Do I need to report income

I am not receiving tax form (1099K) from Paypal because I didn't generate 20,000 of sales. This means that Paypal did not report those yearnings to IRS. Does that mean that I shouldn't count those earnings as my revenue for that year?

PayPal is required to report gross payments received for sellers who receive over $20,000 in gross payment volume AND over 200 separate payments in a calendar year.

Whether the payer reported your income or not makes no difference with regards to the question of whether it is taxable. If your income is taxable you're required to have it reported and pay taxes. In many cases, if the income is not taxable, you're still required to report it and explain why it is not taxable.

In the US, 1099K are required only for relatively large volume operations (200 sales and $20K of revenue) to reduce the burden on the occasional sellers and "regular people" who are not engaged in business. But the income is taxable regardless. If you sell some piece of trash you found in your attic for $1000 when you bought it 10 years ago for $100, you have to pay income tax on $900 even if it's the only thing you ever sold on eBay/Paypal.

I'm assuming you are in US. It depends on the source of the income. Since you mention "sales" and you are on the startup stackexchange, it probably falls into a reportable income category.

If you are selling junk from your house on Ebay or Craigslist at a loss, it is not reportable; aka Garage Sale, Yard Sale, etc. This is only if it is a non-business activity (i.e.: not a systematic activity with intent of making profit).

See IRS tips: Online Auction Sales If you are selling phone apps or getting ad revenue, then you need to report the income. You also need to determine if you are a hobby or a real business. If it's a small amount, It's easier to report it as hobby income, but you won't get to deduct (most) expenses. If you are trying to build a real business, report it as business income, but then you need to fall into the requirements for a business.

See IRS tips: Hobby or Business?

Yes you need to report income. A tax consultant will know how to do this.