Originally Posted by
roadcrankr
You've got some wild ideas there, but let me focus on this bit of your dialog.
The IRS receives the 1099 data into their system. The filer that sends you the 1099 also transmits it to the IRS.
Do not ignore it. And by "ignore," I mean not filing the amounts on your 1040. It will flag every single time.
Complete a Schedule C and report the net profit as taxable income. With a modicum of bookkeeping, one can avoid taxation entirely.
The U.S. tax compliance system is far more robust than fifty years ago. They know about every dollar from a 1099 with your SS# on it.
Based on the information I have from my lawyer friends, if you don't report a low value 1099-k, most of the time, the IRS will take no action. When the IRS does take action, most of the time it will be an inquiry, sometimes with a bill assuming the entire amount was profit. You can answer the inquiry, and usually quickly make peace with the IRS. In rare circumstances, an audit could be stimulated, but not just for a low value 1099-k. Keep in mind: only profits are taxable. Non-taxable income is not required by law to be reported at all, although it might be best to explain if the IRS so requests.
I've been dealing with this for a while now, because it happened in VT and MA before it happened to everywhere else. See this page on the VT tax website for clarification:
https://tax.vermont.gov/business-and...ing-tax/1099-k
I will post an excerpt from the page:
"Meghan is downsizing her home and sells furniture on an auction site for $5,000. The original purchase price of the furniture was $9,000. The $5,000
IS NOT subject to tax or any reporting as it is a function of selling personal items at a loss."
"Mario, a full-time accountant, also has a hobby selling hand-painted holiday decorations on an auction site. He sells $3,268 worth of decorations over the course of the year. That $3,268 amount
should be included when calculating gross receipts for his income tax return. He may be able to deduct certain expenses".
I believe most of us fall into either Meghan or Mario's camp. There is a lot of information out there saying you should report everything, but in my experience the risk of audit is low. A lot of the information given out is from sources that (coincidence?) also prepare taxes. They want these things to be complex and they want to increase our anxiety about audits because they make more money. See:
the turbo tax lobby.
As always, "the above is not tax advice."