New IRS Reporting Rules to Hit eBay and Paypal; Government Crackdown on Trinket Sellers; Campaign Bribes and Tax Policy

Inquiring minds are interested in 2011 tax policy changes that will affect sellers of merchandise on eBay. John R writes ....

Starting next year Paypal will have to start reporting to the IRS. The selling limits will be 200 items or $20K before they report. This tax change was part of the �08 stimulus.

Reporting on 200 items annually is a real killer. That�s a mere 17 items a month. We�ve already shut our eBay business down. It's simply not worth the effort.

Most eBay/auction site margins are extremely low. Thus, I wonder how many people will set up a business, keep the books, pay state and federal taxes, just to make a few bucks.

Thanks,
John

New Form 1099-K will debut for 2011 tax year

John is discussing eBay Sellers and Tax Changes

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.

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.

Details and Caveats

As a practical matter, if you're an eBay seller, this will affect 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).

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.

Government Crackdown on Trinket Sellers

How many hobbyists like John will just say the hell with it? If enough do, it could impact eBay's earnings. Imagine selling 20 items a month, earning a few hundred dollars a year or less in profit, and having to spend time and money keeping track of all the costs associated with the effort.

I am not trying to justify non-payment of taxes, I am simply looking at this from a practical standpoint.

Corporate Earnings Reported to Shareholders vs. Corporate Earnings Reported to the IRS

Just for grins, take a look at big corporation earnings reported to shareholders as compared to earnings as reported to the government. Which one is fiction and which one is real?

Is either legitimate? I doubt it, and in opposite directions. If I am correct, where should government be spending its time and energy?

Loopholes for the Little Guy vs. Loopholes for Large Corporations

Every conceivable loophole, no matter how small, is closed for the little guy, while major corporations have tax avoidance loopholes worth hundreds of billions of dollars.

For example, multinational corporations get to defer taxes on profits held overseas.

Adding insult to injury, there have been semi-regular "tax holidays" where corporations get to repatriate offshore accounts at low rates, to the major advantage of large corporations and huge disadvantage of small US based corporations.

Such policies encourage the flight of jobs and money from the US.

So, here we go again, cracking down on the little guy in attempts to pick up pennies to balance the budget, ignoring hundreds of billions of dollars over the years to large corporations.

Campaign Bribes and Tax Policy

Please note that I am in favor of lower corporate taxes as long as it is done fairly (right now multinationals and large corporations have huge advantages) and as long as we can afford it.

Instead, we have a system that rewards capital flight, rewards job flight, and punishes small businesses relative to larger corporations.

This mess happens because lobbyists for large corporations write our tax code, with politicians taking campaign contributions (bribes) in return for the favor.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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