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eBay Sellers and Tax Changes New Form 1099-K will debut for 2011 tax year

Tax time is upon us again, and this year the IRS has a bit of a warning for eBay sellers: next year you'll be on the hook for the taxes you owe.
Most United States eBay sellers have long known that income generated by eBay sales and PayPal payments is taxable. If you didn't know this, you should. Conventional wisdom has long held (and the federal government believes), however, that many eBay sellers underreport their online income, assuming that it is either non-taxable or largely under the radar.

Enter the 2011 Form 1099-K
Though sellers won't have to change their filing habits in 2010, a new Form 1099-K for 2011 promises to change income reporting by online sellers. The draft Form 1099-K for 2011 implements payments reporting to the IRS for PayPal and credit card merchants, much as already happens with forms W-2 or 1099-MISC for employees and independent contractors.

Starting in 2011, therefore, sellers will be expected to report gross payments via online or credit card payments that coincide with reported 1099-K amounts, then to make adjustments to account for expenses and cash equivalents, fees, chargebacks, refunds, and so on.

What's Reportable
Gross receipts through electronic payment processors (whether purely online like PayPal or involving credit card numbers) received by users of such payment processors. You may be subject to reporting even if you don't think of yourself as a business, provided you receive payments online via PayPal (or any other similar service or merchant account).
Details and Caveats
As a practical matter, if you're an eBay seller, this will effect you unless your gross sales are under $20,000 for the year or you receive fewer than 200 transactions. Reporting for small sellers at this level is not required.
Otherwise, if you exceed this volume, you'll be required to provide tax identification information (SSN or EIN number, for example) to payment processors like PayPal and will be expected by the IRS to account in your return for the amounts reported on your 1099-K form(s).

What about 2010?
The 1099-K form wasn't introduced for the 2010 tax year, so as you do your taxes this year, enjoy the last year you'll report eBay income as a purely voluntary matter.


http://ebay.about.com/od/sellingeffectivel1/a/_sbe_tax1099k.htm

Member Summary
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Ok, i know the taxes wont be filed until 2012... but will we owe for our sales before 2011?

Underwater (Feb. 07, 2011 @ 11:04p) |

Ok, i know the taxes wont be filed until 2012... but will we owe for our sales before 2011?

Underwater (Feb. 07, 2011 @ 11:04p) |

As stated a million times before, you should already be filing your income generated from online sales with your taxes.

S... (more)

heyeaglefn (Feb. 08, 2011 @ 7:15a) |

Quick Summary is created and edited by users like you... Add FAQ's, Links and other Relevant Information by clicking the edit button in the lower right hand corner of this message.
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It's misleading

It's not really eBay sellers, since eBay isn't reporting

it's any type of sellers , online or offline, that use paypal or credit card merchant accounts for over )20k per year

For example, as a seller of cars on eBay I do not take paypal and will not get a 1099k

I'm curious how one will report this gross amount on their return? As business income, thus incurring self employment taxes on any profit? Or on its own schedule like capital gains (which your broker reports only the gross proceeds of each sale)? I only wonder because of the article's use of the word "adjustments" instead of "deductions".

I find it interesting that the draft 1099-K breaks down receipts by month, instead of an annual amount. Potential double wammy with penalties for not making estimated tax deposits in addition to any income tax due?

And is the threshold for not being reporting less than $20k OR 200 transactions, or less than $20k AND less than 200 transactions?

SUCKISSTAPLES said: It's misleading

It's not really eBay sellers, since eBay isn't reporting

it's any type of sellers , online or offline, that use paypal or credit card merchant accounts for over )20k per year

For example, as a seller of cars on eBay I do not take paypal and will not get a 1099k


does this apply to all types of paypal accounts(Personal Premier Business)?

treasurebeacon said: SUCKISSTAPLES said: It's misleading

It's not really eBay sellers, since eBay isn't reporting

it's any type of sellers , online or offline, that use paypal or credit card merchant accounts for over )20k per year

For example, as a seller of cars on eBay I do not take paypal and will not get a 1099k


does this apply to all types of paypal accounts(Personal Premier Business)?
It applies to the activity, not the account. So anyone with qualifying activity would be reported, regardless of how their account is labeled.

Not sure about others but I am super excited for this as it will weed out smaller sellers who don't pay proper taxes.

i guess this means it is time to open a non-US paypal account

How will it weed out smaller sellers when there is a $20,000 threshold? Smaller sellers will still be there

SUCKISSTAPLES said: How will it weed out smaller sellers when there is a $20,000 threshold? Smaller sellers will still be there
or, more than 200 eBay sales yearly

so, anyone with sales under 20K would not need to report the new 1099-k?

orphanis said: SUCKISSTAPLES said: How will it weed out smaller sellers when there is a $20,000 threshold? Smaller sellers will still be there
or, more than 200 eBay sales yearly


Again this article is misleading as it has nothing to do with eBay sales.

Its all about payment processors. If you are a business that sells online and doesnt even use eBay asa sales medium, you will have the same 1099k issues with your payment processor, whether its paypal or someone else.

