IRS Wants a Cut of Sales On eBay and Craigslist

Ponca City, We love you writes "In 2009, $60 billion worth of items were sold on eBay, meaning 'extra' money for many sellers, whose activities may provide them with taxable income. Now the Washington Post reports that beginning next year, a new law will require 'the gross amount of payment card and third-party network transactions to be reported annually to participating merchants and the IRS.' Also, for 2011 tax returns, 'taxpayers who annually sell more than $20,000 worth of goods and have more than 200 electronic transactions' will receive a new IRS form, known as 1099-K, for reporting the proceeds. The new tax issues shouldn't be a concern for people who sell just a few small items online for less than they paid for them, because as the IRS points out, income from auctions that resemble a garage or yard sale 'generally' isn't required to be reported. But if an online garage sale turns into a business with recurring sales and purchases of items for resale, it may be considered an online auction business. 'Generally, transactions resulting in a gain are reportable, regardless of whether the taxpayer is conducting a business,' says Gil Charney, principal tax researcher at The Tax Institute at H&R Block. The real reason behind the law is simple: Research shows taxpayers do a much better job of reporting taxable income when they know the IRS is receiving information about their transactions."

Comments

How's this news?

[Dyinobal]

How exactly is this news? Governments have wanted to tax everything since well since they were established it's what they do.

Re:How's this news?

[moosesocks]

It's news, because the tax code does cover sales such as the ones on eBay and Craigslist, but the users have been notoriously non-compliant.

No news here, but no new taxes either. Just even-handed enforcement of the existing tax code.

it's worse than that

[larry bagina]

starting in 2012, businesses (that includes me and many other people who do work on the side) need to file a 1099 if you pay more than $600 in goods or services from someone.

Re:it's worse than that

[PPH]

I'm looking at this from a slightly different point of view. If I, as a small business, accept credit card payments, I'd be insane not to expect the IRS to have its hooks into data on my receipts. But if I pay someone $600 for stuff, the IRS is going to expect me to track this for them? That means I'll have to get taxpayer IDs from any vendor I buy stuff from.

Try this some time: Walk into a local shop, buy a load of crap and then whip out your 1099-K form and ask them for their social security (or taxpayer ID) number. Odds are that the clerk will think you are nuts.

Re:it's worse than that

[nmb3000]

It's a method that is bound to gain enormous complexity - as it has - as the definition of "income" is stretched and mutilated by the government.

Actually it seems like the idea of income taxes is incredibly straightforward. Any "income" (easily definable as any wealth you receive) is taxable at a certain rate.

Complexity comes from tax deductions and tax breaks, not the taxes themselves. The sheer number of tax deductions and various rules you can use to reduce your taxable income is crazy. If you drive a blue car on Tuesdays and Fridays but never on Wednesday and you have at least 4 children (but not more than 7) then you're eligible to get a $500 deduction for the Nancy Drew Blue Family Living Credit.

I agree that the system could be simpler, but for many people with simple incomes, it already is pretty dang simple (single 1040, maybe a 1099-INT for bank interest). It's when you have a large income and/or from many sources that it gets complex, and again, almost entirely due to tax breaks and reductions.

Re:it's worse than that

[BitterOak]

Am I supposed to now itemize EVERYTHING I spend? I try to do that now for business expenses, but now if I walk into Walmart to buy a $3.00 can of shaving cream because I ran out that morning mean I have to keep track of all that shit?

Only if you're claiming that can of shaving cream as a business expense. This law covers only those items you will claim as a business expense, which as you say above, you already keep track of. Items for personal use, regardless of how expensive, are not covered by these new reporting requirements. So, if you buy a $700 computer at Staples for your home business which you will claim as a deduction, you will now have to get Staples' taxpayer ID and fill in the paperwork. If you buy the same computer for your kids to do their schoolwork, you don't have to.

Re:it's worse than that

[ducomputergeek]

Problem is what constitutes a "business". For instance, i've inherited most of the family farms totally about 500 acres. I rent the farms to a farmer, but I still have to spend a few weeks a year down there to do maintenance on the bins, building, tractors, bush hog, spraying, etc.. I'm not sure how familiar you are with farm equipment, but if anything breaks, chances are it's going to cost more than $600 in parts & labor to fix.

