Ebay Paypal Users Beware Here Comes the IRS

It was a long time coming

Ebay Paypal sellers and others earning with online auctions and ecommerce sites that use third party transaction hosts such as Paypal and Alert Pay have anticipated this for years and it is finally becoming a reality. Uncle Sam wants his cut.

Buried deep in the Housing Assistance Act of 2008, enacted with the intent of recovering the Internal Revenue Services lost revenue, this legislation was supported by the Bush administration. It is a new law that will require all third party sales transaction companies to report all members whose sales total over $20,000 annually and whose annual individual transactions exceed 200. The good news is that it will not go into effect until 2011 giving merchants time to prepare.

Speculation has it that companies such as Paypal would be issuing a revised 1099 form to all that fall into the reporting category. These merchants should have filed a schedule C reporting earned income from business so they can take the deductions allowed for a home based business such as their office, business trips, entertaining and the many other allowable deductions. If your business shows a profit more years than a loss the IRS is more likely to recognize it as a business and not just a hobby where those deductions would not be permitted.

It is surprising to Ebay Paypal merchants and also a little disturbing that the IRS took so many years to invoke such a rule. It has however come at a time, during this bailout administration, that the billions in lost revenue generated by online sales is finally going to be at least partially recovered. Although those who finally have to pay the same taxes as a brick and mortar business would probably disagree it will be a benefit to the current economic conditions by leveling the playing field.

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Comments 98 comments

ash 7 years ago

what if someone made over $20,000 in 2009? but law doesn't affect till 2011


frogpatch profile image

frogpatch 7 years ago from Jersey Shore Author

I would think that if the law was not in effect then it would not be enforced retroactive back to 2009. Please note that I am not an expert so do not hold me to that! Consult a Tax Professional to be safe!


jim nelson 6 years ago

I don't have a problem with the IRS collecting taxes in general we need to keep the country running, HOWEVER, many people use ebay as a "garage sale".

What the government is not seeing, since it it blind, it the cost in jobs as Paypal and Alert cut jobs when people stop using them and go to money orders an such.

The other caveat is how are they going to collect taxes from the tons of Chinese selling?


frogpatch profile image

frogpatch 6 years ago from Jersey Shore Author

I completely agree! Are they going to start showing up at the local flea markets and in your garage when you post that ad on Craigslist?


Brandon 6 years ago

Yes, yes they will. lol


PSLingerie 6 years ago

IS it a 'and' or 'or' condition?

Is it you have to collect 20000 AND 200 transaction or

is it 20000 OR 200 transactions? That could make a big difference to small sellers. If it is and OR situation then small sellers that make 200 transactions in a year but maybe not 20000 will also be hit.

Any insight? Thanks


6 years ago

You have to have both $20k per year and 200 transactions

if you only hav 1 of the 2 you will not b tracked by Paypal-IRS


googolizer 6 years ago

Hi:

I'm mexican and I do own mexican website, and I do manufacture and ship from Mexico to us, but I do have a us paypal and use US Bank, do I still need to report to IRS even if I don't live/work in US?


Karl 6 years ago

I am on disability and had to quit working (after 40 years of hard work and paying my taxes), and close my auto repair business and sell the building. Had to pay $50,0000 in capitol gains when property was sold even though business was barely breaking even and was losing when I became ill. My shop had an inventory of old carburetors and other old auto parts accumulated over 40 years, and rather than throw it in a dumpster have been auctioning off on ebay. Old carburetors and auto parts that were very recently considered unsaleable and worthless ,are now saleable due to the exposure the older hard to find items get on ebay. I am doing over 20,000 in sales annually from the old inventory that I saved. I consider this retirement income and is needed to supplement my $1200 per month Social Security disability to survive. Many people on ebay are in the same situation...retired individuals slowly auctioning off their property from closed businesses etc. Now these fat cats in Washington & their Goldman-Sachs puppet masters want to seize our retirement incomes and further cram it to the middle class! These "leaders" are part of the reason many have had to turn to Ebay to survive. They are spending us into oblivion and have wrecked the US economy, but they are still secure in their thrones. SOON THEY WILL BE KICKING DOWN DOORS AS THEY BECOME DESPERATE IN THEIR SEEKING OF FUNDS TO KEEP THE FEDERAL RESERVE CON GAME GOING AND KEEP THEMSELVES IN POWER.


Larry B 6 years ago

Let them come kicking in doors because when it comes to that I got a bullet for the first one that comes through the door so if your looking in here mr government. Try coming through my door when no laws have been broken and you will leave in a body bag.


Dale 6 years ago

Is it possible to move away from paypal and require payment by check or money order. Will this stop any reporting. As I understand it, paypal is doing the reporting not ebay. If this is the case ...how many people will drop paypal like a lead ballon in Janruary??? Paypal is nice but the fees are very high when taken in concideration with the fees already associated with an ebay listing. I for one will drop paypal if possible, not so much because I don't want to pay my fair share of taxes but because of all the extra red tape that will be involved. if I can't do that than I will drop ebay all togather. Anyone have any ideas on this subject.


Brenda 6 years ago

Thanks to greedebay making us HAVE TO ACCEPT PAYPAL ETC PAYMENTS SO THEY CAN GET A CUT OF THAT MONEY TOO we'll now be clobbered by the IRS and when you think the items we sell have already been taxed to the hilt, pretty much each time they are sold they are taxed.................How can we get around that, checks and money orders, but if ebay catches that we'll be booted off ebay, talk about BIG BROTHER................


frogpatch profile image

frogpatch 6 years ago from Jersey Shore Author

I wish someone would be able to compete with "greedbay." I tried several other sites and my stuff just laid there with no action. Ebay is a monopoly and they do require you to accept paypal.