Glitch99 said: I'm curious how one will report this gross amount on their return? As business income, thus incurring self employment taxes on any profit? Or on its own schedule like capital gains (which your broker reports only the gross proceeds of each sale)? I only wonder because of the article's use of the word "adjustments" instead of "deductions".

I find it interesting that the draft 1099-K breaks down receipts by month, instead of an annual amount. Potential double wammy with penalties for not making estimated tax deposits in addition to any income tax due?

And is the threshold for not being reporting less than $20k OR 200 transactions, or less than $20k AND less than 200 transactions?


I would assume income from an eBay/PayPal business would be considered business income and subject to self employment taxes like any other business income. I would think income from PayPal would be recorded on schedule C just like any other form of business income. As far as the word adjustments go I would assume it's just the (mis)wording of the article seeing how the article wasn't written by the IRS it doesn't mean much either way.

Breaking down the monthly totals is rather interesting, but really shouldn't have any effect if you pay 90% of current year or 100% of previous year taxes (unless that has changed). I was always under the impression that if you wanted to use something other than total_tax_bill/4 to avoid penalties on quarterly payments, you had to file another form showing when you received payments/expenses and the monthly breakdown should help you document that. So it really shouldn't net anymore late penalties, it would just make it easier to document them.

jomarrod said: so, anyone with sales under 20K would not need to report the new 1099-k?

As a seller, you don't report on a 1099-K, the processor you use would be sending you a 1099-K.

SUCKISSTAPLES said: orphanis said: SUCKISSTAPLES said: How will it weed out smaller sellers when there is a $20,000 threshold? Smaller sellers will still be there
or, more than 200 eBay sales yearly


Again this article is misleading as it has nothing to do with eBay sales.

Its all about payment processors. If you are a business that sells online and doesnt even use eBay asa sales medium, you will have the same 1099k issues with your payment processor, whether its paypal or someone else.


I avoid PayPal like the plague but it will be interesting to see what the international PayPal like payment processors such as MoneyBookers (UK), WebMoney(Russia), Epassporte(St. Kitts), AlertPay(???) etc. end up issuing 1099k's and if they manage to take market share from PayPal businesses that don't want to be tracked.

what if I sell at a loss? how will I go upon deducting that?

So what happens when someone is cleaning out their house and sells over $20,000 worth of stuff on eBay and they take Paypal payments? How's the seller supposed to know what they paid for the junk their clearing out if they don't have receipts, etc.

Glitch99 said: And is the threshold for not being reporting less than $20k OR 200 transactions, or less than $20k AND less than 200 transactions?

Cannot find a document to link, but the law requires reporting/filing if BOTH $20K AND 200 transactions thresholds are exceeded (e.g., 500 transactions, but only $15K in payments received -- no reporting is required)

cmf21 said: So what happens when someone is cleaning out their house and sells over $20,000 worth of stuff on eBay and they take Paypal payments?

They pay tax on it.

JWheeler2003 said: cmf21 said: So what happens when someone is cleaning out their house and sells over $20,000 worth of stuff on eBay and they take Paypal payments?

They pay tax on it.


Only if they are unable to document the purchase price for the items they sell. Otherwise they only pay tax on the amount greater than their original cost to purchase said items which with typical used household items would be zero. If you are selling collectibles and such that have appreciated then they would owe tax on those sales just like they do now.

Seems to me like more people are going to ditch eBay and just sell their stuff at garage sales and places like Craigslist to avoid all this hassle.

cmf21 said: Seems to me like more people are going to ditch eBay and just sell their stuff at garage sales and places like Craigslist to avoid all this hassle.
It does not matter where you sell. It matters whether or not you're using a payment processor (e.g., Paypal). Folks will switch to just using more MO, etc.

chimeer said: JWheeler2003 said: cmf21 said: So what happens when someone is cleaning out their house and sells over $20,000 worth of stuff on eBay and they take Paypal payments?

They pay tax on it.


Only if they are unable to document the purchase price for the items they sell. Otherwise they only pay tax on the amount greater than their original cost to purchase said items which with typical used household items would be zero. If you are selling collectibles and such that have appreciated then they would owe tax on those sales just like they do now.


How many people do you know that can document the purchase price of random stuff around the house?

Seems to me that if we don't have a way of documenting what we paid for the item, then we're going to get taxed on what the payment processor reports to the government which I think is wrong.

Any idea on what this tax rate is going to be or going to cost us?

cyberkost said: Glitch99 said: And is the threshold for not being reporting less than $20k OR 200 transactions, or less than $20k AND less than 200 transactions?

Cannot find a document to link, but the law requires reporting/filing if BOTH $20K AND 200 transactions thresholds are exceeded (e.g., 500 transactions, but only $15K in payments received -- no reporting is required)
Is this for certain? I was thinking more along the line of having less than 200 transactions but over $20k total volume. I could see people who, for example, buy and sell big ticket items ($1k+ per sale) - they could have 10-15 sales in a month (less than 200 for the year) but upwards of $200k in gross sales dollars.