Right now taxes are pretty easy. It's the checks that come in when we sell the grain against the expenses that go out for Diesel fuel, my share of the fertilizer. I keep a separate bank account for the farms to make things a bit easier. But now having to spent the time to send the fertilizer folks a 1099, the gas station (I buy diesel 20 gallons at a time) a 1099, the local mechanic a 1099, the kobota dealer a 1099, Rural Kinga 1099, and damn that gets to be a lot of work on top of keeping track of everything for my day job (software company I own).

At the software company, I expect having to keep track of everything as part of the cost of doing business. The farms are something that are just there and I would like to keep the farms. They've been in the family for 4 generations and provide a nice annual bonus for the amount of time I do put into it. But time is getting to be a problem for me and it really begs the question is it time to put the farms up for sale.

Death and Taxes

[loose electron]

The Works of Benjamin Franklin, 1817:

        "'In this world nothing can be said to be certain, except death and taxes."

I see how this could be tracked on EBay - especially "Power Sellers" with 1000's of transactions.
But on CL? that's going to be interesting to see happen.

You don't sell on Craigslist; you meet in person

[noidentity]

You don't sell things on Craigslist; you simply find buyers, meet, and sell it on your front porch (or somewhere in public).

Well for starters

[goombah99]

it means that they will have to collect your Taxpayer ID number and then validate it.

so no illegal alliens can use E-bay.

Since they will be reporting SSNs to the IRS it will also be interesting if the law enforcement agencies sniff this for fugitives. Supposedly SSNs are not supposed to get used for law enforcement but they are.

I wonder how they will deal with people who claim not to be US citizens.

Re:Well for starters

[LynnwoodRooster]

it means that they will have to collect your Taxpayer ID number and then validate it.

so no illegal alliens can use E-bay.

Perhaps you weren't aware that illegal aliens can get a ITIN (Individual Taxpayer Identification Number) from the IRS, and can actually report and file 1040s every year with that same TIN. Even when here illegally (thus making their entire income illegal).

The IRS doesn't care as long as you pay taxes, unless they feel you didn't pay enough, then it's up to you to prove you paid enough not up to the IRS to prove you didn't.

Re:Well for starters

[TheRaven64]

It's also worth noting that the IRS is prohibited by law from sharing information with other government departments, so illegal immigrants can pay taxes, even admitting to being illegal on their tax return, without fear that this information will be shared with the immigration department. Apparently getting money from people is more important than enforcing laws.

Re:Well for starters

[blantonl]

's also worth noting that the IRS is prohibited by law from sharing information with other government departments,

Really? That is interesting... because the FBI needed to get ahold of me about an issue with my business, and they contacted my [b]accountant[/b] first.... presumably through my corporate tax returns. Why/how else would they have contacted my accountant?

Re:Well for starters

[peragrin]

I suggest you read the history of Al capone. He was never tried for killing anyone. Instead he went to jail for not paying taxes on his speakeasies, and illegal liqueur sales.

I don't know why people fail to understand history the implications it has across time. I am personally waiting for the IRS to start cracking down on drug dealers. there are billions in taxes that are waiting to be collected.

Re:Well for starters

[Anonymous Coward]

IRS can't share the information with other agencies on its own, but other agencies can request the said information. You know, the FBI can subpena your tax return and IRS will have to give it to them. What IRS can't do, is take your tax return and share it with other agencies without such a subpena.

Re:Well for starters

[kcitren]

And this tax is tracked how online? On ebay, for example, is ebay required to collect this tax? or the seller? or does the buyer just record all their purchases and pay up at the end of the year? I'm all for a national sales tax, but it still requires tracking of individuals.

