eBay and Taxes

It is interesting watching eBay sellers and taxes. The congress finally started to address one of probably the biggest groups of unreported income earners today in the "American Housing Rescue and Foreclosure Prevent Act of 2008". The recent bill signed into law to rescue homeowners includes a provision designed to offset the expenditures. It requires providers such as paypal and eBay to start reporting its seller's income starting in 2010 to the IRS. The IRS has tried to do this with regulations but has met very stiff resistance from eBay. One estimate is that this will result in almost $1billion a year in additional taxes being paid that are already required by current tax laws.

Feeding this is both dishonesty, confusion and just plain ignorance (some of it willful). There are the people just like the bar owner that rakes in $5k a night and reports $2k with expenses of $2.5k. These folks will report only that which they can be caught with and even then report as little as possible. You also have the people that have heard the refrain nothing on the internet can be taxed. Yes, your state and city cannot levy taxes specifically on the internet use and sales. But already existing taxes such as capital gains, retail profits and sales tax still apply. Many people just plain don't know and eBay makes no effort to explain it to them. Then there are also those that believe everything on the internet should be free, including music, pictures and the ability to sell Tiffany and Rolex "replica" items.

The truth of the matter is that eBay and other internet sites are a Wild Wild West and the government is just now realizing it has to control this territory. I have been posting specials in my tax business to help those who are eBay sellers with reporting their tax income. I have not had a single taker. My wife is a seller and we report her income. Many are petrified because if they are a power seller, they AT LEAST have $12,000 in gross sales ($1,000 a month for power seller status). This is even scarier because as a self-employed person, the self-employment tax must be paid. This is both the employer's and the employee's half of the Social Security and Medicare taxes (total 15.3%). Fortunately, as a business there are a whole host of thing you can deduct. This includes eBay/Paypal fees, postage, supplies, the purchase price of goods, the computer and even possibly morgage/rent, utilities and other home expenses. All of these are subject to a maze of rules, regulations and exceptions that would give any intelligent person a migraine.

Now, that being said, the IRS is not interested in people who aren't making thousands. These persons are the ones who occasionally clear out a room or their attic and sell the eight-trac tape player or CB radio they find. Basic tax law, these items were never depreciated and are typically sold for much less than was originally paid for them. Your basic garage sale item is typically not taxable for this reason. Now, this is compared to someone who deals with distributers of "As Seen On TV" products, bargain shoppers making a killing off the clearance racks or collectors who sell everything from Hot Wheels to Beanie Babies and baseball cards. Many of these sellers can make unbelievable amounts on eBay sometimes hundreds of thousands.

I can't predict the future but if you think Uncle Sam will ignore this pot of gold, I want to know if you would like to buy the Golden Gate Bridge.