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IRS To Go After eBay Sellers
prostoalex writes "Fed up with numerous violations of tax law by individuals and businesses selling goods on eBay, Amazon Marketplace, uBid.com, etc., IRS is pushing Congress to make online marketplaces responsible for reporting the sales information to the tax man, in order to prevent under-reporting of the income. eBay's 'own statistics suggest that there are 1.3 million people around the world who make their primary or secondary source of income through eBay, with just over 700,000 in the United States', News.com says." How long before the same fate befalls the folks who make a living working the Massively Multiplayer secondary markets?
When I came to USA first I was amazed to see how much of the expensive stuff is left around the homes completely unsecured. 1000$ grills, 800$ deck furniture, children's toys, garden tools, garden sheds are all left unlocked and no one would steal them. I have lost one tiny bottle of coconut oil left on the sill of an unlocked window in my hostel back in India. Then slowly it dawned on me that most Americans would not buy goods of doubtful provenance from shady sellers. Infact there is a market in b ombay called Chore Bazaar (thief market) which does brisk business. I would very much E-Bay not to degenerate into a giant "Chore-Bazaar.com"
sed -e 's/Chuck Norris/Rajnikant/g' joke > fact
New websites will pop up, with legal loopholes, or just shady business practices.
Or just sell on craigslist.
Sooo if i sell everything as an 'official' loss, i guess their tactic will backfire.
Actually, you make a damned good point!
If the IRS wants to classify EBay as self-employment income, you get to deduct your costs. For those using EBay as a primary source of income, that would have the desired effect; For those who just want to get rid of trash in their attic however, selling at a considerable loss compared to the original purchase price, this could really come back to bite the IRS hard.
Of course, that would presume we actually have a fair system (don'tcha just love all the lines on your tax forms that say "If negative, enter a zero"?).
I would think that eBay would put up a big fight over this. For eBay to properly report the transactions to the IRS, they would need to know either the Social Security Number of the individual or the Tax ID if it is a business. Would you be willing to provide eBay with your SSN? If this were made a requirement for continuing to sell items on eBay, I could see people leaving in droves.
But who gets to decide if it's a primary or secondary income?
If someone sells a car on ebay as a one-time deal, is it really income or a net loss by depreciation? All the IRS sees is dollar signs without understanding the meaning behind them.
a) It can be someone trying to stem losses.
b) It can be someone trying to liquidate a deceased family member's estate. (Do you believe someone should pay a tax on another's death?)
c) It can be someone in the bay area who can't even afford any roof over his head on a six figure income in the first place and is really and truly just trying to scrape on by. (Money simply isn't worth the same everywhere in this country, which already makes IRS taxation unfair.)
Why should I have to explain to the IRS my transactions on ebay and why I shouldn't be considered a business? And what happens when the IRS inevitably decides ALL ebay transactions are taxable income? Why does the government deserve a take every time money changes hands? Doesn't that mean even more inflation in the long run? Isn't layers of taxation (between income, sales tax, and corporate taxes between every factory worker and end buyers) making the cost of U.S. goods too high to compete already that we have to add another tax on used goods too?
Also just as big a question, why does the IRS deserve to know everything that happens on a particular website? Doesn't the government have enough spying on us? Should ebay extend the same privilege to every country on earth as well?
Why shouldn't they pay their taxes like the rest of us do, if they live in the US? They also count on the cops protecting their house and their jogging girlfriend (or sister), the firemen saving them and their cats from their careless neighbor leaving the iron on. They need the gas station attendant to read well enough that they don't damage their car while changing the oil. They want the courts to stop the chemical factory upstream from poisoning them. They want that border protected with at least the threat of reprisal in case China doesn't stop at Taiwan, and invades Alaska.
I know the rest of us do, and we pay for it. Why should we pay for them to be safe, too, just so they can work in a game in their pajamas?
What we should change is what we're paying for. We shouldn't pay the government for the money we earn, income taxes. We should pay the government for the services we consume, which benefit is just about proportional to what we consume. So we should pay zero income tax, and maybe about 25% sales tax: a $16T economy should support a $4T expense at Federal, state and local budgets. Easier to collect from fewer points, easier to shut down violators' business, and encouraging savings instead of wasteful unnecessary consumption, with a built-in "tax break" bonus. Just a few tweaks to make essentials like raw food, raw cloth, median primary rent/mortgage tax free, and equities at a nearly negligible rate.
That is reality. Just working in a virtual world doesn't mean your body isn't consuming services with a cost in the real world. Ducking the taxes is a losing game for the rest of us subsidizing them.
--
make install -not war
BUT, unless you got the stuff you're selling for FREE, your income is only your profit.
My point is that if they're going to tax you for your profits, they should also tax you for your losses, just like with sales of stocks, bonds, etc.
In reality the IRS is NOT fair (but neither is the tax code in my opinion). Their mandate is to collect enough money, fairness be damned. For instance, when you sell your car at a loss, you can't report that, while if you sell your care for a gain, you have to pay tax on the gain.
Now arguably the loss you normally take on a car is depreciation, but as far as I know, there's simply no allowance to take a loss on your car that is faster then true economic depreciation.
Anyway, beyond my tangential discussion of fairness, I think they'll focus their efforts on those above $X in revenue, and those people will have to start recording their cost basis on each item they sell, just like any other seller of goods.
I recall the story of a brothel owner in the US who was only prosecuted for running a brothel. She paid her taxes, had a good working environment for the workers, health insurance and all the rest. (Of course, I can't find a link to the story.)