Re:Well for starters

[LynnwoodRooster]

Sorry, but it is. I've dealt with it 3 times in the past, where I was threatened with liens and levies unless I could prove that I was correct. As far as the IRS was concerned, I did not properly report my LLC income (even though it had been legally shut down the year prior to the year in contention) and I had 30 days to respond or face levies. Even had an IRS Revenue Officer tell me, my lawyer, and and my CPA straight out that just because we had copies of my tax returns for the proper year, and just because we had a certified return receipt for the timely filing of that tax return it did not mean we actually mailed it; we could have mailed ANYTHING to them.

.
With the IRS, you are guilty until proven innocent. The burden of proof is on you to show the IRS is in error, not the other way around.

Re:Well for starters

[corbettw]

Entering or remaining in the country without authorization is a civil infraction; dodging your taxes is a felony. One is slightly more serious than the other.

Re:Well for starters

[gstoddart]

Since they will be reporting SSNs to the IRS

People give their SSN to eBay? Really??

That just sounds stupid -- that's not the kind of information web sites should have about you. That's not what it's for.

Re:Well for starters

[pdabbadabba]

And I suppose you don't care that the Fair Tax is a ridiculously regressive tax? Because it taxes buying power, it disproportionately effects those who do not save or invest but, instead, live paycheck to paycheck. So, if you're poor and you have to spend all your income on rent and food, the fair tax hits you hardest. If you're rich, and you are able to invest half your income, and you spend the rest, you're only taxed on half your income. Thus, the rich pay a lower real tax rate than the poor. (Add to this the fact that the marginal value of $1 is far less to a rich person than to a poor person to begin with and the system starts to look downright dystopian.)

The obvious way to fix this that I've heard some propose, is to allow exemptions for the poor, etc. But now you're getting back where we are now, where individuals have to keep track of their finances and report to uncle sam for their rebates. Except now individuals have to keep track of every single purchase, rather than just their annual income from their employer.

And this gets at the broader point: taxation is a powerful and legitimate tool for achieving public policy goals. But if you use a national sales tax, you either are robbed of those tools for the sake of keeping taxation simple, or you and up with the worst of both worlds: a highly regressive taxation system that is still a nightmare to administer.

Re:Well for starters

[causality]

And this tax is tracked how online? On ebay, for example, is ebay required to collect this tax? or the seller? or does the buyer just record all their purchases and pay up at the end of the year? I'm all for a national sales tax, but it still requires tracking of individuals.

No, it requires tracking of businesses and merchants. Ever buy groceries at (say) a Wal-Mart and then have to file a form with the state for the salex taxes you paid? No? Do you know why? Because that is a matter between Wal-Mart and the state in which that particular store is located. Wal-Mart has to pay sales taxes on its sales volume whether or not they pass them on to you. To keep things simple they pass them onto you on a per-transaction basis. That's why your receipt has line-items detailing your subtotal, the sales tax, and your final total which is the sum of both.

The Fair Tax is designed to be revenue-neutral. That is, the federal government would collect the same amount of taxes under the national sales tax as it does now under the income tax. That means that unlike most state sales taxes, services are taxable because companies that sell no goods but make money from providing services currently pay income taxes. Thus, eBay would pay its own sales tax because providing the storefront and maintaining the Web site is a service and the merchants are its customers.

As a business or a merchant, it would cost less to comply with this simplified tax code than it does to comply with the enormousely complex income tax system we have today. That's partly because it only applies at the retail level; factories and wholesalers and such would not be paying it. Most importantly, it would represent the single largest transfer of power away from politicians and to the people that has ever occurred during my lifetime.

No offense is intended, but to be completely honest with you, your question is uninformed and trivially answered with a Google search. The Fair Tax bill is the most thoroughly researched piece of legislation in the history of the USA and such questions have been exhaustively answered. Really the only reason it has not already become law is not because there are credible objections to it, not because it would do harm, but because politicians do not wish to give up the tremendous and subtle power that the income tax code represents.

Re:Well for starters

[AK Marc]

The Fair Tax bill is the most thoroughly researched piece of legislation in the history of the USA and such questions have been exhaustively answered.

