IRS May Ask eBay To Snitch On Sellers

Makarand writes "The IRS thinks that many sellers on online auction sites are unaware of their obligation to declare their profits and pay their taxes to the IRS. Tax experts are now asking the IRS to require online auction sites like eBay, Yahoo, and Ubid to report the gross sales numbers for their sellers. Such a requirement will surely send a shock wave across the online trading world because it could drastically reduce the profits a seller would make on these sites. The IRS thinks it can collect an extra $2 billion in taxes from this requirement that auctioneers report sellers who complete 100 or transactions a year worth at least $5,000."

Comments

Re:+ tax

[LFS.Morpheus]

I believe they're after income tax - the amount of tax would be decided by the existing income tax code. It is likely that most eligible eBayers would be considered operating their own business (self-employment) and would need to report their income (and expenses) on a 1040SE.

Reporting of this income might also lead to sales tax as well, but that is collected by the state, not the IRS. In addition, this is the responsible of the buyer to pay, not the seller, unless the buyer and seller are in the same state.

Dislaimer: I'm not a tax expert, but I play one when I talk to my friends into letting me do their taxes. :)

Re:+ tax

[patio11]

Sellers already have to charge sales tax in some circumstances but for small non-corporate sellers compliance is nil. This is an income tax issue, though, not a consumption tax issue. For example, if I make say $50,000 a year and am hypothetically paying a marginal 30% on additional income, if my bosses give me a $5,000 raise I lose the first $1,600 or so to taxes. However, if my eBay business profits $5,000 and I don't declare it I get that $5,000 taxfree. (If I do declare it I actually end up paying MORE than $1,600 due to self-employment tax but thats another matter altogether.) I suppose you COULD raise prices to compensate for this but you can't call it a sales tax surcharge and, indeed, with the amount you'd have to raise prices people would likely go spare if you tried.

Signed,

Guy who actually did pay taxes on his web-based small business this year

Re:Cool as long as Europeans stop getting

[JeffSh]

can you site a case where europeans pay a state sales tax? I don't think i can think of any situation where they would.

Hell, I live in Michigan and even I don't have to pay state sales taxes.

If someone is charging a european a US State sales tax on a mail ordered item, they are pocketing the money. That makes them a reseller of questionable moral character.

Re:Is there some law?

[Grech]

Yep. 26 USC 61 defines what is taxable income, and uses the phrase "from whatever source derived". 26 USC 1 imposes the tax itself on individuals, estates and trusts. 26 USC 11 does the same for corporations.

Re:+ tax

[rsborg]

I don't know if that would do it. Craigslist is partly owned by eBay. It is a minority stake, but it may be enough to get IRS attention.

It's not a case of who owns whom... but more the case that in eBay, the final bid price is enforced and persisted in eBay's servers. Craigslist is merely a messageboard (with some great search functions) and since they don't make any $$ off the sale, the price, completion, etc are all not recorded on the Craigslist servers... thus completely anonymous.

Buyers and ellers on craigslist complete their sales in person, and in private, thus avoiding damning evidence.

It depends.

[raehl]

If forced to account for the "income", can't I also offset it by the "expense"?

Did you claim that laptop as a business deduction when you bought it? If you did, then you'll have to claim the money from the sale as income. If not, you've already paid your income tax on the money you spent on the laptop, so getting some of it back selling it later isn't taxed.

Re:Cool

[kryptkpr]

Myself and my friends all heavily use eBay up here in Canada, because the markups on certain items (cellphone accessories, car audio, jewelry) are often 200-500% locally, even from traditional retail outfits. For example, they actually charge $30 for a leather cell phone case here. $20 if you go to one of those shady asian-import places. These items have no value on ebay, and often sell for $0.01 plus $6 - $9 shipping..

Plus, if I buy locally I'm paying 14% tax.. if I buy from eBay, I've got a good chance of avoiding taxes entirely (depends on the cost of the item.. under $10 nobody bothers, and if the seller is nice enough to ship as a 'Gift' then it's totally tax-free for me).

In summary, eBay is still cheaper (in many cases) for those of us north of the border.