If you determine your online sales are an activity you have engaged in for profit, as an Online Auction Seller you are considered a self-employed taxpayer and must file Schedule C Profit or Loss from Business. In this situation, you must report all your business income from these sales. Additionally, you may be able to claim a deduction for certain business expenses. If your net profit is above $400, you will be subject to self-employment taxes in addition to individual income taxes.

Due to the increasing volume of online sales, effective calendar years beginning after December 31, 2010, Form 1099-K Merchant Card and Third-Party Network Payments must be issued by the Payment Settlement Entity (PSE) to the payee to report payments made in settlement of reportable payment transactions. Similar to a Form W-2 or 1099-MISC, this form will be issued to the taxpayer and the IRS by the issuer.

Per the IRS Instructions for Form 1099-K:

Who Must File. Every PSE, which in any calendar year makes one or more payments in settlement of reportable payment transactions, must file an information return (Form 1099-K) with respect to each participating payee for that calendar year.

Please see the Form 1099-K instructions for an overview of the exceptions.

Note: If a PSE contracts with an electronic payment facilitator (EPF) or other third party payer (TPP) to make payments in settlement of reportable payment transactions on behalf of the PSE, the facilitator or other third party must file Form 1099-K in lieu of the PSE.

To enter the Form 1099-K in to the TaxACT program (Schedule C):

1. From within your TaxACT return (Online or Desktop), click on the Federal Q&A tab
2. Click Business Income to expand the category, and then click Business income or loss from a sole proprietorship
3. Click Add to create a new copy of the schedule or Review to review a schedule already created
4. Continue through the interview screens until you reach the screen titled Business Income - Income, then click Yes
5. Click Continue or No until you reach the screen titled Business Income - Form 1099-K, then click Yes
6. The program will proceed with the interview questions for you to enter or review the appropriate information

If you need to enter a Form 1099-K for a Schedule E or F, please see Entering in Program - Form 1099-K. 

If you are not engaged in the activity for profit, then the activity may be considered a hobby. You may not claim hobby expenses in excess of your hobby income.

To enter the income from your hobby in TaxACT:

1. From within your TaxACT return (Online or Desktop), click on the Federal Q&A tab
2. Click Other Income to expand the category, and then click Prizes, awards or other miscellaneous income
3. The the amount of income in the Hobby income box

To enter your expenses from your hobby in TaxACT: 

1. Click on the Federal Q&A tab
2. Click Itemized or Standard Deductions to expand the category, and then click Other expenses related to taxable income - Subject to 2% of AGI limit
3. Click Continue once. The amount of expenses should be entered in the Hobby expenses, limited to hobby income box

Please see the links below for additional guidance as an Online Auction Seller: 

• Form 1099-K and Instructions for Payee
• Form 1099-K instructions for Payment Settlement Entity/Third Party Payer (Issuers of Form 1099-K)
• Online Auction Sellers Tax Center
• Tax Tips for Online Auction Sellers
• Recordkeeping for Online Auction Sellers
• Tax Laws and Issues for Online Auction Sellers
• Online Auction Seller: Hobby versus a Business