I can add a little to this...
Beyond paypal's 1099 there is a form on the site that tracks all of your deposits, withdrawls, money sent, money collected, money used on eBay.. etc etc etc.. More or less an itemized shedule C for you without having to do it yourself. If you are like me and only use your paypal account for your Hobby (or business in my case).. then you should have no trouble with your deductions. I had a very high 1099 last year and didn't have to pay much in acutal $$$. Good luck to all.