Paypal, etc. to report transactions to IRS...............
RonBurgundy
Posts: 5,491 ✭✭✭
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).
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).
Ron Burgundy
Buying Vintage, all sports.
Buying Woody Hayes, Les Horvath, Vic Janowicz, and Jesse Owens autographed items
Buying Vintage, all sports.
Buying Woody Hayes, Les Horvath, Vic Janowicz, and Jesse Owens autographed items
0
Comments
Can I claim a loss lol
<< <i>What if you buy more than you sell but still sell over $20,000 a year? Can you claim all of your purchases as a tax right-off seeing that they are being purchased for re-sale? >>
ALL of your purchases? No, only the cost of the cards that you sell during the year, as well as related expenses.
ie. You purchase cards #1 thru 50. You sell cards #1 thru 30. You cannot deduct the cost of all 50 cards, only the cost of cards #1 thru 30. The cost of cards #31 thru 50 can be deducted in the year you sell each of those cards.
EDITED TO ADD: I am surprised the floor amount is $20,000.00. Based on other IRS reporting requirements I would have thought that the number would be much lower.
Doug
Liquidating my collection for the 3rd and final time. Time for others to enjoy what I have enjoyed over the last several decades. Money could be put to better use.
Working on the following: 1970 Baseball PSA, 1970-1976 Raw, World Series Subsets PSA, 1969 Expansion Teams PSA, Fleer World Series Sets, Texas Rangers Topps Run 1972-1989
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Successful deals to date: thedudeabides,gameusedhoop,golfcollector,tigerdean,treetop,bkritz, CapeMOGuy,WeekendHacker,jeff8877,backbidder,Salinas,milbroco,bbuckner22,VitoCo1972,ddfamf,gemint,K,fatty macs,waltersobchak,dboneesq
<< <i>
<< <i>What if you buy more than you sell but still sell over $20,000 a year? Can you claim all of your purchases as a tax right-off seeing that they are being purchased for re-sale? >>
ALL of your purchases? No, only the cost of the cards that you sell during the year, as well as related expenses.
ie. You purchase cards #1 thru 50. You sell cards #1 thru 30. You cannot deduct the cost of all 50 cards, only the cost of cards #1 thru 30. The cost of cards #31 thru 50 can be deducted in the year you sell each of those cards.
EDITED TO ADD: I am surprised the floor amount is $20,000.00. Based on other IRS reporting requirements I would have thought that the number would be much lower. >>
But what if you purchase all 50 cards in a lot, lets say 50 1968 Topps cards including a Mantle and 49 commons for $100. You sell all 49 commons, do you get to put down the cost of the cards sold as $98 or do you have to assign different values to each card? That would be a major hassle!
Allen & Ginter Cards
My Blog -- Ballcard Mania
<< <i>
<< <i>
<< <i>What if you buy more than you sell but still sell over $20,000 a year? Can you claim all of your purchases as a tax right-off seeing that they are being purchased for re-sale? >>
ALL of your purchases? No, only the cost of the cards that you sell during the year, as well as related expenses.
ie. You purchase cards #1 thru 50. You sell cards #1 thru 30. You cannot deduct the cost of all 50 cards, only the cost of cards #1 thru 30. The cost of cards #31 thru 50 can be deducted in the year you sell each of those cards.
EDITED TO ADD: I am surprised the floor amount is $20,000.00. Based on other IRS reporting requirements I would have thought that the number would be much lower. >>
But what if you purchase all 50 cards in a lot, lets say 50 1968 Topps cards including a Mantle and 49 commons for $100. You sell all 49 commons, do you get to put down the cost of the cards sold as $98 or do you have to assign different values to each card? That would be a major hassle! >>
Yep, see my note above about capital gains. "Per share" price gets a lot harder than with securities.
