Considering taking on the job of coordinating a group buy? Excellent! Not only are you helping our DIYAudio community by making it easier for others, you can help individuals save their dollars by compounding multiple orders into one. You will also meet and work with various personalities within the community and likely even make some friends.
If you are in the US, here are some details you should be familiar with. Thanks to @Chris Jones KS for creating this information:
Our US-based group buy coordinators need to be aware of evolving tax reporting requirements when you receive payments through a payment service such as PayPal. It’s crucial to understand how to report the payments you receive, especially if you're based in the United States. Let’s break down the essentials regarding the 1099-K tax form and what you need to know for smooth sailing through tax season.
Here is the same information from another viewpoint:
If you are the coordinator for a group buy, you will likely collect the funds from others to make purchases, be it for boards, parts, etc. For example: my VRDN group buy had 30 to 40 people with over 125 boards made. Add in shipping, packaging and a dollar or so for my time and the total ended up well over $800 that was collected through Paypal. I'm obviously not keeping that value as business profit, I'm just getting funds together to make a purchase on behalf of the group. Unfortunately, the IRS doesn't ask whether I was buying something for the group or buying myself a new pair of shoes, so those funds were considered income. (Frustrating.)
If you are taking on group buy coordination: cool! I had a great time doing one myself and I absolutely don't want to discourage anyone from performing this vital function. But since this threshold changes from year to year there is a possibility that at some point someone might unknowingly get burned by just trying to help. A quick estimate on the dollar value of the "income" (even if you keep none of it) may be wise. The easiest way to navigate this, it seems, is to be transparent: if it appears that you are nearing the threshold, then add the tax cost to your per-board or per-order pricing, and inform your group of such. I believe most people here would be okay with it if it were necessary.
If you are in the US, here are some details you should be familiar with. Thanks to @Chris Jones KS for creating this information:
Our US-based group buy coordinators need to be aware of evolving tax reporting requirements when you receive payments through a payment service such as PayPal. It’s crucial to understand how to report the payments you receive, especially if you're based in the United States. Let’s break down the essentials regarding the 1099-K tax form and what you need to know for smooth sailing through tax season.
Understanding the 1099-K Form
What it is: The 1099-K form is issued by payment processors (like PayPal) to report the total amount of transactions you've received over the year. It’s important to note that this form doesn’t reflect your profit; it simply shows the total payments received.Key Points for Group Buy Coordinators
- Keep Your Receipts: Since the 1099-K form shows total sales or payments without considering your expenses, save all receipts related to your purchases and shipping costs (Cost of Goods Sold - COGS). This allows you to subtract these costs from the total payments when you report your taxes, showing a more accurate picture of any income.
- Reporting Income from a Hobby:If you're coordinating group buys as a hobby (not as a business aiming for profit), any extra income should be reported as "Other Income" on Schedule 1 of your Form 1040. This approach helps you avoid the 15.3% self-employment tax for business income that is added if you accidentally report this on Schedule C.
- Hobby income cannot be less than $0.
- If your tax software allows you to add a statement, briefly explain how you arrived at your net income after subtracting COGS from the payments received.
Important Notes on Reporting
- 2023 Transition Period: For the 2023 tax year, there's a specific threshold for issuing a 1099-K: over $20,000 in payments and more than 200 transactions. This is part of the IRS’s effort to ease into new reporting requirements. The change came late in the year, so some payment processors may issue a 1099-K for a lower amount.
- For the 2024 Tax Year:The threshold for issuing a 1099-K will be $5,000. This is an intermediate step before implementing the $600 threshold.
- IRS Form Updates: The IRS is also working on updates to the Form 1040 and related schedules to simplify the reporting process for taxpayers for the 2024 tax year.
Reporting "Friends and Family" Payments
- Non-Reportable Transactions: Money received as gifts or for personal expense repayments from "friends and family" through payment processors is not reported on a 1099-K, regardless of the amount. This distinction is crucial for group buy coordinators who might receive payments in this manner.
Summary for U.S.-Based Coordinators
For those in the United States coordinating group buys, understanding the nuances of tax reporting, especially in relation to the 1099-K, is vital. Keep meticulous records of your expenses to accurately report any net income. Remember, hobby income goes on Schedule 1 of Form 1040, helping you avoid unnecessary self-employment taxes. Lastly, stay informed about the evolving IRS thresholds and reporting requirements, particularly the $5,000 threshold for 2024 as a step toward the eventual $600 threshold, ensuring you’re prepared for these changes.Here is the same information from another viewpoint:
If you are the coordinator for a group buy, you will likely collect the funds from others to make purchases, be it for boards, parts, etc. For example: my VRDN group buy had 30 to 40 people with over 125 boards made. Add in shipping, packaging and a dollar or so for my time and the total ended up well over $800 that was collected through Paypal. I'm obviously not keeping that value as business profit, I'm just getting funds together to make a purchase on behalf of the group. Unfortunately, the IRS doesn't ask whether I was buying something for the group or buying myself a new pair of shoes, so those funds were considered income. (Frustrating.)
