Methos- it is a pretty normal thing to do on your taxes. Do you have an accountant? If not turbo tax or other software can walk you through it.

What is this double tax issue you guys are talking about?

Red Five - Yes you need to report all income from a 1099.

Based on the activity you describe, you do not need to create a business entity. But you will need to upgrade your turbo tax license to the small business edition, that has support for 1099s.

Every dollar you spend for supplies or resale goods can be netted out against the gross 1099 income. Just create a simple spreadsheet that subtotals your spending categories - what you spent purchasing the goods, what you spent to package, ship, repair, etc. Basically anything you spent is deductible, even your monthly internet bill, however your time is not deductible. Turbo tax prompts you for much of this and it is pretty self-explanatory once you go through it a couple of times.

The 1099 section will net out the income and costs, so you will be able to see the total. If it isn't close to the 5,000 you think it is, go back and double check your costs by category and correct them.

There are lots of other 'tricks' people use to reduce the taxable income, but given the simple business model you have, you should keep your return simple too.

If you are uncomfortable with this, you should get some tax help, even a walk in tax place and they can walk you through it. But the first thing they are going to ask for is the spreadsheet data I mentioned. So if you can assemble that, then most of the work is done anyway.

GL!

This is good advice.

But in reality no one get audited for $5,000 in income.