I'm glad I put the milk down, or it would be going through my nose right now. What's the economic impact of setting the pay-back line at poverty (as done now) vs twice poverty (and, of course, having a higher tax level to compensate)? It's never been researched at all. Back when no one heard of Fair Tax, I thought it great, and I asked the question, "why exactly poverty level?" and the answer back was something to the effect of "Because that's the lowest we can get it and the point is to sneak in something as regressive as possible while claiming it to be progressive." It is an arbitrary line drawn in the sand without *any* research at all.

If you disagree, please point me to some research done about how it would affect the US economy if that level was set at half-poverty, poverty, and twice-poverty. Go ahead, I'll wait.

And you are more civil than most with your "It's perfect, don't question The Fair Tax" stance. But usually, when I ask questions, they are even more self-righteous than that.

But mention that spending is more volatile than, say, income for boom bust periods and asking about what will be done to improve the stability of income, and they'll look at you like they never took econ 101. And these are the people claiming "the most thoroughly researched piece of legislation in the history of the USA" and miss simple things like spending being more variable than income. Really? Or correct me, where's the actual study on the effect of spending levels in varying economic times. After all, this completely unresearched piece of crap was so researched, you'd be able to prove me wrong easily. Instead, it's a good idea that was perverted early on by conservative people with the specific goal of getting the top income level as small as possible and convincing everyone else it was "fair."

When they have to name something with adjectives, you are safe in assuming the opposite, until they prove otherwise, and they haven't.

If you don't believe me, look at the utter shit being presented about it. http://en.wikipedia.org/wiki/File:FairTax_married.png Apparently, this "revenue neutral" legislation will reduce the taxes on everyone. Either someone's taxes have to go up, or it can't be revenue neutral. So the graph, done by "a Boston University study" (really some guy's thesis, and I've done one of those, I know what crap they can be) is presented like fact, and is demonstrably flawed. That's the level of research this gets. "It'll lower taxes for everyone, and is revenue general too" and no one notices those are contradictions... With research like that, who needs facts?

Re:Well for starters

[LynnwoodRooster]

You proved my point: you had to prove your innocence otherwise you were automatically guilty and subject to those fines and interest. If you didn't write back it would have been levy and lien time for you, regardless of the actual truth of the matter.

Re:Well for starters

[Fjandr]

Given the many things the Federal government does in excess of the authority granted by the Constitution, I'm sure this could be legitimized without a Constitutional amendment. After all, Prohibition required an amendment, and now it doesn't (just affects a different product). There are few politicians who give a damn about what the Constitution says. Sadly, it's already almost completely irrelevant, with the exception of a couple amendments. They'd just say the Commerce Clause covers it, which is their rationalization for almost everything they do now.

Re:Well for starters

[causality]

Apparently, this "revenue neutral" legislation will reduce the taxes on everyone. Either someone's taxes have to go up, or it can't be revenue neutral.

Perhaps everybody who pays taxes now will have their taxes go down, and the scofflaws and low-income people who presently pay no taxes will make up the difference. In other words, it could be a semantic trick: everybody who presently pays taxes WILL have their tax bill go down if the large number of people who pay no taxes start doing so.

There are a large number of people who not only have zero federal income tax liability, but who actually have a negative fed. income tax liability. Their income levels plus various exemptions etc. zeroes out their tax liability and they are still eligible for various credits, particularly the Earned Income Tax Credit.

Of course such people still enjoy the services and protections provided by government. Thus in purely financial terms, they are engaging in parasitism. This is a big step towards the welfare state, the nanny state, or whatever you prefer to call it. It works because there are large enough numbers of these people that their votes can easily sway elections and they vote in uniform blocs with little diversity of opinion among them. The number of adult voters with no federal tax liability was 38% prior to the recent stimulus bill and now sits around 47%. For any election, that's absolutely huge. Any politician who sees something wrong with this and wants to change it would immediately have 47% of the voters against him, so you see how it entrenches itself.

Politically, the purpose of creating and encouraging this class of taxpayers is to engage in class warfare. The game is to get a large percentage of the population dependent on government subsidies for their day-to-day living. Those people will then defend and re-elect the politicians who feed that dependency no matter how unreasonable their policies may be. The fact that the Baby Boomers have largely forgotten how to prepare for their own retirements and are utterly dependent on Social Security (no matter how bankrupt) and the fact that proposing changes to that system is political suicide is a good example of this game.