Moral of the story? Don't get cause for speeding when leaving a bank robbery.
Or in other words, break only the law that you intended to, and not any other.
On topic to the story, in Australia at least personal items are not taxed if sold, and don't have to be declared for either Centrelink (the government handout department, they pay my way!) or the taxation department. As far as I know, hobbies also don't have to be declared (or maybe they do, but just aren't taxed).
I wank in the shower.
In the United States, at least, the income distribution is roughly normal, with admittedly a long (but very low probability) tail in the higher incomes. The blog's example has 150 people making $30K or less, and 11 making $30,001 or more.
My Grandmother (89 years old) is quite net savy: email, instant messaging, and ebaying almost daily. The vast majority of the items that she sells on ebay however are for other people who live in her massive assisted living complex. Last year over $12,000 worth of goods went through my Grandma's ebay account. She only charges the people a dollar per posting (on top of the normal ebay posting charges). For her it's just a fun hobby, so her net income off of that amount was almost nothing. With this kind action by the IRS my Grandma would be held liable for the taxes on that $12,000, regardless of the fact that she didn't really make any kind of profit from it.
I'm sure that there are many people who sell an item here or there for a friend on their ebay account. There is no way for ebay to distinguish a personal sale from a 3rd party transaction, so for ebay to report this information to the IRS as profit could be wildly inaccurate.
What can be asserted without evidence, can be dismissed without evidence.
Let's just be fair - If I make a profit on Ebay and that is going to be taxed then I should be able to show that the costs of Ebay, Paypal, my camera, my time (as a paid consultant), etc nullify any such profit. This is crap and I lose money on just about everything I sell on Ebay if I'm to account for anything other than how much I paid and how much I sold it for. Here's a monkey-wrench - WHAT ABOUT REBATES?! I can show the IRS that I paid $100 for an item and sold it for $50 but still made a profit after a $70 rebate. So is it a $50 loss or a $20 profit?
In part after five years of losing money it will be declared a hobby, used to be a bar owner in this town that would close his bar briefly every four years and reopen after closing the books on the previous name and filing a new DBA and getting a new license for the sell of alcoholic beverages. Can't say whether or not he was ever in trouble with the IRS with it or not but he was in the bar business in the same location with at least six different names over the years. He would change the format slightly each time too and alternated between being a private club and an open beer and wine bar. And yes he did state to me that his reason for switching every few years was to avoid having his business declared a hobby or having to show a profit.
You would need to keep good records to show that you didn't "make" money on the sale. In your case I would think you could actually report a loss of $100 and that would reduce your taxable income. Keep in mind that I'm not a tax expert or even a tax newbie...
You might have a point, if the only taxes people paid were income taxes.
Income tax is progressive. But social security tax is not.
So, someone making $1 million a year may be paying 35% in income taxes, and someone making $35,000 a year may be paying 25%.
But social security tax maxes out at about $90,000. How much is social security tax? 12.4%.
So, if you're making $1 million a year, your marginal tax rate is 35%.
If you make $35,000 a year, your marginal tax rate is 37.4%! (I've left out the 2.9% for medicare that everyone pays)
And that's not even the limit of federal taxes!
For example, I have a bare-bones phone plan that I pay $8 to the phone company for. But my phone bill is $18/month! Where does that extra $10 go? THE GOVERNMENT! The tax rate on a basic phone line is over 100%.
$120/year in phone line taxes is nothing for someone who makes $1 million, but a significant expense for someone who makes the minimum wage.
There's another problem - the income tax is only on EARNED income. If you make $35,000 a year, chances are you got that income by actually WORKING. But if you're making $1 million a year, chances are a good chunk of that you made from capital investments. How much tax do you pay on capital investments? 15%!! And you also pay NO Social Security and NO Medicare taxes on it! So while the guy who actually WORKS for a living is paying 40.3% taxes on each additional dollar he earns, the people who are ALREADY rich and make their money in the stock market pay well less than half of that.
Then you have to factor in things like mortgage interest deductions. If you're making $35,000 a year, you're probably paying rent. Rent isn't tax deductible. But if you're making $1 million a year, you probably have a loan on your house - tax deductible!
And god forbid you live in a state with sales tax!
Anyway, I've determined that I'm going to become rich as soon as possible - it'll really help my tax bill. Problem is, it's really hard to become rich when the government is taking half of my money.
Anyway, point of the matter is that even though the top income earners pay the vast majority of income taxes, people who make less than $90,000 a year pay almost *ALL* of the social security taxes!
paintball
I get severely irked by the multi-taxing nature of certain governments. The way I see it, they've collected tax at the point of sale, when I bought the item from the retailer in the first place. I see no reason for them to get paid again for the private re-sale of a used item. The day I see tax collectors go after yard sales will be the day I drive down to the states to buy a gun.
They should quit fretting over "internet" businesses and just treat them like any other business. If a brick and mortar store doesn't pay their taxes, you revoke their licenses, shut them down and sue the owners until they fly back to friggin' China. If an online store doesn't pay their taxes, the same strategy should be applied. If some cocky bastard on disability is selling 200k worth of beanie babies on eBay, you take away their cripple pension and tax them on that 200k.
The obvious workaround is to use a foreign identity and a server located in different country. Then it becomes a case of international fraud and tax evasion... but good luck with the lawsuit! It's already hard enough to get two allied nations to cooperate, imagine the hoops to get server logs from a russian datacenter to an american tax bureau.
I say let the governments do what they can, while they can. Given another decade or two of mass screwups, they're going to be largely obsolete anyway!
-Billco, Fnarg.com