Earlier this year, Congress passed a housing act designed to help people from defaulting on their mortgages.

Buried deep in that act was a provision that requires credit card processors - including companies like eBay and PayPal - to report certain transactions (it's customers make) to the IRS.

Companies that process credit card transactions (other examples include Amazon and large affiliate programs) will be required to file Form 1099 for each client/merchant that has at least $10,000 in gross sales and 200 transactions in a calendar year.

Not all companies that this act affects are equipped to handle the new reporting requirements. Thankfully, companies have until 2011 to comply with this new law.

The purpose of this provision is to raise money to fund the housing recovery package and to close the tax gap that the IRS believes exists among self employed and small business owners. The IRS estimates that it loses billions of dollars in tax revenue from small businesses who either don't report or significantly under-report their income.

As a tax-paying small business owner myself, I belive that small businesses should pay their fair share of taxes. But I'm also worried that this new law will cause the cost of business for small and online business owners to go up (in the form of higher eBay fees, higher PayPal fees, etc.). 

The good news for eBay sellers is that you are allowed to deduct business expenses against your eBay income, so you only pay taxes on your net profit (not your total sales).

To help you minimize your business related tax, while also complying with the new tax law, here are some tips to make sure you don't pay too much to Uncle Sam:

* Keep separate (and good!) accounts and records - have separate eBay, PayPal and checking accounts for your personal and business activities.

* Treat your business like a business. Register a business name, hire an accountant, etc. The more you can do to treat your business like a business, the less likely the IRS will reclassify your business as a hobby.

* Report your income! Even if you don't receive a 1099 from eBay, PayPal or the other companies that will be required to file one, you should still report all of your profits from your online business.

* Learn what's deductible and what's not deductible - you'd be surprised how many people do not deduct business expenses because they don't know they can.

* Don't be afraid to take deductions (like the home office deduction) that have been labeled as a red flag. Being a small business owner is a red flag in itself, but that doesn't mean you should go out of business, or worse, not report your income!