Bill 6 years ago

About a year ago I had a few ebay listings removed in the middle of the auctions merely for mentioning that other forms of payment such as cashiers checks, money orders etc were accepted. Ebay had decided that they were going to control all aspects of the listings and methods of payment...THEIR METHOD. It has nothing to do with "security and preventing fraud". It's all about maximizing their profits AND the deal they made with the Bush administration to track down more taxable money to feed the Washington Regime. I remember when all this came down about a year ago the Ebay CEO was in Washington to receive some sort of "outstanding achievement" award from the President. Obviously a behind the scenes deal was struck to seize more tax money for the Washington regime while at the same time hugely increasing profits for Paypal/Ebay. All this of course drastically hurts the profits of the people who sell on Ebay. More money for the government and special interests that are politically connected and all payed for by the average middle class working stiff who lists on Ebay.


Duke 6 years ago

F--K This S--T !!!!


Jim 6 years ago

Dear EBAY AS OF DECEMBER 31 ,2010 YOU CAN KISS OFF US SELLING ON EBAY!!!!!!!!!!!!! THE AMERICAN PEOPLE WILL NOT STAND FOR THIS YOU BUNCH OF LOOSERS EVERY TIME I CALL WE CAN'T GET AN AMERICAN WHO WILL UNDER STAND OUR FUSTRATION OF YOUR STUPID SYSTEM. WE HAVE BEEN STUNG MANY TIMES IN THE PAST FROM SCUMBAGS WHO HAVE BID ON OUR ITEMS AND NOT PAID FOR THE LAST TIME. ALSO YOU BUNCH OF IDIOT'S LISTEN TO ME. THERE ARE TIMES WE LIST AN ITEM 4 OR 5 TIMES AND IT DOES NOT SELL THAT MEANS I AM PAYING YOU LOOSERS INSERTION FEES WETHER THAT ITEM SELLS OR NOT. AND NOW YOU LOOSERS ARE STANDING BEHIND THE GOVERNMENT INSTEAD OF US LOYAL SELLERS THAT IF IT TAKES 4 TIMES TO LIST AND ITEM AND SELL IT YOU SCUMBAGS ARE GETTING AN ADDITIONAL DOLLAR FROM ME , WHICH MEANS I AM LOOSING ANOTHER DOLLAR ON THAT ITEM.(.25 CENT INSERTION FEES PLUS YOUR 10% WHEN IT FINALLY SELLS), BUT NOW I HAVE TO PAY UNCLE SAM ( THE PIGGY IN MY BANK) EVEN MORE MONEY ON AN ITEM THAT WAS ALREADY TAXED. THINK ABOUT IT. AS OF DECEMBER 31, 2010. YOU CAN KISS OFF


joanna 6 years ago

does that mean sales for 2010 will be reported?


Aurora 6 years ago

Sales starting Jan 2011 throught all the year, and on Jan 2012 paypal will send you a form if you qualify for both 20k per year and 200 or more payments received per year. If you make more than 20k per year and have received 199 payments a year you will not be asked by paypal to pay taxes to the irs. You have to meet both. I am a clothing designer, I sell on ebay and also have my own website, i went and checked 2009 and up to today 2010 and I do meet both, so I called paypal and said that I will be cutting much more trasactions but maybe will be earing more, and they said that if I cut transtaction evern if I earn more than 20k I will not be affected. Hope this helps..


Chuck 6 years ago

The money I receive from sales is not all profit. I have to purchase from a vendor, I sell at dealer cost in most instances, pay an Ebay final sale fee, pay a paypal transaction fee, pay for postage, pay for supplies etc. and make from 2% to 10% profit on the money received. For example I may gross sell over 100K a year but the profit would be less then 10K more likely around 2 or 3k. If I have to do bookkeeping on all of this as well it would not be worth my time. I may have to re-think using Ebay and Paypal.


ALMOSTGONE 6 years ago

I HAVE BOUGHT AND SOLD ON EBAY FOR 9 YEARS--

DEC 31... WILL BE MY LAST DAY...

THE FEE'S OUR GETTING CRAZY AND PAYPAL IS OWNED BY EBAY..SO I FEEL THEY ARE DOUBLE DIPPING IN FEE'S AND NOW THE GOVERNMENT WANTS THEIR DIP TOO.. NO ONE WINS HERE BUT THE BUYER.. IF YOU TAKE ALL THE SELLERS OFF EBAY...I WOULD LIKE TO SEE WHERE THEY STAND FEB 1, 2011.


ALMOSTGONE 6 years ago

I GUESS I WILL STAND IN THE UNEMPLOYMENT LINE LIKE THE REST OF AMERICA


carl 6 years ago

I will be done around jan 17th. I took in 36k in nov and expect the same in december. I make profit but not enough to keep up with ebay fees, fvfees, paypal fees, postage, shipping supplies, mileage, parts, equipment, devaluation, list goes on and on. I'll revert back to my local economy and my websites. I hope paypal doesn't miss my 1k a month fees and ebay 2.5k in fees, lol


joanna 6 years ago

As I understand it, Paypal has already started asking potential sellers for their information, if they think you will meet both requirements for the year 2011. What criteria are they going to use to make those decisions? Do you have to be close to those numbers in 2010.


