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View Full Version : IRS to Track Online Sellers' Payment Transactions Beginning Next Year




Rael
03-08-2010, 09:24 PM
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.

Purpose of Reporting
The IRS believes that many online sellers fail to report their transactions. Some don't report because they mistakenly believe that Internet sales are invisible. Others do so because they are trying to evade taxes.

The IRS has found that using information returns, such as W-2 forms for employees, Form 1099-MISC for independent contractors, and Form 1099-INT for bank interest, goes a long way toward improving the reporting of income. IRS computers can match income reported on these information returns with the income reported on tax returns.

Who's Subject to Reporting
All merchants who accept payments through credit cards, debit cards, gift cards and PayPal will receive information returns telling them - and the IRS - the gross amount of the merchant card transactions. This will be broken down month by month. While the form uses the word "card," the IRS has made it clear that this is interpreted broadly to include third-party network transactions (i.e., PayPal).

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.

Mechanics
As it now stands (proposed regulations have not yet been finalized), gross amounts reported for merchant transactions do not take into account any adjustments for credits, cash equivalents, discount amounts, fees, chargebacks, refunded amounts, or any other amounts. It will be up to sellers to report on their returns the full amounts reported to them and then make adjustments or explanations to account for differences in what is ultimately taxable to them.

For example, a seller who is paid $1,000 by credit card for a particular transaction does not necessarily have $1,000 profit even though $1,000 will be included on Form 1099-K. The $1,000 must be reported so the return will match what's in the IRS computers, but this amount will then be reduced on the merchant's return by the cost of goods sold (what it costs for the inventory sold), merchant account fees, and other costs.

Providing Your Tax ID Number to Processors
Merchants will have to provide their federal tax identification numbers to the companies processing their transactions. If they fail to do so, they may become subject to "backup withholding," which means these companies will have to deduct and withhold income tax from reportable payments. Backup withholding won't go into effect until 2012.

Sellers who don't wish to provide their social security number to payment processors can obtain an EIN (Employer ID Number). Note that you can obtain an EIN even if you are a sole proprietorship. See the IRS website for more information.

More information on Form 1099-K
You can find more information about Form 1099-K, the new information return that payment settlement entities will use to report the gross amount of merchant card or third-party payments, on this IRS web page (PDF format).

See also, "What Every Merchant Should Know about New IRS Reporting Requirements" from this May 2009 EcommerceBytes article.
About the author:

Barbara Weltman is a prolific author and trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day(sm) and monthly e-newsletter Big Ideas for Small Business(R) at http://www.barbaraweltman.com/ and host of Build Your Business radio.

QueenB4Liberty
03-08-2010, 09:25 PM
What will they think of next? :(

jkr
03-08-2010, 09:34 PM
and THAT is the end of the internets

catdd
03-08-2010, 09:42 PM
Squeeeeeze those pennies out of us.

bunklocoempire
03-08-2010, 09:46 PM
I imagine states demanding out of state internet businesses collect state tax for them are behind this 110%. Get the Feds to get your dirty work rolling.

Hawaii tried this last year to fund their folly, they're trying it again this year.

Lower state taxes to compete with internet sales? Nah, pass legislation to demand out of state businesses collect taxes for you, ending internet businesses dealing with your state and ending competition for out of state sales.

What a load of crap.:mad:


Bunkloco

Rael
03-08-2010, 09:49 PM
Lets brainstorm ways to get around this.

Couldn't you just register a paypal account using a company setup in a foreign country?

satchelmcqueen
03-08-2010, 09:52 PM
again, a way to get more taxes out of you. i sell stuff on ebay that i already bought with money that was taxed on my paycheck and again when i originally bought said item. wow taxes at yardsales will be next

ChaosControl
03-08-2010, 09:57 PM
Every day the government does something to make me hate it more. Damn tyrants.

cindy25
03-08-2010, 10:10 PM
people need to re-learn to pay cash.

BuddyRey
03-08-2010, 10:23 PM
Why didn't we hear about this in time to stop it? Did it go through Congress or did the IRS decide on it unilaterally?

andrewh817
03-08-2010, 11:26 PM
people need to re-learn to pay cash.

Uhhhhhh no one forgot how, it's just impractical to use cash if you're too far away to meet the seller. The problem isn't the people buying and selling, it's the government intrusion.

andrewh817
03-08-2010, 11:30 PM
They're tying a boulder to the back of the last free market camel.

Peace&Freedom
03-08-2010, 11:44 PM
It was slipped into the mortgage bill of about two years ago, and Paul commented at the time how it was invasively intruding on the credit/debit card transactions of consumers. The provisions were slated in the bill to take effect as of 2011, which is possibly why there wasn't an immediate outcry.

