledger has launched the ability to import your order and fee information from Poshmark.

Unlike sales channels such as eBay, Etsy and Amazon, Poshmark does not have a public API to which Seller Ledger can automatically connect. But fear not, for they do provide downloadable files (in .csv format) with your sales history. And Seller Ledger’s new import tool makes it super easy to get all of your information from Poshmark into Seller Ledger.

Step 1: Download your Poshmark sales history

Just follow the steps Poshmark outlines to receive a .csv formatted file.

Step 2: Add a Poshmark account in Seller Ledger

When you click the “Add account” button under Connected Accounts on your dashboard, you will now see an option to “Import Poshmark.”

After clicking the Poshmark button, enter a name for your new account and click “Create Account”

Step 3: Upload your Poshmark sales history file

Once you’ve created your new Poshmark account, you’ll see it among your list of connected accounts on the Dashboard. Note the new icons we’ve added to differentiate between accounts that automatically connect and those that require CSV files be uploaded.

Clicking into the balance shown for your new Poshmark account and click the “Import History” tab. Here you will see the option to upload a CSV file. Choose the file you downloaded from Poshmark and click “Save.” Your file will be uploaded and your transaction history will be imported into Seller Ledger.

Trial users

Step 4: Categorize your Poshmark payouts properly

If you have connected a bank account to Seller Ledger, there’s a good chance your Poshmark payout totals are showing up there. To ensure that nothing is getting double-counted, make sure to categorize those payouts as transfers. Simply scroll to the bottom of the categories list and find your new account.

Step 5: Automate your inventory and cost of goods sold

One of the more powerful things about the Poshmark platform is that they let you enter SKU information for each item you sell. And, if you do so, they provide that information in their sale history file when you download it. This allows Seller Ledger to automatically update your inventory levels, calculate cost of goods sold, and per-item profit as soon as you upload your file. Not familiar with how this all works? Check out our video on inventory management through Seller Ledger.

Wrapping up

While a bit more effort than our fully connected accounts, uploading CSV transaction history doesn’t take a lot of additional effort and provides the vast majority of the benefits that are available through Seller Ledger. Just make sure to come back every once in a while to upload your latest sales history.

Plus, if you make a mistake with any of your uploaded information, it’s not a problem. The “Import History” tab shows you all of the files you’ve uploaded over time, with the ability to simply delete one or more and try again.

Poshmark is just the first sales channel for whom we’ve built CSV-based functionality. But it’s pretty easy to extend to other channels (like Mercari, which is coming soon.) If you would like to see other channels supported, please email us at [email protected] with your interest and, if you’d like to be particularly helpful, a sample of a transaction history file from that channel.

Cheers,

The Seller Ledger Team