If you are taking on group buy coordination: cool! I had a great time doing one myself and I absolutely don't want to discourage anyone from performing this vital function. But since this threshold changes from year to year there is a possibility that at some point someone might unknowingly get burned by just trying to help. A quick estimate on the dollar value of the "income" (even if you keep none of it) may be wise. The easiest way to navigate this, it seems, is to be transparent: if it appears that you are nearing the threshold, then add the tax cost to your per-board or per-order pricing, and inform your group of such. I believe most people here would be okay with it if it were necessary.
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If you are doing it for profit, you’d have to claim the income and expenses of the group buy on the business portion (Schedule C).
If you don’t intend to make a profit, it is considered “hobby income”. This reports on Schedule 1 and you can subtract out the cost of items and shipping. If you end up making a small profit, the income from this area of the tax return is only subject to your income tax rate. No 15.3% self employment tax.
The caveat is that you can’t take a loss on your hobby, so if you paid more than you brought in, it would appear on the tax form as $0. Not a big deal but hopefully you end up with a few bucks for your efforts.
Let me know if you have questions or get stuck. I am a tax person (Enrolled Agent) and am happy to point you in the right direction if you have helped this community by running a group buy. Just be patient if I am slow to respond. This is a busy time of year for me.
If you don’t intend to make a profit, it is considered “hobby income”. This reports on Schedule 1 and you can subtract out the cost of items and shipping. If you end up making a small profit, the income from this area of the tax return is only subject to your income tax rate. No 15.3% self employment tax.
The caveat is that you can’t take a loss on your hobby, so if you paid more than you brought in, it would appear on the tax form as $0. Not a big deal but hopefully you end up with a few bucks for your efforts.
Let me know if you have questions or get stuck. I am a tax person (Enrolled Agent) and am happy to point you in the right direction if you have helped this community by running a group buy. Just be patient if I am slow to respond. This is a busy time of year for me.
- The funds you recieved are income and that is all that is reported on the 1099K. (Similalry, if someone just gave you greater than $17K because you are a great friend, or son, etc. that is income and taxable under the gift tax.)
- Just because you have income does not mean you have to pay taxes on that amount. You should also indicate the COGS (cost of goods sold) on your tax form. For a Group Buy I assume you are coming quite close to breaking even, so this should not result in much tax liability. It DOES require you to keep reciepts of the boards, shipping, etc. Note also, that if you were paid with PayPal not using friends and family, then any PayPal fees would also be deductible.
- If you are paid for things under Friends and Family with PayPal you can adjust the 1099-K. (I'm not sure how at this point, but there is info on the web with a Google Search.)
- The threshold is currently $5,000 in 2024 but is planned to go to $600 in 2025 (if the IRS does not increase it again) so this is a really good head's up for Group Buy organizers.
Note: buying something for the group or yourself wouldn't show up on the 1099K because you are making a payment not receiving a payment.
https://digital.com/what-is-a-1099-k-form/
[EDIT: Chris Jones posted as I was typing this out. Hopefully both are helpful.]
Yes, but a normal person does not want to be involved with all that paperwork. And the risk of audit, even if they've done nothing wrong. This tax stuff should really be part of diyAudio, not somebody's hobby.
Part of the beauty of diyAudio is that anyone can take on a group buy. I'd hate to think that group buys would be decided and ultimately regulated by the website. Maybe I'm missing your point.
For me both posts are tremendously helpful. I like that you two are gently teasing out the finer details such as hobbyist vs. small business owner, or where ultimately these values could end up in the final calculation. The COGS concept is pure gold to me. It reduced my reported income concern greatly. Good stuff.
For me both posts are tremendously helpful. I like that you two are gently teasing out the finer details such as hobbyist vs. small business owner, or where ultimately these values could end up in the final calculation. The COGS concept is pure gold to me. It reduced my reported income concern greatly. Good stuff.
@bhjazz You put the net positive income on Schedule 1, Line Z (Other Income), correct? Use "Hobby" as the description. I am glad you brought this up here so we can help. You ran your VRDN group buy really well.
Keep these group buy records with your tax info for three years after filing or two years after paying the tax, whichever is later. Maybe we should post an explanation in the Group Buy section for folks in the US who run these? It's so much easier to save the receipts and payments as they arrive.
Keep these group buy records with your tax info for three years after filing or two years after paying the tax, whichever is later. Maybe we should post an explanation in the Group Buy section for folks in the US who run these? It's so much easier to save the receipts and payments as they arrive.
This. A friend did something I just was in disbelief over. And somehow he blamed the IRS. He sold a house and did not report the gain. I guess he figured since below the 250K gain threshold he did not have to. IRS came after him for the full amount of the sale (what was reported by the closing people) as income. I was just stunned that an educated person could make such a glaring tax booboo. It got resolved, but still just stupid behavior on his part and the whole mess could have easily been avoided. Just do what is required. Unless you have offshore tax havens, taxes just are not that complicated. I have an S-corp and do my own, and even that is not that complicated.
Thank you. Maybe this should be a sticky in this forum? I'd be happy to amend my first post with relevant information.