Working on the following: 1970 Baseball PSA, 1970-1976 Raw, World Series Subsets PSA, 1969 Expansion Teams PSA, Fleer World Series Sets, Texas Rangers Topps Run 1972-1989
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Successful deals to date: thedudeabides,gameusedhoop,golfcollector,tigerdean,treetop,bkritz, CapeMOGuy,WeekendHacker,jeff8877,backbidder,Salinas,milbroco,bbuckner22,VitoCo1972,ddfamf,gemint,K,fatty macs,waltersobchak,dboneesq
<< <i>I would think a lot of folks would not be getting 1099's since they don't have the 20K amount met.....but is it also if you have 200 transactions??? even if the 200 transactions total less than 20K??? for example I have paypal but most of my items are small potatoes...no huge items. >>
That's where I am sitting too - I can't imagine keeping track of "expenses" for the modern crap I collect and sell. What a pain in the arse. I buy a card lot of 300 cards, sub 10, sell 8, sell the remaining cards from the lot. I could have 10 sales off of one purchase, with varying costs associated with each of them. I am small potatoes guy, but I could easily hit 200 transactions/year this way. never mind that I just funnel any sales back into more purchases. A logistical nightmare.
It'll include a chapter on "how to beat or assuage the IRS."
This change in the scheme was announced by EBAY/PayPal
more than a year ago.
Because the compliance level is already VERY high among
EBAY sellers, the change should have no negative impact.
..............
The Housing and Economic Recovery Act of 2008.
Starting in 2011, banks or other companies that process credit cards must report
the amount of the payments a merchant receives on card transactions to the irs.
The law will not apply to merchants doing less than 200 transactions totaling less
than $20,000.
(The "extra" money collected was meant to be used to offset expenditures on TARP
and other bailouts.)
................
The original proposal, was $600 per year.
EBAY/PayPal lobbied to raise the number to $20K.
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Your first 1099 will be issued in January 2012, for the 2011 tax year.
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The lingo in the abstract states:
"...payments a merchant receives on card transactions ..."
This, seemingly, exempts e-checks from the requirement.
But, THERE IS NOW NO DOUBT that the Service will take the
position that ANY transaction processed via PP will be subject
to the reporting requirements.
The Regs will have to comply with the statute, and a court
will decide any issues that are raised by taxpayers.
.......
The build a better mousetrap, and I will build a better mouse
"...So if the IRS want to say I have a business, I am calculating my losses already..."
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The govt really does not care if you "have a business."
They care if you have income that you are not sharing with them.
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I would expect some folks who do not want to comply with the
new scheme might simply use "local pickup only" listings on EBAY.
Thus, keeping PayPal out of the mix.
ALL online venues - other than EBAY - allow a variety of payment
options. Some non-compliers may choose those venues.
I really don't see the change as a big deal. ALL of the surveys say
that most all EBAYers declare their profits/losses as required by
the current statutes.
.........
that most all EBAYers declare their profits/losses as required by
the current statutes. "
now thats good comedy material!
They'll have the 1099 be generated from ebay sales - as such - and not a PP transaction.
I'm surprised it's gone this long to be honest.
<< <i>But what if you purchase all 50 cards in a lot, lets say 50 1968 Topps cards including a Mantle and 49 commons for $100. You sell all 49 commons, do you get to put down the cost of the cards sold as $98 or do you have to assign different values to each card? That would be a major hassle! >>
Technically you are supposed to pro-rate the purchase price based on the Fair Market Value of the cards.
In your example, let's say the 49 commons were all similar in price and in total they were valued at $200.00 and the Mantle was $100.00. You would allocate 2/3 of the purchase price to the 49 commons and 1/3 of the purchase price to MICK.
Your cost basis for the 49 commons would be $66.66 or $1.36 each.
Your cost basis in THE MICK would be $33.34.
Doug
Liquidating my collection for the 3rd and final time. Time for others to enjoy what I have enjoyed over the last several decades. Money could be put to better use.
<< <i>Ebay should allow sellers to now "encourage" money orders as payments. Keep it mandatory to make sellers offer electronic payments, but relax the rule against specifically asking for money orders. >>
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I am pretty sure EBAY is not interested in helping folks evade
their tax liabilities.
If all the potential non-compliers left the site in the morning, EBAY
would still be the world's largest outlet mall.
Listing Counts March 9, 2010 2:06 pm
eBay 42,953,665 +0.7%
eCrater 3,032,678 +0.15%
Bonanzle 2,794,249 -0.14%
Always looking for Topps Salesman Samples, pre '51 unopened packs, E90-2, E91a, N690 Kalamazoo Bats, and T204 Square Frame Ramly's
Allen & Ginter Cards
My Blog -- Ballcard Mania
I have tried selling graded psa cards on ECRATER with no luck. Even at below smr prices.