Tra 6 years ago

ok, let's say you have a premier or business paypal account, and you qualify for reporting to IRS bc you make the $20k and 200 sales. is it ok to just fill in the form paypal sends you and leave it at that? or are you required to also report this income on the end-of-year taxes? bc if all i have to do is just deal with the one form, i could live with that.


Tra 6 years ago

^ok, nevermind on that question, paypal sends you a 1099k, so i guess you just file end-of-year taxes as normal, using the 1099k form. i guess if you use some tax filing software, it will prompt you into the right direction when you 'let the software know' that you have a 1099k. hopefully it will be just that simple?


Dale 6 years ago

Not so simple.. paypal will report all payments to your account including shipping charges. It will be up to you to show deductions such as fees from ebay and paypal.. shipping charges you paid,packing cost, millage , home office deduction and everything else if you wish to keep a penny on every dollar you sell.you may have to pay self employment taxes that run around 15% and state sales tax quarterly...Sound simple yet? I have been doing some research and I'm getting more and more confused. Consider using multiple accounts? not that easy either. ebay doesn't like people to hold more than one account and even matches Internet providers addresses to seek out cheaters. I have been looking at starting a business but not sure if its worth the bother. If anyone has some sound answers, I'm sure a lot of people would like to know. Good luck to all.


frogpatch profile image

frogpatch 6 years ago from Jersey Shore Author

Do busy flea markets for cash and move from place to place. Never set up a stand everyweek in the same spot. Do a church one week and a permanent the next. The tax guys walk around and will remember seeing you in the same spot. True!


Dale 6 years ago

frogpatch..Any Ideas for ebay? My product wont move anywhere else. i would like to start a business. I dont mind paying taxes just as long as its worth the bother.

What's your opinion on its future? Do you think it will drive people out? I'm thinking that there are a lot of people that are selling and not paying taxes. This in turn may cause people to stop selling decreasing supply and increasing demand. and you know what that means. Higher prices for the survivors!!! '

I'm just not sure I'll survive yet.


W-I-N 6 years ago

Im just going to start keeping every receipt possible. Down to my cloths and Christmas, Birthday and Anniversary gifts. Just about everything can be sold on ebay. I know that is sad to have to do but you can always not make a profit. Everyone selling print off all shipping fees from paypal, all ebay fees from ebay and staple toather each month. All supply receipts even electric & phone bills. In order to sell you have to have that so that is a cost as well that dips into your profits. So all profit margines will go down. I know it is a hassle but if you make your living selling it may take alittle more work at the end of each week to keep everything togather. I do this every year I have all utilities, gas, milage, supplies, shipping, fees all togather and I will just start throwing the extra receipts with clothes and such that can be sold on ebay along with my other cost of merchindise.


frogpatch profile image

frogpatch 5 years ago from Jersey Shore Author

Dale, What is your product? If you are selling livestock, live bait or live commercials it makes a big difference!


Dale 5 years ago

I sell used tractor parts for the most part.


Dale 5 years ago

Im really trying to get a business started. Its real confusing. I have to register the name at the clerks office. change my ebay account to a business account. change my paypal account to a business account.Get a sales tax number. Take inventory and start tracking everything. does this sound close. I have read book after book and spoke to my accountant but it stills seems fuzzy to me. Really need someone that has done it before as a mentor.


frogpatch profile image

frogpatch 5 years ago from Jersey Shore Author

You need to get a Federal Employer Identification number even if you do not employ. That way you bank account will be separate from your SS number. Then you should form an LLC to protect your personal assets. Also a website and domain name. Today every business should have one.


Neo 5 years ago

If you think you'll go over both limits (200 & $20,000) open multiple Ebay stores. Yes, you might need more than 1 bank account and more than 1 Email address but if it's a matter of paying income tax on over $20k or not its worth it. Do one for you, one for your wife, kid, mom etc. They don't know who you are, you're just an address to PayPal and I'm sure they're not happy about having to do this either. It will cost them millions too, so whatever the law is, that's what they'll do. Bare minimum to comply. Yes, you'll have to pay more fees if you have more than 1 Ebay store and yes you'll have to open another bank account and have more than 1 Email address, but I have to think you'll save alot in the long run and it will be perfectly legal unless I'm missing something. I sell items over $100 and under $2. I'm probably going to eliminate my low cost items to keep my number under 200 for the year. Also, keep track of how many you've sold and if you have to, close the store til the following year. Then open your wife's store up. When management turns to the employees perks and benefits to solve fiscal problems with the company, it's a real BAD sign. This is exactly what's going on with the Govt. Instead of solving the Govt's problems, they look to us to figure out how to pay for them! The company I work for is in the crapper because of horrible decisions by management over the last 3 years. Solution? Decrease my health benefits and charge more for them, no raises, not even cost of living, no more free coffee, lol, unpaid furlough (Over Holidays no less), Company Point to point Cell phone is now considered by the Govt to be taxable income because I might use it to call home. Are you kidding me?!!! Does all this sound familiar? If not, get used to it because it will. This first year is a feeler by the Govt to see how much crap they get from it. Next year it will be $20k and 100 transactions. Then it will be $10k until every dime collected on paypal from Ebay will be taxed even if it's for juniors rusty bicycle that your dad paid for with his taxed income, plus the sales tax on the bike, plus NOW the paypal tax, plus tax on the cost of shipping. Makes me want to build a shack in Montana and write a manifesto!!!!!!!


