Many people use Facebook Marketplace to buy and sell used items as a side hobby or even a small business. As your Facebook Marketplace sales increase, you may wonder if you need to report your earnings and if Facebook will send you a 1099 tax form for your Marketplace sales. Understanding the 1099 requirements can help ensure you stay compliant with IRS regulations.
What is a 1099 tax form?
A 1099 form is used to report various types of income to the IRS. There are several different types of 1099s that report specific categories of income such as:
- 1099-MISC – Miscellaneous income
- 1099-K – Payment card and third party transactions
- 1099-NEC – Nonemployee compensation
The 1099 shows how much you earned from that income source during the tax year. Both you and the IRS get a copy of the 1099 form so your income is properly reported on your tax return. Many small businesses, self-employed individuals, independent contractors, and people who earn money from side gigs receive 1099 tax forms.
Does Facebook issue 1099s?
Facebook itself does not issue 1099 tax forms. However, if you use Facebook Payments to receive payments for Marketplace sales or other earnings on Facebook, then Meta Payments Inc. may issue you a 1099-K form depending on your total earnings and transaction amount thresholds.
Here are the thresholds for receiving a 1099-K from Meta Payments:
- At least $20,000 in gross payment volume for the year
- At least 200 transactions in the year
So if you hit both of those thresholds from your Facebook Payments account, you can expect to receive a 1099-K reporting your earnings. This 1099-K will go to both you and the IRS.
Do I need to report Facebook Marketplace earnings?
Yes, you do need to report all income earned from Facebook Marketplace sales on your tax return, even if you do not receive a 1099. The 1099-K thresholds are high enough that many Facebook sellers do not qualify to get one. However, the IRS still requires you to report your earnings as taxable income.
Whether you get a 1099 or not, it’s your responsibility to keep accurate records of your Marketplace sales and report that income.
How 1099 reporting works
When you sell an item for more than you originally paid for it, the profit is considered taxable income. For example:
- You bought a bike for $150
- You sold the bike on Marketplace for $200
- Your profit is $50 ($200 sales price – $150 cost)
- The $50 profit must be reported as income
Even if you sold the bike just to declutter and didn’t make a “profit,” the $200 is still considered taxable income.
Use Schedule C or Schedule 1
There are two main options for reporting Marketplace earnings:
- Schedule C – Business income on your Form 1040 tax return. Use Schedule C if your Marketplace sales are a business.
- Schedule 1 – Other miscellaneous income. Use Schedule 1 if Marketplace is just a side hobby.
Schedule C requires some additional forms and steps to calculate business expenses, net income, self-employment taxes, etc.
Schedule 1 is simpler for hobby income – just report the sales amount minus any eligible costs or deductions.
Track your Marketplace sales & expenses
Since Facebook does not issue tax forms for Marketplace transactions, it’s up to you to keep proper records so you can accurately report your income and expenses.
Be sure to track the following throughout the year:
- Sale price for every Marketplace transaction
- Dates of all sales
- Original purchase price, cost of goods sold, and any eligible deductions for each sale
- Fees paid to Facebook for selling fees, shipping labels, or boosting posts
- Mileage for picking up or delivering Marketplace items
- Income and expenses if using a separate business PayPal or bank account
Having this detailed documentation will make tax time much smoother.
How to report Marketplace income on your tax return
When tax season arrives, use your income and expense tracking to calculate your total profit for the year. Here are the steps to report that on your tax return:
On Schedule C (for a business):
- Fill out Schedule C, listing your Marketplace business name and address
- On Schedule C, Line 1 report your total Marketplace sales/income amount
- On Schedule C, Line 2 report eligible business deductions like fees, shipping, supplies, mileage, etc.
- Complete Schedule C to calculate your net business income
- Transfer your net profit/loss from Schedule C to your Form 1040
- Use Schedule SE to calculate self-employment taxes on your Marketplace earnings
- File Schedule C, Schedule SE, and Form 1040 with your tax return
On Schedule 1 (for hobby income):
- On Schedule 1, Line 8z report your total Marketplace sales amount
- On Schedule 1, Line 24 enter your eligible deductions
- The result is your net Marketplace earnings to report on Form 1040
- File Schedule 1 and Form 1040 with your tax return
Double check that your Sales Amount, Expenses, and Net Income numbers match your tracking records. Remember, it is your responsibility to report all taxable Marketplace earnings accurately even if you do not get a 1099 form.
Strategies to reduce taxes on Marketplace sales
No one wants to pay more taxes than necessary. Here are some tips to help minimize taxes owed on Marketplace income:
1. Offset earnings with deductions
Deducting all eligible business expenses is key to reducing your taxable profit. Track expenses like:
- Cost of goods sold
- Facebook and PayPal fees
- Mileage for sourcing or delivering items
- Supplies, packaging materials, printer ink
- Phone, internet, utilities used for your sales activity
- Home office deduction for space used to store inventory or run your business (at-home filers only)
Purchasing inventory at garage sales or thrift stores can increase your cost basis and minimize taxable profit from sales.
2. Use a separate business account
Having a dedicated business bank account or PayPal account makes tracking income and expenses much easier. Transfer Marketplace earnings to your business account to conveniently pay any associated fees, supplies, or other costs directly from your sales deposits.
3. Delay large purchases or sales
Consider deferring any big ticket purchases of inventory or large sales until early January of the next tax year. This can help shift the tax burden into the next year if that is advantageous based on your income fluctuations.
4. Take advantage of business tax deductions
Businesses can deduct many expenditures that hobby filers cannot. Claiming real estate, vehicle, travel, meal, and entertainment expenses require meeting strict IRS rules, but can provide big tax savings for legitimate business spend. Consider forming an LLC to get the most tax deductions available.
5. Hire a tax professional
A knowledgeable tax preparer or accountant can help uncover every available deduction and provide personalized advice for reducing your tax liability on Marketplace income. Their fees also become a deductible expense!
What if you don’t report Marketplace income?
It can be tempting to omit Marketplace earnings if you do not receive a 1099, but this carries substantial risk. Here are some potential consequences of not reporting income:
- IRS audit – Not declaring income raises a red flag if expenses seem high for your reported income.
- Tax fraud penalties – Up to 75% of underpaid taxes plus interest and prosecution for tax evasion.
- Perjury – Signing a return you know to be false is perjury.
- Facebook reporting – Facebook may issue 1099-Ks more broadly in the future if the IRS requires it.
The IRS has sophisticated processes to match incomes and expenses and identify unreported earnings. Failing to report Marketplace or other side income is not advisable.
Wrap Up
While Facebook itself does not issue 1099 forms, you still must report all earnings from Marketplace sales or other income sources on your tax return. Keep detailed records so you can accurately calculate your taxable income and claim all valid business deductions. Following IRS rules, taking advantage of tax reduction strategies, and being diligent about recordkeeping can help minimize taxes owed on your extra income. Just be sure to report your full Marketplace sales amounts to avoid penalties for underpayment down the road.