What if i bought a card in 2004 for $2100 and sold it in 2011 for $1900? Would i be able to claim a $200 loss on my return?
I luv this bit of instruction:
.......
Collectibles: 28% Rate Gain Worksheet Line 18
1. Enter the total of all collectibles gain or (loss) from items you reported on line 8, column (f), of Schedules D and D-1 1. 0
2. Enter as a positive number the amount of any section 1202 exclusion you reported on line 8, column (f), of Schedules D and D-1, for which you excluded 50% of the gain, plus 2/3 of any section 1202 exclusion you reported on line 8, column (f), of Schedules D and D-1, for which you excluded 60% of the gain.
3. Enter the total of all collectibles gain or (loss) from Form 4684, line 4 (but only if Form 4684, line 15, is more than zero); Form 6252; Form 6781, Part II; and Form 8824.
4. Enter the total of any collectibles gain reported to you on line 15:
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<< <i>I luv this bit of instruction:
.......
Collectibles: 28% Rate Gain Worksheet Line 18
1. Enter the total of all collectibles gain or (loss) from items you reported on line 8, column (f), of Schedules D and D-1 1. 0
2. Enter as a positive number the amount of any section 1202 exclusion you reported on line 8, column (f), of Schedules D and D-1, for which you excluded 50% of the gain, plus 2/3 of any section 1202 exclusion you reported on line 8, column (f), of Schedules D and D-1, for which you excluded 60% of the gain.
3. Enter the total of all collectibles gain or (loss) from Form 4684, line 4 (but only if Form 4684, line 15, is more than zero); Form 6252; Form 6781, Part II; and Form 8824.
4. Enter the total of any collectibles gain reported to you on line 15:
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Huh?????????
Neil
<< <i>I luv this bit of instruction:
.......
Collectibles: 28% Rate Gain Worksheet Line 18
1. Enter the total of all collectibles gain or (loss) from items you reported on line 8, column (f), of Schedules D and D-1 1. 0
2. Enter as a positive number the amount of any section 1202 exclusion you reported on line 8, column (f), of Schedules D and D-1, for which you excluded 50% of the gain, plus 2/3 of any section 1202 exclusion you reported on line 8, column (f), of Schedules D and D-1, for which you excluded 60% of the gain.
3. Enter the total of all collectibles gain or (loss) from Form 4684, line 4 (but only if Form 4684, line 15, is more than zero); Form 6252; Form 6781, Part II; and Form 8824.
4. Enter the total of any collectibles gain reported to you on line 15:
///////////////////////////////////// >>
I may have an MBA, but I was a history undergrad degree and am not a Finance guru. What the hell does this mean?
"...I may have an MBA, but I was a history undergrad degree and am not a Finance guru. What the hell does this mean? .."
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It means:
"This business will get out of control. It will get out of control and we'll be lucky to live through it."
<< <i>"...I may have an MBA, but I was a history undergrad degree and am not a Finance guru. What the hell does this mean? .."
/////////////////////////////////
It means:
"This business will get out of control. It will get out of control and we'll be lucky to live through it."
Great - my hobby will quickly become more work than it's worth - guess I will have to make a conscious effort not to have over 200 sales through Paypal next year as the $20K factor isn't an issue. So much for trying to get my hobby to fund my hobby.
<< <i>I'm still confused....is it 200 transactions or 20K, or one or the other??? As others have noted I worked in finance for more than 35 years and this will be a record keeping nightmare. >>
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The abstract of the bill said "200 AND $20K."
The Service will see it as they wish to.
We will have to wait and see.
"...will you need to have/keep sales receipts for all purchases for proof of losses? ..."
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Of course.
See your tax preparer to determine if some such "losses" may only be
deductible to the extent that they offset "profits."
