Irs
You can show costs to offset the 1099 sales from Paypal. I am trying to be very careful in my ledger keeping. Your tax preparer will fill out a schedule C. This is what is done when it turns from hobby only to business when you do not incorporate.
I am sure others on the board have more precise information but after being audited I have gained a bit of useful knowledge on the subject.
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Adam Goldenberg
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