LisaC 5 years ago

I do ebay and have my own webstore. Now ebay will close down your listing if you mention other forms of payment, however... HOWEVER.. YOU CAN accept money orders and checks and cash for local pick ups. Ebay does NOT want the BUYERS to know this. They can NOT FORCE YOU to ONLY accept paypal. They state that you can only promote paypal as your form of payment. Why even mention that at all.

As far as this new law, I had not realized this had been settled, I thought it was still up in the air.

With each passing year, I put less and less and less on ebay. Its now becoming my "yard sale" but since I use paypal for my webstore too, I still get hit with the paypal fees. Ebay gets you coming, going, and then with payment, and that sucks.


RichM 5 years ago

I wonder how EBay is goingto feel when it becomes a ghost town after December 31st... Oh well have fun in bed with Washington!


Dale 5 years ago

Well Im about 3/4 the way there. registered my DBA in my wifes name so if I get laid off I can still draw unemployment. Received her EIN online in only a matter of minutes. Filled out the sales tax form online and should have that number in a few days. (beware..legal web shops will do this all for you but it will cost 100-200 bucks. Cost me 10 bucks for the DBA and that was it.)I have to convert my ebay and paypal accounts to business and should be good to go except all the extra bookeeping.I also started a web sight that cost me nothing except I did spend 12 bucks to buy the ulr. I have only sold one thing off the web store but its a start. 33% of my biz is from repeat customes so this should grow fast. I haven't pushed the store hard yet but will in the future.( the sale at the store was by check from a good customer. This type of payment will not get reported to the IRS so it is up to me to claim it as income... Ill get right on it)I will have to take a quarterly look at where I am. If things don't work out I will shut it down before I reach the limits at the end of March. It has been a lot of computer time and time spent away from the family but it is getting easier. Record keeping is going to be a major headache that Im not looking forward to.Looking at some good software like quicken pro but its pricey. Good luck to everyone . I will let you know how its going. Happy Holidays to all!!!!


Mark 5 years ago

I have been on Ebay for a decade now, and this may just tip the scale for me. I dont think i have the time to deal with keeping the paperwork and trust me if I tried I probably couldn't do it. I cant even keep all the tracking numbers straight all the time currently. I use my Ebay money to pay my phone bill, and buy me lunch & that is about it, but it looks like I'm going to go hungry starting Jan 1 as I just dont see it being worth the time as I am doing high volume, low profit margin items.


gilbert 5 years ago

i have been on ebay for 10 years selling and buying and on dec 31 would be my last day.reagan stole $52000 from my usps pension and ebay slept with you know who.so long paypal


HonestTaxPayer 5 years ago

What's wrong with you people? It doesn't matter if PayPal sends you a 1099 or not -- you are still liable to report ALL income on your taxes.

If you have been making any money on ebay/paypal, you are required to report that income on your taxes.. just because paypal, et. al. are starting to report that income to the IRS just means that they are more likely to catch you if you don't report it on your taxes in 2011.

Just because you don't get a 1099 form doesn't mean you don't owe taxes on income... and if you haven't been reporting it, then you are guilty of tax evasion.... just hope you never get audited for years 2010 or earlier.


frogpatch profile image

frogpatch 5 years ago from Jersey Shore Author

Honest Tax Payer is correct. If you make money, by the laws of the US, you need to pay taxes. There is nothing in my article to tell people to avoid it. I am simply reporting what I have read. Yes, it is very disheartening for a person, who is struggling, to make his or her bills to get taxed on the little profit they make selling on auction sites, or for that matter, flea markets. However, if they are savvy entrepenuers they know how to take advantage of the laws that grant exemptions for home office, vehicle, cost of merchandise, supplies and equipment and more. I have just started a new business and I would have to be crazy to put my gross sales revenue into my personal checking account. Getting educated is the key.


joanna 5 years ago

so where should you put your profits


frogpatch profile image

frogpatch 5 years ago from Jersey Shore Author

Your revenue goes into your business account. Your debit or credit card from that account pays for gas, business trips, car used for sales or deliveries, stock and anything else remotely related to business. That is deductible against your profit as expense. You pay yourself by check or direct deposit into your personal checking account enough to pay for your day to day. That is deductible from your business also. As is the space in your home you use for an office if you do not have a separate office or store.

That paycheck you wrote to yourself is your personal income. The rest goes back into the business as growth. If you just dump your gross into your personal checking you will not grow and be taxed into oblivion. Most small businesses fail because the principal pulls too much out for personal spending. Business slows and there is no life raft and treading water only lasts so long.


Loon 5 years ago

What is a joke is that right now I am in a financial bind and need to sell all of my USED goods that I probably foolishly paid top dollar for and now the IRS will come after me as if I am profiting off of this madness? I don't have many original receipts, so what do I do? I guess I will need to drop paypal to avoid the hassle.


Loon 5 years ago

"However, if they are savvy entrepenuers they know how to take advantage of the laws that grant exemptions for home office, vehicle, cost of merchandise, supplies and equipment and more. I have just started a new business and I would have to be crazy to put my gross sales revenue into my personal checking account. Getting educated is the key."

The problem is most don't so the little people get fu**ed over again while the rich and corporation follow the loopholes... what's the point of having laws when you can bypass them when you are rich? SCREW THEM ALL!


