Keep in mind that the 1099 only reports how much you RECEIVED in total from a source, but it is up to YOU to report the COST BASIS of that same material. So say you buy a machine for $6000, and then SELL it for $7500 using PAYPAL good and services. You will get a 1099 showing $7500, but when you do income taxes you would show your cost for material as a $6000 deduction.... netting a taxable income of $1500. Now if you bought that machine and added $500 worth of Mods, then you report that as a deduction as well... lowering your taxable income again. Reporting 1099 INCOME and COST BASIS (and reconcilliation of them) is up to you!