There is a second benefit to our rulers. The more "rich people" and "poor people" see each other as adversaries the more our politicians can play both sides against one another to entrench their power. It's classic divide-and-conquer.

It's worse than it looks.

[John Hasler]

All businesses no matter how large or how small or informal will have to file a 1099 for every entity to which they pay more than $600 in payments for goods and/or services in a year. This includes everything: the part-time plumber, your landlord, the power company, Office Max, WalMart, etc. You are going to have to get Best Buy's TIN if you purchase a server from them. The average USA small business will need to file about 600 every year.

Re:Already taxable

[LynnwoodRooster]

And if you actually read the details, you have to sell over $20,000 and have 200 transactions in order for it to be reported. This is not for people who sell their cell phone every 3 months.

$20K is nothing; I can sell my classic car in my garage and exceed that amount. And since the regulations are not yet written (1099K is still in draft), the "and 200 transactions" is still up in the air. Knowing the desire for tax revenues, my opinion is that it'll end up being $20,000 OR 200 transactions.

Additionally, if I sold my classic car for $25,000 (about what it's worth, and about about what I've put into it over the years), and had two garage sales where I sold a lot of my old clothes, computer parts, records, and trinkets (easily beyond 200 items), I could end up having to report. Having 50 transactions at a single garage sale is not that uncommon; having 4 garage sales a year (especially if someone is out of work and looking to raise money by selling assets) puts you into this new "you're a business even though you aren't" category.

I'd just like to say

[Vinegar Joe]

Fuck the IRS.

Re:Loophole / workaround

[fyngyrz]

What's to stop someone from having multiple eBay / PayPal accounts?

How about having to give your taxpayer ID number (SSN for most of you... yes, that same SSN they promised not to use for anything but your retirement accounts, you stupid suckers) to Ebay for starters. Then, when you try to open account #2, they say, oh, wait, we already have an account for that TIN, sorry, no more accounts for you.

Fake TIN/SSN? Jail.

Don't worry; while the government isn't bright enough to keep from screwing the citizens, it is bright enough to keep the majority of citizens from screwing it.

It's just going to keep getting more and more like this. They conned the public, and the supreme court, into giving up 4th amendment guarantees on privacy a long time ago -- no legal recourse remains.

Re:Cue all the teabaggers blaming Obama...

[tuxgeek]

I work with some of those tea baggers. Sometimes I can't believe the stupid shit they say & think

Never mind:
* The record national debt run up by Smirky & Snarly
* The national/global economic crash caused by 8 years of complete republican control
* 2 Unwinable wars in muslim nations for the benefit of the American multinational energy and military industrial complex corporations

disclaimer for the trolls: I hate all politicians and believe they all need to be dragged into the street and shot as traitors

Re:Abolish the IRS!

[Improv]

Flat taxes are disproportionately hard on low-income earners, while they give the wealthy a huge break. They're not fair, stop pushing them.

Re:Cue all the teabaggers blaming Obama...

[Low Ranked Craig]

Most of the tea party people I know hate Bush only slightly less than Obama...

Having said that, the 2009 and 2010 deficits are almost 3 trillion dollars. The biggest deficit 2000-2008 was about $480 billion. So, while I believe that $480 billion dollar deficits are bad, $1.5 trillion is 3 times worse, and 2011 isn't going to be much better. The record debt under Bush looks very conservative compared to the actual 2009 and projected 2010-2012 budgets, and as usual the deficits are likely to be larger than the projections...

I hate all politicians and believe they all need to be dragged into the street and shot as traitors

That would be too good for them. I think stripping them of their power and assets and forcing them to get real jobs would probably be a fate worse than death for most of them.

and...

[fyngyrz]

Governments do useful things, and they acquire funding for that through taxes.

They also do harmful things, and they acquire funding for that through taxes as well. This is one (of many) reasons that government powers and government funding should be severely limited. The main reason we have an out of control government is because they control their own funds, and now also their powers (the constitution no longer governs them.) Not only do they tell you how much you have to pay them, and how often, and why, and for what, and what words like "income" and "profit" mean, they can print money (via the banking scam), incur unlimited debt (stroke of a pen, no approval required), and spend it all any way they want -- and all without you getting a word in edgewise.

Legally speaking, you can't do squat about it. In the case of the US, that's the hallmark of a government that is not in the least responsible to the people who originally put it in place. That connection has been well and truly severed.

Re:and...

[fyngyrz]

Except we don't have an out of control government.

No?

Commerce clause? Ex post facto laws? Most of the bill of rights thrown out the window? Unjust wars? Insane debt levels? Financial system based entirely on an illusion? Judges asserting section five powers that there are no mention of in article three? Intellectual property laws that do more to deter innovation than to encourage it? Educational system that result in large percentages of the population indulging in rampant superstition, and largely unable to read, write or think at a level I'd accept for secretarial work, never mind the tiny (and largely wrong) collection of "facts" they bring with them? Have you noticed that almost our entire manufacturing base is no longer present and accounted for? I could go on - for pages - but it's pretty depressing.

Wait -- I should have asked -- do you live in the USA? Because that's the government I was speaking of. If you live somewhere else, you might, I suppose, have a government that's just fine. I doubt it somehow, but I accept the idea in principle. The US government, however, is an utter clusterfuck. You'd have to be the most servile kind of blinders-wearing sycophant to think otherwise.

Re:Abolish the IRS!

[corbettw]

20% flat tax with a one-time $50,000 exemption for every tax payer in a household (but you don't get a refund if you owe negative tax). How does that screw low-income earners?

Re:and...

[rubycodez]

http://en.wikipedia.org/wiki/File:US_incarceration_timeline-clean.svg

it's a big business, and also helps the ongoing transition to a police state.

Re:Is a man not entitled to the sweat of his brow?

[mcgrew]

Bullshit. You pay taxes to pay for highways, schools, cops, fire departments, and lots of other stuff that benefit YOU, and the more you have the more it benefits you. Like one guy's sig says, "I like paying taxes, with them I pay for civilization.

An attitude like yours smacks of sociopathy.

Re:But.... but...

[bkpark]

Somebody could have a big income, but spend like a person with an avereage income. How will you disproportionally punish him for doing well?

Why, by running high inflation and heavy regulation & taxing of businesses.

High inflation ensures that this big miserly border-line treacherous criminal will lose any money he saves in banking account, etc, forcing him to invest that money into businesses, if he wants to maintain the value of his money.

Once you've forced him to put the money into businesses, then you take the money from the businesses with various fees and what-not. (Some tweaking and fixes will be necessary, such as banning of owning gold and silver by members of public, as well as a ceiling on interest rates banks can pay on savings, but the general idea remains the same.)

There are many, many ways to "spread the wealth around" even without a progressive income tax. Progressive income tax just makes it easier.

We don't have a VAT in the US. Not yet.

[jht]

The "intent" of the eBays and Craigslists of the world is supposedly to let people sell things they don't want around (more or less). If I buy something with my income, and pay sales taxes on it, then sell it later on then so be it. If I'm lucky enough to make a little money on the arrangement (like if it turns out to be collectible), that's splendid. But it's not a business. Taxes due at each step of a transaction are a VAT, and we don't do that here.

If I'm buying goods wholesale or as an investment and I'm trying to sell them at a profit as my means of earning a living, though - well, that's taxable in this country and that's just all there is to it.

I run a services business (as an S Corp), and I could probably pay a little less tax if I weaseled appropriately and just buried all my income as "expenses". I don't. The business pays what are real, legitimate expenses (I don't buy an iPod for my kid and call it "computing equipment" or any of that kind of shady stuff). I keep my business and personal money separate and I pay myself and my employees a salary. I could probably make a few more bucks being really aggressive about things, but I know I'm doing the Right Thing and I'm not in line for an eventual trip to Federal Pound Me In The Ass Prison.

In other words, if you're trying to live free of the IRS by doing a cash business on eBay, screw you. Pay up.