eBay & the IRS - Will it affect you?
Published February 27th, 2007
About four years ago I taught a class at eBay University in Kansas City, Missouri. A man came up to me and with a completely straight face said, “I sold over $100,000 worth of stuff on eBay last year - when do I have to start reporting that?”
As many new stories have pointed out this week, the IRS is interested in eBay sellers. The government wants to make sure people pay their taxes. That’s their job. Contrary to a few groups that claim we cannot (constitutionally) be forced to pay income taxes at all - we pretty much all figure we have to pay each year. The fact is however, many do not understand it applies to them already when selling on the internet. I still hear people saying how great the internet is because it’s “tax free.”
According to SFGate.com:
The remedy, according to many federal officials, is to expand reporting requirements. The question is, which businesses and what kind of income should fall under the rules?
As part of his proposed federal budget for 2008, President Bush made what many believe is the first step to more vigorously collect taxes on online sales. Although vaguely worded, the proposal would require “brokers,” or middlemen, to collect taxpayer identification numbers from clients and report their sales of personal property to the IRS on a 1099 form if sales surpass 100 transactions or more than $5,000 annually.
Under current law, eBay and other auction sites aren’t considered brokers. But definitions can be changed.
There are problems with those simply guidelines as even a casual seller will tell you. Some people who sell over 100 items per year aren’t making any real profit anyway. It’s a hobby for these people. Then there are those who sell for other people - Trading Assistants. They often help people get rid of “stuff” they have lying around and get a few extra bucks for their client. How will they handle their taxes? Who pays? Will these sellers raise prices to make sure they make a profit, eliminating eBay as a place where you can find a bargain? Or will they simply stop selling this way?
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