It's a new leg of the same old presumptive swindle. IRS presumes all payments/receipts made are "taxable income" and all parties are under their jurisdiction. IRS creates a slanted document (that presumes the above) so a third party signs off on having paid you "income," whether it legally is or not. IRS then uses that paper trail of unsworn, erroneously defined third party information to "determine" you earned "income," and are liable.

You can correct the information with sworn affidavits, facts and law, but they may reject any correction, and "determine" you raised "frivolous" arguments (i.e., defied their scam system) and assert you now also owe them penalties. Never mind they never established they have the jurisdiction to be making these determinations in the first place. Out goes due process, financial privacy, probable cause before accessing private records. In comes Napoleonic law via administrative edict.

Yes, set up a foreign mail drop, operate as an American citizen or national, NOT as a "US citizen" (a different thing in the law). Reject falsely constructed paperwork and attempts to make you (or a third party) an unpaid government informant. This is not evading taxes, this is declining to cooperate with fraud, or being put into a compelled informant association with the national government.

puppetmaster
03-09-2010, 12:20 AM
just remember it will tax your profit....my cost of goods can easily be higher than I sell it for. From this read there are many loopholes.

RileyE104
03-09-2010, 01:11 AM
I guess I better buy all the Silver and Gold I can find for a good deal off ebay this year.. If this comes true, that will probably kill the market and driver sellers back to just regular prices at local dealers to avoid any taxes..

evilfunnystuff
03-09-2010, 01:52 AM
just remember it will tax your profit....my cost of goods can easily be higher than I sell it for. From this read there are many loopholes.

even though that many dont make a profit its still gonna take a lot of time and effort to show you werent making profit and wont prevent costly audits etc

Bern
03-09-2010, 07:36 AM
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.

The first time I read this, I misunderstood. I thought that any merchant - including websites like RPF that might accept PayPal donations/membership subscriptions that accrue more that 200 transactions per year would be subject to the reporting requirement. I see now that the threshold for reporting is both 200 transactions and $20K.

angelatc
03-09-2010, 07:36 AM
Uhhhhhh no one forgot how, it's just impractical to use cash if you're too far away to meet the seller. The problem isn't the people buying and selling, it's the government intrusion.

Back when eBay was in its hay day, I sold stuff like crazy. International buyers almost always sent me cash. I never had any disappear, and I certainly never stiffed anybody. That was the whole point of the original feedback system.

RCA
03-09-2010, 08:09 AM
I guess next year, I'll have to switch to using money orders for both buying and selling on Ebay. Bastards.

angelatc
03-09-2010, 08:23 AM
I guess next year, I'll have to switch to using money orders for both buying and selling on Ebay. Bastards.

That is now a violation of eBay rules.

RCA
03-09-2010, 09:05 AM
That is now a violation of eBay rules.

crap, forgot about that!

furface
03-09-2010, 10:23 AM
I'm thinking of moving to Iraq or Iran where there's more freedom and less government violations of privacy. Seriously, I'm not being facetious. I'll make sure I don't insult the government or the Quran, which I have no desire to do, but will take heart in the idea that things that are important to me are not violated.

andrewh817
03-09-2010, 04:20 PM
I'm thinking of moving to Iraq or Iran where there's more freedom and less government violations of privacy. Seriously, I'm not being facetious. I'll make sure I don't insult the government or the Quran, which I have no desire to do, but will take heart in the idea that things that are important to me are not violated.

I don't know what your religious beliefs are (or if you have any) but if you don't I'm guessing it will be pretty hard on you to just accept all the irrationalities that come with a combined church and state.

I know you said you're not going to insult the government or Qur'an, but the government there invades your privacy more in some areas than America's does. Maybe not in the economic sense but in other areas........

Look up "Cyber-Dissidents" on Youtube and you'll see what I mean.

Warrior_of_Freedom
03-09-2010, 04:24 PM
this is as bad as the proposed legislation a few years ago to tax e-mails

furface
03-09-2010, 05:09 PM
Look up "Cyber-Dissidents" on Youtube and you'll see what I mean.

I don't plan on being a cyber-dissident. I'm not planning on moving to Iran any time soon. However, I have considered the middle east in general.

There's an interesting thing that exists in Islamic countries (I'm Christian btw) that doesn't exist in the West. You're pretty much ignored by the government if you stay away from politics and don't publicly challenge their belief systems. Stay out of site, and you'll be left alone.

Iran has some weird ideas about personal appearances like wearing veils and certain hair cuts. Anybody who's lived for a while and has some life experiences knows that things like personal appearances are among the most unimportant freedoms, although young people may think otherwise, especially if they're wired to a Western thought box like CNN or IPhone.

Compare that to what's being discussed here, the extraordinary invasion of privacy that incessant government reporting requires. Western governments demand a lot from their citizens, an Orwellian array of identification numbers, tracking, and reporting requirements. It's unbelievable that we put up with it.