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 or other party which submits instructions to transfer funds to the account of a participating merchant, 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):
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:
To enter your expenses from your hobby in TaxAct:
Please see the links below for additional guidance as an Online Auction Seller: