IRS to Track Online Sellers' Payment Transactions Beginning Next Year

[pendragon1998]

IRS to Track Online Sellers' Payment Transactions Beginning Next Year

By Barbara Weltman

AuctionBytes.com

March 07, 2010

 

Internet sellers who don't report their sales will no longer be under the radar. Starting next year, any bank or other payment settlement company that processes credit cards, debit cards, and electronic payments such as PayPal will have to issue information returns telling the IRS what merchants receive. The new returns are Form 1099-K, Merchant Card and Third-Party Payments.

 

 

COMPLETE STORY

[WinstonWare]

This is an important exception for many of us...

 

Exception: Very small merchants won't be issued information returns. "Small" for this purpose means annual gross sales on merchant cards of no more than $20,000 or 200 or fewer transactions. In other words, reporting is required only if gross amounts for the year exceed $20,000 and there are more than 200 transactions.

[pendragon1998]

I've always had an issue with the blurring of 'hobbyist who buys and sells a little' and 'small business / small merchant'. I'm not clear on how the IRS defines it.

[kryptonitecomics]

This is an important exception for many of us...

 

Exception: Very small merchants won't be issued information returns. "Small" for this purpose means annual gross sales on merchant cards of no more than $20,000 or 200 or fewer transactions. In other words, reporting is required only if gross amounts for the year exceed $20,000 and there are more than 200 transactions.

 

 

Couple that with the fact that paypal and other processors can only account for the total sales amount minus their fees which in no way jives with the amount of profit gain or loss made on any one transaction and I think the government is bitting off more than they can chew. I think it's a good idea.....but in a practical sense it's going to be virtually impossible to calculate and enforce.

 

[gmarguli]

This is an important exception for many of us...

 

Exception: Very small merchants won't be issued information returns. "Small" for this purpose means annual gross sales on merchant cards of no more than $20,000 or 200 or fewer transactions. In other words, reporting is required only if gross amounts for the year exceed $20,000 and there are more than 200 transactions.

 

 

Couple that with the fact that paypal and other processors can only account for the total sales amount minus their fees which in no way jives with the amount of profit gain or loss made on any one transaction and I think the government is bitting off more than they can chew. I think it's a good idea.....but in a practical sense it's going to be virtually impossible to calculate and enforce.

 

How so? As I read it, the IRS is going to be told how much you collected. As with other businesses, you can either not report your costs and they will tax it as 100% profit or you can provide paperwork showing your costs and net that off.

 

Cheaters will still cheat, but this will make it a little harder. They can't ignore online sales as if they never took place. Personally, I don't think this is a bad thing. It's a little more paperwork (on top of mountains of paperwork), but it will level the playing field for those people who make it a business and don't pay taxes.

 

 

[WoodenJefferson]

Seems to me the IRS is going after the "big dogs" but to make it appear as though it's across the board it has to include everyone and then insert the exceptions.

 

Won't effect me, but it looks as though (can't say nothing here without political over tones)

[astrostu]

I've always had an issue with the blurring of 'hobbyist who buys and sells a little' and 'small business / small merchant'. I'm not clear on how the IRS defines it.

 

For the last 3 years, I've unexpectedly made money on my photography. To the tune of $800-3000. The first year I looked into writing myself down as a business, but it came out that I would owe more money than I took in. So I ended up classifying it under the, "hobby that I didn't expect to make money on but did" category. I've done that the last 3 years. And even though I will be shooting one wedding this year, since I expect gross receipts at under $1000, I will be doing the same thing. It may be quasi-legal, but it's ridiculous for me to pay a $500 self-employment tax when I make maybe 2x that and yet purchase 5x that in equipment during the year. Net income on the hobby -- still negative.

[gmarguli]

For the last 3 years, I've unexpectedly made money on my photography. To the tune of $800-3000. The first year I looked into writing myself down as a business, but it came out that I would owe more money than I took in. So I ended up classifying it under the, "hobby that I didn't expect to make money on but did" category. I've done that the last 3 years. And even though I will be shooting one wedding this year, since I expect gross receipts at under $1000, I will be doing the same thing. It may be quasi-legal, but it's ridiculous for me to pay a $500 self-employment tax when I make maybe 2x that and yet purchase 5x that in equipment during the year. Net income on the hobby -- still negative.

 

This doesn't sound correct. How could you owe more money than you took in? Only way I can think of is if you have to pay for business licenses.

 

And a self employment tax of $500 on under $1,000 gross sounds way out of line. Plugging $1,000 into a self employment tax calculator shows that you should owe $141 and you do not have to pay this tax since it is under the $400 threshold.

[Mark T]

If you read into this new law you will see that with under $ 20,000 in sales and less then 200 transactions you will not receive a form 1099-K .

 

“Exception: Very small merchants won't be issued information returns. "Small" for this purpose means annual gross sales on merchant cards of no more than $20,000 or 200 or fewer transactions. In other words, reporting is required only if gross amounts for the year exceed $20,000 and there are more than 200 transactions”

 

I will need further clarification , what if I have 100 transactions that total $ 50,000 , I am over then 20 k exemption limit but under the 200 transactions limit. My guess is it one or the other.

 

It was only a matter of time before the IRS started to track on line sales activity .

 

 

 

[Mark T]

I've always had an issue with the blurring of 'hobbyist who buys and sells a little' and 'small business / small merchant'. I'm not clear on how the IRS defines it.

 

For the last 3 years, I've unexpectedly made money on my photography. To the tune of $800-3000. The first year I looked into writing myself down as a business, but it came out that I would owe more money than I took in. So I ended up classifying it under the, "hobby that I didn't expect to make money on but did" category. I've done that the last 3 years. And even though I will be shooting one wedding this year, since I expect gross receipts at under $1000, I will be doing the same thing. It may be quasi-legal, but it's ridiculous for me to pay a $500 self-employment tax when I make maybe 2x that and yet purchase 5x that in equipment during the year. Net income on the hobby -- still negative.

 

For that kind of money the IRS would never waste the time to audit you .

If you get paid in cash just don’t deposit it , if you get paid via check , go to a check cashing service.

 

 

 

[kryptonitecomics]

This is an important exception for many of us...

 

Exception: Very small merchants won't be issued information returns. "Small" for this purpose means annual gross sales on merchant cards of no more than $20,000 or 200 or fewer transactions. In other words, reporting is required only if gross amounts for the year exceed $20,000 and there are more than 200 transactions.

 

 

Couple that with the fact that paypal and other processors can only account for the total sales amount minus their fees which in no way jives with the amount of profit gain or loss made on any one transaction and I think the government is bitting off more than they can chew. I think it's a good idea.....but in a practical sense it's going to be virtually impossible to calculate and enforce.

 

How so? As I read it, the IRS is going to be told how much you collected. As with other businesses, you can either not report your costs and they will tax it as 100% profit or you can provide paperwork showing your costs and net that off.

 

Cheaters will still cheat, but this will make it a little harder. They can't ignore online sales as if they never took place. Personally, I don't think this is a bad thing. It's a little more paperwork (on top of mountains of paperwork), but it will level the playing field for those people who make it a business and don't pay taxes.

 

 

 

I don't think it's a bad thing either but I think you are over simplifying a very complex system that in my opinion will not work nor ever could....but I wish sellers luck trying to battle the IRS to prove my point

[ultra-crepidarian]

I've always had an issue with the blurring of 'hobbyist who buys and sells a little' and 'small business / small merchant'. I'm not clear on how the IRS defines it.

 

It's easy. If you make money you are a business and owe taxes to the IRS. However, if you lose money you are a hobby and can't deduct your losses from other income. Hence you still owe money to the IRS. Got it? :-)

[World Colonial]

Seems to me the IRS is going after the "big dogs" but to make it appear as though it's across the board it has to include everyone and then insert the exceptions.

 

Won't effect me, but it looks as though (can't say nothing here without political over tones)

 

Maybe my comments are political but I do not care. This reporting requirement is not a "good thing", unless the person believes that the government needs more revenue to throw down bottomless ratholes and to hire more bureaucrats to interfere even more in society.

 

I do not do this because I do not consider the risk worthwhile, but anyone who does not pay tax is doing everyone else a favor. And for those who think that you pay more because someone else is not paying, dream on. That presumes that this is a zero sum "game" when in actuality, it is a NEGATIVE sum game in which everyone pays more.