Loon 5 years ago

I wasn't aware that paypal acceptance was mandatory at this point, but if so, what are some alternative auction sites that are popular?


joe pierson 5 years ago

The reason most people don't report ebay sales to the IRS is that if they did and kept track of all the deductions like home office supplies, gasoline, postage, computer time, electricity, heating bills, light bulbs, car use, real estate tax of their office room, cost of employing their children to wrap the packages etc etc etc, most would show a loss year in and year out and the IRS would not get any money anyway, BUT the IRS would not consider that a business if the business show losses year after year, but a hobby. and therefore they could not make any legal deductions to begin with!


frogpatch profile image

frogpatch 5 years ago from Jersey Shore Author

If you are in a non profitable business year after year what's the point? We all pay taxes. I had to pay them on my measely unemployment of $275 per week. How bad does that suck?


Tax Payer 5 years ago

I'm not sure what all the bellyaching is all about. This new law *only* applies to you if you sell more than $20,000 of goods *AND* you have more than 200 transactions per year. If you qualify, you HAVE A BUSINESS and not a HOBBY. If you qualify by selling more than $20k of goods AND more than 200 transactions, you really should have a good accounting of your income AND your expenses and report those in your Schedule C or Business Tax Return. Deducting expenses from income is not a LOOPHOLE for the rich, it's called RUNNING A BUSINESS. If you're selling more than $20,000 worth of goods, and are not making a profit, perhaps you should find some other business where you don't lose money.


frogpatch profile image

frogpatch 5 years ago from Jersey Shore Author

Precisely! That is the point I tried to make. Why run a business to not make money just so you won't have to pay taxes?


Double D 5 years ago

You can still make a profit and not be taxed with some good bookeeping. Remember a lot of deduction can be business related but you would be paying these expenses anyway. For example lets say you pulled in 4000.00 in cash in 2011 (profit). By using tax deductions such as entertainment, home office (which can be substantial depending on how much room you use), vehicle costs and expenses (mileage), accounting, sub contract labor and many other personal expenses you pay throughout the year you can get that 4000.00 down to zero with very little effort, just good bookeeping.


Tax Payer 5 years ago

Double D -- if you actually have those real expenses, and you write them all off against income, -- guess what -- you aren't ACTUALL making a profit! You are breaking even. Now if you don't actually have those real expenses, and are "creatively" making them up - guess what -- that's tax evasion and it's illegal. The bottom line is that if you have a profit AFTER your REAL expenses (which can include many different things, like depreciation), then you owe taxes on that profit.


Double D 5 years ago

This is true frogpatch but you must remember a lot of these expenses you would be making anyway without a business such as your mortage or rent, property taxes, all your utilities, internet service, cell phone, vehicle insurance and lease payment, vehicle repairs. So a ebayer that shows less than 5,000.00 in profit should not have to pay any additional taxes and may actually show a loss and get more taxes back, assuming they had another job with deductions. If you are going to profit more than that, so be it. I would rather pay uncle Sam 1 milion dollars in taxes and had made 3 million then to not pay him at all and make zip 0.So I guess the bottom line to all ebayers, don't quit because you have to pay taxes because something is better than NOTHING! And if your small time sellers like most, be ceative with you bookeeping and save all your receipts and you will be surprised that you will owe very little if any taxes and can actually benefit you by showing losses. Just don't make a habit out showing losses and always tell the truth!!!!!


joeblow 5 years ago

Ok so if I'm just selling random things here and there on amazon and ebay and not making even close to 20 grand a year im ok??


TaxPayer 5 years ago

Joe -- the only difference is that people who sell $20k or more on PayPal is going to have that amount reported to the IRS. Like I aleady said, just because you make less than $20k does NOT mean that you don't owe taxes on your income (less expenses). You still must delcare and pay taxes on your income regardless if PayPal or Amazon sends you a 1099.


joe-no-blow 5 years ago

$20K is too low of a number and it represents only hobbiests that doesn't make any money if they were to file.

I'll give you a senario.

Lets say you buy trinkets from flea markets and garage sales and you are an awesome seller that average 100% markup on your purchases.

e.g. you buy an item for $20 and sell on ebay for $40. You would think that the profit is $10K if your total payment received were $20K right?

WRONG.

Part of the $20K also includes s/h charges, so lets say you average $7 s/h charges.

That would make ~$3000 in s/h if the average cost is $40 + $7 s/h. So total revenue is only $17K.

1/2 of $17K is $8.5K

Mileage deduction is $.50 per mile.

Lets say you drove 6K miles picking up your trinkets. That's $3K in mileage deductions. Mileage should be much more if you are buying from garage sales and flea markets and drive to ship products for the year.

Cell - $50x12 is $600

Internet is $50x12 is $600 You need internet if you are selling on ebay.

Now, you are down to $4300.

Lets say your car average 20 miles/ gallon.

that's 6000 miles /20 x $3 gas = $900

Now you are down to $3400

Ebay and paypal fees total 11% to 15% if you use BIN.

That's $2200 to $3000, let's use $2500 as ebay and paypal fees.

Now we are down to $900 in net profit.

Home office, supplies, computer, printer, paper, etc... easily cover the rest of the $900 and would probably counts as a net loss to the seller.

So... instead of bringing in additional income for the government, this should turn out to be a net loss if the sellers count their beans right.


