About four years ago I taught a class at [tag]eBay University[/tag] 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 [tag]eBay [/tag]last year - when do I have to start reporting that?"
As many new stories have pointed out this week, the [tag]IRS [/tag]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?
And what about eBay fees? Do you think eBay is going to absorb the cost of collecting Social Security numbers from members and distributing 1099 forms to tens of millions of members? Of course not! The seller will have to pay for that along with the work of tracking small amounts of money, keeping up with more paperwork, feeling frustrated by complicated forms, while trying to live up to the robust new Feedback 2.0. Or sellers can hire an accountant to keep track of it all.
Instead of phishing scams the new thing will be false identities so you can "sell under the radar." People in Romania or Nigeria will send emails saying their uncle is a King who has never had an eBay account and they'll let you act as his 'agent' selling under their name without the US Treasury finding out... or something along those lines.
I know many sellers don't pay taxes on their eBay sales. Sure the big businesses do, partly because they have a mechanism in place already. Many are running brick and mortar businesses and eBay is just an additional sales channel for them. But the small seller is gonna get squashed by this. Squashed between eBay and the IRS. I believe this is the beginning of the end for many sellers.
Of course eBay sellers are savvy though. They are a resourceful bunch. I'm not sure how they'll do it, but I think a few will figure out a way around the limits. Maybe everyone in the family will have a user ID and limit themselves to 99 items per year. Maybe people will register under names of people long-dead to avoid the penalties. Maybe not, but the majority will just throw their hands up and say "well, that was fun" - let's have a yard sale!
What do you think? Will this spell the end of the open market on eBay? What do you plan to do if the IRS gets their way with online marketplaces?
[tags]ebay taxes,report eBay sales[/tags]
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