When it comes to paying income taxes, eBay’s legions of small-time entrepreneurs are on an honor system in which they are supposed to declare their profits to the Internal Revenue Service. Many users, however, ignore the law or are unaware of their obligation.
Now a growing chorus of tax experts is hoping to crack down on the cheating by requiring eBay — and other online auctions, such as those on Yahoo, Ubid.com and Amazon — to track users and report their gross sales to the federal government. Armed with such information, the IRS could better seek any taxes owed, potentially reaping millions of dollars in extra revenue for the U.S. Treasury.
But requiring eBay to out its sellers to tax collectors could send a shockwave across its vast online bazaar, where users trade everything from Ferraris to Ugg boots to pepper spray. Paying Uncle Sam could significantly reduce their profits or even make their businesses money-losers.
The remedy, according to many federal officials, is to expand reporting requirements. The question is, which businesses and what kind of income should fall under the rules?
As part of his proposed federal budget for 2008, President Bush made what many believe is the first step to more vigorously collect taxes on online sales. Although vaguely worded, the proposal would require “brokers,” or middlemen, to collect taxpayer identification numbers from clients and report their sales of personal property to the IRS on a 1099 form if sales surpass 100 transactions or more than $5,000 annually.
Under current law, eBay and other auction sites aren’t considered brokers. But definitions can be changed.
Matt on March 1st, 2007 at 2:02 pm
I can’t believe this statement got published in this article: “Paying Uncle Sam could significantly reduce their profits or even make their businesses money-losers.”
OK- obviously paying your taxes cuts into the money you make from owning a business, but that doesn’t just apply to ebay businesses- that applies to any business. But since when is the fact that paying taxes reduces your profits a just cause for not paying? It doesn’t matter what business you own, if you profit from it, you owe taxes, and not paying them is tax evasion, period. I am no fan of taxes, and certainly do everything I can to legally reduce my liability, but simply not paying is a crime. If you can’t make a profit unless you cheat the government, you need to make adjustments to your business, not stop reporting your sales.
Ty on December 18th, 2007 at 10:55 am
It’s funny how the gov. wants to tax any and everything and so many think it ok. In my city you need a permit for a garage sale and have to report what you make. I don’t know about those who have major businesses on ebay, but many are families trying to make up a little income by selling use stuff that they have already paid taxes on. Soon maybe they will want to tax us on taking a crap.