Tax 5 years ago

Wow, your math is way off. First of all, if you're buying and selling trinkets and LOSING MONEY doing it, then don't do that. You'd be better off doing nothing at all. Second of all, you can't take a mileage deduction AND the cost of gas.

You scenario only works if people don't have to keep records and deduct these expenses from income -- i.e. it's a hobby. And people can only deduct losses on hobbies for I think three years before they have to show a profit, or the IRS will dissalow all of it. And people certainly use their car, office, office supplies, cell phone and internet for other things besides their "business", so they're not entirely deductable.

But the point remains the same -- if you have the income, you have to pay taxes on it (after expenses).


joe-no-blow 5 years ago

My point still is, congress targeting people with $20K in transactions is a bad idea. The people that take in $20K worth of transactions don't make any money.

If you can show me an example of someone making any money that takes in $20K from ebay annually, I'd like to see it.

Congress is targeting the wrong group if they want to collect tax.


frogpatch profile image

frogpatch 5 years ago from Jersey Shore Author

Thanks all for your comments. Sorry it took so long for me to approve them, I was in the middle of moving! Thanks for being there!


58chevy348 5 years ago

Ok, I've read all above comments. Here's my dilema....I have a building full of inherited items which have been stored for 20 to 30 years and have been selling over $20k and over 200 items a year for the past 7 years or so on ebay. HOW CAN THE IRS EXPECT ME TO CLAIM WHAT THESE ITEMS COST ME....WHEN THEY DIDN'T COST ME ANYTHING? Am I going to be taxed 100% on these items? Also, I live in a very rural area of the country and frequent the "old timey" flea markets. If I asked that old 80 year old man selling junk out of the bed of his truck to give me a receipt, I would be laughed at! That leads me to another point....if the IRS is going to pick on my virtual yard sale, then they should have an IRS representative covering EVERY flea market in the US to insure ALL vendors are keeping a log of THEIR profits! It looks like the only alternative to ebay will be selling in person, and not reaching the millions of buyers. **Also, somewhere in the posts above, I read someone say you don't have to accept paypal on ebay....please clarify that. I have been on ebay since 1997 and as far as I can find, ebay DOES require you to accept paypal unless you are selling automobiles or real estate (in which case you can accept checks, cash, or money orders).


frogpatch profile image

frogpatch 5 years ago from Jersey Shore Author

Wow. It sounds like you need to call the guys from American Pickers to your place!

Did you pay any inheritance tax on the value of the items you have? If you did then you should not have to pay tax. If not just claim you are taking a loss on everything you sell.


Liberty 5 years ago

Taxes are a reality in the modern world. Every good citizen should pay taxes. Every good citizen has a responsibility to protest if their country's laws are being violated. If the foundation upon which the country was built, the constitution, is now only a word as a once-great empire wheezes its last raspy breaths, as the IRS sucks the life out of businesses and individuals, and the USA becomes a totalitarian police state, it is not only the responsibility of a citizen to protest, it is his duty to revolt with violent measures if necessary.


frogpatch profile image

frogpatch 5 years ago from Jersey Shore Author

Taxes are not just part of the modern world. Jesus hung out with tax collectors. Violence was not the answer then and it is not now!


Liberty 5 years ago

Read these to do your DUTY and protest these fucking criminals. Revolution is upon us, the time is drawing near, and I don't mean to sound like a nutjob, but it is. It's so insane I can't even make it up.

useful links:

http://blog.webdistortion.com/2010/07/28/paypal-al...

http://eb.auctionbytes.com/cab/ebi/y209/m05/ebi000...

http://www.theprivacyguy.com/2007/03/30/anonymous-...

Read the above.. you should be able to open an anonymous Paypal by buy purchasing an anonymous Vanilla Visa credit card, then withdrawing with a Paypal debit card. Haven't done it yet, looking into options myself.. it make sense? Thoughts?


Liberty 5 years ago

Violence may not be the answer YET, because things haven't gotten to that point yet. But when someone starts to attack your livelihood, your family, its a different story. Our situation is like the low-pitched growling of a tiger... for those paying close attention, it's terrifying. To the unaware, blissful often willful ignorance.


frogpatch profile image

frogpatch 5 years ago from Jersey Shore Author

Paypal has to be attached to a legitimate bank account. You can't open a bank account without a bonified domicile. I know because I just moved and the bank won't allow me to open an account with a PO Box. I am still looking for a place and I am in an extended stay. Until I get a permanent address I have to use my old personal account.

Liberty, please refrain from using profanity. I will delete you the next time. Your point can be made better without sounding like you have an anger issue.


Liberty 5 years ago

Why do you need to have a bank account, last time I opened it with just a credit card? Are you sure? About cursing, yes you're right, this stuff gets me fired up in anger though.

I thought you could just open it with a CC, and then order a Paypal debit card?


Liberty 5 years ago

Also, the bank account address is irrelevant. PO Boxes are totally unsafe nowadays, read JJ Luna's "How to Be Invisible"... you can find a ghost street address. The issue is to open an account they need your name... which isn't good. Ugh... anyone else, tips? I have a business that's gonna be hitting 20k incoming soon, and if we don't find a way around this soon, we are, excuse me, royally f'ed.


kristin 5 years ago

You can see your 2010 sales total on paypal to see if your sales come close to the $20,000.......log in to paypal, go to the "history" tab and click on "reports" then click on "2010 Financial Summary." On page two you will see your sales total for the year 2010.


tom 5 years ago

my wife and i have separate paypal accounts, but both sell on same ebay account, if 15,000 goes into each paypal account, and ebay has sales of 30,000 do i get the 1099 form?


frogpatch profile image

frogpatch 5 years ago from Jersey Shore Author

How does ebay decide which paypal account they pay into? I didn't know you can have two paypal accounts on one eBay account. How does that work?


lovingmom 5 years ago

2 years ago I started selling on ebay. I am a single mom with 2 kids. One is special, and selling on ebay gave me the change to care for him rather than working for a corporate, which will affect my entire family.