<< <i>AND is the key. I can easily do 200 transactions in a year (or 6 months) and not get anywhere near $20K. If it's treated like gambling profit/loss, pretty easy to "break even" >>
This new law is NOT changing anything to do with reporting a profit or loss from the sale of your cards. Since the beginning of time (ok, maybe a little more recent than that ... lol), if you had a profit from the sale of your cards it was TAXABLE INCOME. HOWEVER, because the IRS now realizes that MANY people are not reporting profits from the sales of cards (and other goods) they are putting the burden on 3rd parties to report to the IRS the sales proceeds of individuals. In years past if you did not report the profit there was very little way for the IRS to look into this, other than if you were audited. HOWEVER, now the IRS will be able to cross reference your tax return to determine whether or not you listed the SALES PROCEEDS on your tax return. (This is similar to when an independent contractor receives a 1099-MISC for money received for services rendered.)
Doug
Liquidating my collection for the 3rd and final time. Time for others to enjoy what I have enjoyed over the last several decades. Money could be put to better use.
When's the next Tea Party rally?
At the end of the day American ingenuity will win out. It is an American tradition to try and figure out a way to screw the government out of tax collections before they do it to you. Sometimes you eat the 'bar and, well, sometimes he eat you.
Somewhere around page 16 you will read that ACH transactions (you use your checkbook to pay), do not constitue reporting requirements under this proposed regulations...at least that's what I interpreted. Much beyond page 16, my eyes began to bleed and my head almost exploded.
I think if you are a seller who goes over $20k per year, it appears some rather obvious alternatives to remain UNDER the $20k requirement are not difficult to figure out.
It's kinda like gambling, the casino is required to fill out a CTR (Currency Transaction Report) if you go over $10k in a "business day". Solution? Stop playing when you get near $10k and no CTR. However, CTR's are not necessarily to be feared, the original objective was to catch money laundering under the Bank Secrecy Act, not to act as a big dog watching what you file on your 1040 the next year. Many players are paranoid about CTRs, when in fact there is none to be concerned about. It is however, a beaureaucratic dinosaur pointing the gun in the wrong direction. NOW, if you get a suspicious CTR filed on you, that's another bag of worms you really don't need in your life. Google FinCEN to enjoy the wonderful world of the IRS' Financial Crime Enforcement Network.
I'm not worried about either topic, I don't sell over $20k and I don't play over $10k.
It's well known that buyers rarely report their online/out of state purchases on their state tax returns.
And what happens to online spending if the applicable states begin enforcing their sales and use policies? If online shoppers suddenly have to add 7-8% to every online transaction, that could take an indirect hit on online sellers' profits.
<< <i>How long before state department of revenues start accessing this data for buyers?
It's well known that buyers rarely report their online/out of state purchases on their state tax returns.
And what happens to online spending if the applicable states begin enforcing their sales and use policies? If online shoppers suddenly have to add 7-8% to every online transaction, that could take an indirect hit on online sellers' profits. >>
If online shoppers had to pay sales tax, then the legitimate businesses with licenses who DO charge tax would no longer be at the disadvantage against people who rack up 1000+ sales per MONTH and do not declare anything. I've chosen not to buy something from my own state because of the extra tax that I'd pay, and bought it from somewhere else(if I bought it at all). Even the playing field and all would be fair.
<< <i>
<< <i>How long before state department of revenues start accessing this data for buyers?
It's well known that buyers rarely report their online/out of state purchases on their state tax returns.
And what happens to online spending if the applicable states begin enforcing their sales and use policies? If online shoppers suddenly have to add 7-8% to every online transaction, that could take an indirect hit on online sellers' profits. >>
If online shoppers had to pay sales tax, then the legitimate businesses with licenses who DO charge tax would no longer be at the disadvantage against people who rack up 1000+ sales per MONTH and do not declare anything. I've chosen not to buy something from my own state because of the extra tax that I'd pay, and bought it from somewhere else(if I bought it at all). Even the playing field and all would be fair. >>
There's no way to tell who's paying sales tax and who isn't. Many ebay sellers pay their sales tax out of pocket because the percentage of in-state sales is miniscule and it's not worth hearing the complaints from the relatively few in state buyers that they get. Most of the sales tax revenue under the current laws has to be reported by the buyers.
But this still sucks big time....
Collector of Vintage Golf cards! Let me know what you might have.