Only including those who receive payments an average of every other day, regardless of amounts, will exclude most casual 'sellers' from this requirement anyways. If correct, its almost a non-issue.

chimeer said: JWheeler2003 said: cmf21 said: So what happens when someone is cleaning out their house and sells over $20,000 worth of stuff on eBay and they take Paypal payments?

They pay tax on it.


Only if they are unable to document the purchase price for the items they sell. Otherwise they only pay tax on the amount greater than their original cost to purchase said items which with typical used household items would be zero. If you are selling collectibles and such that have appreciated then they would owe tax on those sales just like they do now.


I actually think that if they unload the stuff in fewer than 200 transactions ($20K or $50K does not matter), then there will be no 1099-K

cmf21 said: Seems to me that if we don't have a way of documenting what we paid for the item, then we're going to get taxed on what the payment processor reports to the government which I think is wrong.You'll only have to document the expenses/deductions if audited. And even then a degree of "reasonable" will be factored in - if you sell $20k worth of stuff, it's rather obvious you didnt acquire the items being sold at zero cost. Even if you cant document teh exact acquistion price, they wont make you pay income tax on the entire $20k.

The 200 transactions is kinda rough. I sold A LOT of random $1 to $5 pieces of crap this year (from old baby clothes to random junk in desk at work). I wish there was like a basement threshold as well. Like over $20,000 or over $5,000 AND 200 transactions.

Glitch, it's for certain that there's an "AND" between the two requirements. I just don't have the time find the text ... but I saw it there with my own eyes.

God will Google please step in and flush Paypal into the toilet where it belongs? eBay paypal monopoly needs broken... eBay is gambling with their market share by promoting (or mandating) paypal policies.

Interesting. Perhaps it's time to start accepting stubhub payments via check.

JTFH said: God will Google please step in and flush Paypal into the toilet where it belongs? eBay paypal monopoly needs broken... eBay is gambling with their market share by supporting paypal.Supporting? Are you aware eBay bought paypal for a mere $1.5 billion?

Guys please stop taking this article as gospel of the IRS rule...the author failed to mention this affects all sales on or off eBay and probably misstated a bunch of other Crucial details

It's too early to think of gaming this or even trying to understand the thresholds, since it's unknown whether all payment processors will follow a uniform set of rules, or just choose to report every transaction etc

orphanis said: SUCKISSTAPLES said: How will it weed out smaller sellers when there is a $20,000 threshold? Smaller sellers will still be there
or, more than 200 eBay sales yearly


Say goodbye to one-cent ebooks.

arch8ngel said: chimeer said: JWheeler2003 said: cmf21 said: So what happens when someone is cleaning out their house and sells over $20,000 worth of stuff on eBay and they take Paypal payments?

They pay tax on it.


Only if they are unable to document the purchase price for the items they sell. Otherwise they only pay tax on the amount greater than their original cost to purchase said items which with typical used household items would be zero. If you are selling collectibles and such that have appreciated then they would owe tax on those sales just like they do now.


How many people do you know that can document the purchase price of random stuff around the house?


How many people do you know that annually sell 20k worth of used household items on eBay?

chimeer said: arch8ngel said: chimeer said: JWheeler2003 said: cmf21 said: So what happens when someone is cleaning out their house and sells over $20,000 worth of stuff on eBay and they take Paypal payments?

They pay tax on it.


Only if they are unable to document the purchase price for the items they sell. Otherwise they only pay tax on the amount greater than their original cost to purchase said items which with typical used household items would be zero. If you are selling collectibles and such that have appreciated then they would owe tax on those sales just like they do now.


How many people do you know that can document the purchase price of random stuff around the house?


How many people do you know that annually sell 20k worth of used household items on eBay?


It'd be the 200 transaction threshold that would get somebody cleaning house and using eBay rather than a yardsale.

I know plenty of people that sell 20k worth of stuff on eBay, but at that point, yeah, you have no real excuse to not be able to document what you're doing.

This is great news. Time to stop those who have avoiding paying taxes all of this time. It's not fair that my job is affected because of a "brick and mortar boundary" while online businesses skate by.

I guess if this law was in effect during the CitiCashreturn 5% days I would have generated one of these forms since I was using PayPal to send and receive payments. I wonder what kind of documentation you'll need in the future to prove it's not income.

If true eBay should see a surge in volume for 4th quarter of 2010.

lookingdeals said: If true eBay should see a surge in volume for 4th quarter of 2010.You mean paypal. Paypal should see a drop in volume in the first quarter as a segment of eBay sellers stop accepting it in favor of old fashion moneyorders or Billpay checks.

Skipping 68 Messages...
Underwater said:   Ok, i know the taxes wont be filed until 2012... but will we owe for our sales before 2011?

As stated a million times before, you should already be filing your income generated from online sales with your taxes.

Starting with this tax year (2011), Paypal will automatically generate the 1099 form and send it to the IRS if you meet the requirements which are listed at the beginning of this thread.



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