[WinstonWare]

Seems to me the IRS is going after the "big dogs" but to make it appear as though it's across the board it has to include everyone and then insert the exceptions.

 

Won't effect me, but it looks as though (can't say nothing here without political over tones)

 

Maybe my comments are political but I do not care. This reporting requirement is not a "good thing", unless the person believes that the government needs more revenue to throw down bottomless ratholes and to hire more bureaucrats to interfere even more in society.

 

I do not do this because I do not consider the risk worthwhile, but anyone who does not pay tax is doing everyone else a favor. And for those who think that you pay more because someone else is not paying, dream on. That presumes that this is a zero sum "game" when in actuality, it is a NEGATIVE sum game in which everyone pays more.

 

That was a nice rant right there. I enjoyed it.

[DC Dawg]

For that kind of money the IRS would never waste the time to audit you .

If you get paid in cash just don’t deposit it , if you get paid via check , go to a check cashing service.

If you look at it, they've actually changed the rules in your favor. Under the old rule, if you sold more than $800, it had to be reported to the IRS. By raising the amount and number of transactions, the IRS is accounting for hobbyists who use eBay as a virtual trading platform.

 

And Mark... don't kid yourself. If the IRS felt there was something there, they would audit you, everything about you, and track down your payments. But like you said, they are not wasting their time on the small fish. There are enough big fish out there to make a significant dent in the deficit!

 

Scott

[gmarguli]

And Mark... don't kid yourself. If the IRS felt there was something there, they would audit you, everything about you, and track down your payments. But like you said, they are not wasting their time on the small fish. There are enough big fish out there to make a significant dent in the deficit!

 

I wouldn't count on this. They'll go after just enough small fish to make the other small fish scared to cheat. I've known lots of small fish that were audited.

[Mark T]

In order for the IRS to Audit you there has to be red flag that initiates the audit .

The definition of a Red Flag can be broad so I will leave it up to your imagination ;-)

A few on-line sales or insignificant income from a hobby would not trigger an audit.

Now if something else triggers an audit depending on the scope of the Audit they can and will dig into everything. This I know .

 

 

[Conder101]

In other words, reporting is required only if gross amounts for the year exceed $20,000 and there are more than 200 transactions.

That's not how I read it.

 

Exception: Very small merchants won't be issued information returns. "Small" for this purpose means annual gross sales on merchant cards of no more than $20,000 or 200 or fewer transactions.

The way I read that you are are considered a small business and won't be issued an information return if you have gross sales of less then $20,000, OR you will be considered a small business if you have less than 200 transactions. If you exceed EITHER of those two thresholds you will have to report.

 

But like you said, they are not wasting their time on the small fish. There are enough big fish out there to make a significant dent in the deficit!

They aren't "wasting" their time on the small fish, because there are a LOT more small fish out there than big fish so they are actually more likely to close the deficit by going after the small fish. That's why even though the rich pay a disproportionally heavy load of te taxes (Top 1% pays something like 20% of the taxes, top 5% pays 30%) The other 70% of the taxes are paid by the middle class and the lower middle class, even though they pay a lower rate, because there are so many more of them. (And the big fish have more tax breaks and ways to defer or avoid taxes than the small fish have. If you want revenue, the money is with the small fish.)

 

 

[World Colonial]

Most of the income tax code does not apply to most taxpayers. To summarize it simply it for everyone here, section 61 defines income and section 11 the marginal rates. The rest of the code provides for exceptions, exemptions and credits.

 

With this perspective, it should be obvious why "the rich" (the actual as opposed to the imaginary) have many more ways to lower their effective tax rate. Since most of the tax code is for business transactions, if someone has little or no property but a large salaried income or similar income, they are going to essentially pay the full marginal rates after taking the typical (and usually nominal) deductions.

 

Cumulatively, this design is intentional and not accidental, even though no individual can possibly know the actual interpretation of the entire code, much of which is interpreted by the courts. The government will never generate enough revenue to avoid running deficits, since the source of them is a lack of spending discipline. But its still going to get as much revenue as it possibly can from somewhere and that somewhere is from those who lack the political influence to favor themselves, as any one who has common sense would expect in a system of PLUNDER, which is what exists today in every nation state to one degree or another.