Correct, it is all not profit, out of the $20,000 I made 20% out of all the inventory/vendor cost....so that is $4,000 dollars...

livelyhood is so expensive just trying to get ahead


frogpatch profile image

frogpatch 5 years ago from Jersey Shore Author

Tell me about it. I truly feel your pain! I work from home as a freelance writer and put in a lot of hours for little pay. I was too young to retire and too old to hire. I was one of the lucky ones who had a skill but Sam has his hand out to take a big piece of a small pie. Thank God that the internet put writers in demand.


edwa 5 years ago

yes this sucks because i am not keeping any receipts like i bought a laptop for $800 and i sold it after 1 year for $399 i paid $40 ebay fees and $20 paypal fees and shipping $20 this is crazy i am selling more stuff so sometimes it will be more than 200 transactions and $22000 but from this i have only between $1500 to $2000 profits a year


sally 5 years ago

i sell on ebay and my overall income (not taking out my costs) is over 20,000. i didn't know about this tax stuff so didn't keep receipts for all my costs. how can i prove that my earnings is not total profit and it costs a lot to sell what i sell. i make custom tshirts so have to buy the shirts, printer, ink, paper, heat press, teflon paper, etc. what do i do?!?!?!?


I Milk the System 5 years ago

I'm surprised nobody reported anything to begin with. Last year I reported about 4k in sales. Then after all the deductions, we found that I had only $800 in taxable income. Your accountant, or yourself - if you know what you are doing - can be very creative with deductions. I had so many deductions that I could have reported a loss, but I decided not to. My husband makes a ton of money at his job and they take out taxes, so by the time everything was said and done for we got money back from the government.

One thing I should add: I would not take a home/office deduction if you are going to sell your house within the next 4 years because you will have to pay a capital gain's tax. Now if you don't take it and you sell your house within four years, you are good-to-go. I haven't taken that deduction in years because I don't know when I'd want to move. Not everybody owns their own home, but you'd be surprised at all the deductions you could come up with. Every vacation you go on, where you promote your business is considered a tax write off. I spend a day and a half taking pictures of my familiy's merchandise and when I got home I put it on eBay and sold it for them. Yep, I wrote the vacation off because it was considered a tax write off. Just get creative. Next thanksgiving, go visit a relative, sell a few items and write off your vacation. I'm planning on going on a cruise soon. I am going to take some swimsuits, a business card and a laptop. Yep, I'm going to sell those swimsuits to people on board, do some customer pick-ups and make some money, and write the whole vacation off. Now how's that for creativity?

I also have two eBay accounts. One is mine, the other is my husband's. When one account reaches the limit, the other one is going to get used. You gotta milk the system!


frogpatch profile image

frogpatch 5 years ago from Jersey Shore Author

That swimsuit idea is the most creative idea I have ever heard. Thanks of your comments.


Confused 5 years ago

Hi, I too was not aware of the paypal reporting until paypal asked me for my social security number and explained why they needed it. dummy me! my paypal account total right now is a little under 15k. I buy my items on ebay and resell. I have been researching my sales and purchases done through paypal. bottom line... i made about $4500 to $5000 after i subtracted my purchased item costs,ebay fees paypal fees & shipping.I am sure there are some I am also not including at the moment...(packaging supplies) I also have another separate ebay account and separate paypal account. i was under the impression that they would be combining total payments from both accounts. is this true or not? they never asked me for my social for the other account. I had about $2000 come into that one paypal account, as I sold household items/kids stuff etc.. (stuff I already paid taxes on and didn't make any money on) on that one usually.(I also purchased items on that account to sell on my other one) so are they combining totals? Also when you do claim money as a hobby for sales under 20k, how far back with purchased items receipts can you go back. I have stuff i purchased in previous years that I still have or may have sold in the year 2011?. Can I only deduct purchases made from the year 2011?


Joanna 5 years ago

I have been asked for my ss #. If I do not reach both totals by the end of the year, can they shut down my Paypal account? I will not reach $20,000 in sales. I also do not know if I should stop selling before I reach 200 items? Thanks, Joanna


frogpatch profile image

frogpatch 5 years ago from Jersey Shore Author

Didn't Paypal ask for an SS# when you signed up? I thought they asked me when I did. If they asked for it you need to comply of get a EIN number and give them that. I dod not think they will report your sales under the amount required. I think, but I am not Paypal,


Lion King 77 4 years ago

I've sold over the limits for 2011, but the things I've sold were acquired over the last 10 years _ no receipts, exact cost unknown, profit unknown. How could some (like me) possibly figure it all out


frogpatch profile image

frogpatch 4 years ago from Jersey Shore Author

I would consider that selling off personal property and not a business. That is unless you were reinvesting in more stuff to sell. That would put it as capitol gains I believe. Check with a tax specialist.


qasim ali 4 years ago

hi i use ebay to buy and sell can anyone tell me that on which amount i will have to pay taxes?on profit or on total amount?i buy and sell phones thank you hope some one replys me soon


Dan 4 years ago

Here is my question. If I have 100 listings on Ebay and lets say half I offer free shipping and the other half the buyer pays for shipping. What part of all the shipping charges that Ebay shows in the yearly report I printed out, can be written off. Do not understand how much of the shipping charges I can claim. I am way over the 20k every year also.

Appreciate some responses to this question!

Thanks


frogpatch profile image

frogpatch 4 years ago from Jersey Shore Author

Whatever is you gross sales less your expenses to operate are what you are taxed on. If shipping is an expense it is deducted as a business expense as is the cost of material to be used for your business or inventory. If you buy 50,000 and sell 20,000 and 10,000 is profit than you made nothing. On the other hand if you buy 50,000 and sell 80,000 and spend 10,000 on shipping and another 10,000 on operating costs like gas, rent for storage and your office or use part of your home as an office,( check percentege of space and use rules) your taxable income is 10.000. Unless you have an employee, even e family member, then their pay is also deducted. I am not an accountant so this is NOT professional advice. It is just what I have read.


auto 4 years ago

I'm drawing social security and trying to sell on ebay using paypal to makeup for the low SS income. But now that Paypal has my SSN and reports income, do you think the SSA will deduct from my social security check?


frogpatch profile image

frogpatch 4 years ago from Jersey Shore Author

I think you are allowed 14K in income over and above SS. Are you making more than that? Paypal is only reporting 20K and over per year in sales. I don't think you have to worry.


Andrew 4 years ago

I'm under 18, but I have family members that allowed me to use their bank account to verify my PP account. I do iPod repairs on eBay, and I was wondering what it meant by $20,000 in gross payment. Because on the my sales page, it will be reaching 10k soon, and will surely pass $20,000 by the end of the year, but this does not include eBay fees, PP fees, shipping fees, and the cost of parts to replace it. As a matter of fact, I don't make that much per iPod. I'd almost be making less than $20,000 a year, even probably less than $10,000.


frogpatch profile image

frogpatch 4 years ago from Jersey Shore Author

Paypal will report all deposits from a single source that total over 20K per year. If you are registered with the IRS as a sole proprietor, an LLC, S Corp or Corporation you may deduct from your income all business expenses including, but not limited to, tools, parts, fees, insurance, rent of your eBay store and even trips to electronic shows in Las Vegas or wherever. No business operates on 100 percent profit except for me as a writer. I wish I had something to deduct. My office is my lap and my only expenses are drinking too much coffee. If you do not report your income and you get caught you will wind up paying a lot more. For example, if you gross 25K on ebay doing repairs, you could probaly reduce that taxable amount by 40 percent or more with deductions. The tax on 10K per year is almost nothing or it is nothing. You should really file a quarterly return that way you won't have to dig deep at the end of the year. Its Uncle Sam"s pay as you go plan. At the end of the year you may get most of it back. Without interest of course but that is for another Hub Pages article.


Jim 4 years ago

If my 1099k shows 30,000 do I get to deduct the first 19,999.99 when reporting on my taxes? Those who make less than 20,000 don't have to report their income, why should I?


frogpatch profile image

frogpatch 4 years ago from Jersey Shore Author

Everyone has to pay taxes unless they are below the poverty line. You pay taxes on whatever is left after you take allowable deductions. No one said that those making less than 20k do not have to report their income. It says that Paypal does not have to report their income. If they choose not to report their income they risk big fines and liens and even jail time. Let me ask you. Do you feel lucky?


Scammers 4 years ago

Stop crying and pay your taxes


X-Ebayer 4 years ago

The issue has nothing to do with taxes....what they would collect would be mice nuts compared to the deficit.

The whole concept is again one of control over the individual and in collecting information as to your life style. The administration, through their trashing of the ecconomy, forced thousands of people to resort to the old concept of "what I don't need" "I will sell to you for what you think it is worth"... Butit is interesting to also note that the actual collection of such taxes, totally exposes the Obama lie that he will not tax the "middle class" (I doubt if Pelosi or Obama, or any other "rich" individual have an ebay/Paypall account!)


frogpatch profile image

frogpatch 4 years ago from Jersey Shore Author

That concept is basically a political rant. Ebay was around way before the O admin and most Ebayers are retailers of new merchandise, much of which is made in China. Obama did not cause the influx of cheaply made goods from exploited workers. The people in this country are buying them because that is all they can afford thanks to lost jobs, pay cuts and under employment.


cristian 4 years ago

hi im from italy and i use american paypal for sel in ebay,

i pass 20k usd and ive a mail from paypal regards tax id that i dont have..is a problem?

can i open an account with my italian bank account?

i use the american because sometimes i ship from there from some friend and sometimes i help some friend to sell something...this is why i ve more than 20k usd...

what can i do?


Dave Lloyd profile image

Dave Lloyd 4 years ago

When a person becomes disabled and sells their own possessions to gain food money, in no way can that activity be considered profit. If anything, each transaction represents a loss.


Grover Thomas 4 years ago

Have not advertized, nor will I. This matter is closed. My wife is against it and as I watch the people, they had rather play the lottery than even eat. Thanks again.


frogpatch profile image

frogpatch 4 years ago from Jersey Shore Author

When people sell their possesions to eat that is not considered a business for profit. If they buy more with the money and sell for a large profit, that is a different story. Selling your house at a loss is not a business so why should selling your dishes or furniture be?

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