Selling, ebay, Paypal and taxes

[the beav]

Well this might be interesting for some people here. Let's hope the threshhold doesn't get even smaller as time goes on:

"Starting next year Paypal will have to start reporting to the IRS. The selling limits will be 200 items or $20K before they report. This tax change was part of the ’08 stimulus (my comment--some stimulus...)

Reporting on 200 items annually is a real killer. That’s a mere 17 items a month. We’ve already shut our eBay business down. It's simply not worth the effort.

Most eBay/auction site margins are extremely low. Thus, I wonder how many people will set up a business, keep the books, pay state and federal taxes, just to make a few bucks."

http://globaleconomicanalysis.blogspot.com/2010/09/new-irs-reporting-rules-to-hit-ebay-and.html

 

[Tony Miller]

Taxes are part of doing business and why businesses charge what they do for products and why I charged what I did for my strops.

The IRS gets maybe 20% or so depending on where you wind up for a yearly total, Social Security (self-employment tax) takes 16 1/2% and my state gets another 7%, and my local municipality half of that.

In addition Paypal takes a transaction charge and a few percent as do my credit card servers.

So after you spend a few hours making say a $100 item, you subtract the cost of materials, the cost of the labor you spent (maybe 20 to 30% of the selling price) then you give Uncle Sam 40+% of the remaining profit.

The customs strop, soap, razor, brush, etc.... vendors are not exactly getting rich doing this if they operate as a valid business.

Much of this played into my decision to cut back on what I do. After an 8 to 10 hour day at my "real job" my wife and I would spend another 3 to 5 hours each evening of our family time making our products. It was a lot of time to give up when 40% of the profits went in some one elses pockets. I am still registered as a business in my state and still have to pay takes on every sale but am not giving up time I can never get back for such a small return.

Now I am not a huge fan of taxes but do feel that if you profit like everyone else, then one needs to pay like everyone else.

if you sell a few things here and there for fun no problem, but if one consistantly sells the same types of items on a regular basis then you are in business and should pay as everyone else. Of course at that point you should also take advantage of all allowable deductions for cost of goods sold, business expenses, etc.... Fair goes both ways.

Tony

 

[Go West Young Man]

Aren't you supposed to be paying taxes on those sales anyways?

 

[buyandhold2018]

Aren't you supposed to be paying taxes on those sales anyways?

+1, If you are running a business, you should be filing a tax return; I don't see how this new disclosure affect anything.

 

[the beav]

Thanks for the comments. Tax discussions aside, I think that putting a limit on how many items or how many dollars worth you can sell brings up a few issues.

1. Lots of people sell things but not as a business. Lots of ebay sellers who are not officially running a business will have to change tactics to stay under the 200 limit. I can imagine that we'll see more things like razor lots and bulk blades offered. At any rate, transaction volume will decrease.

2. It seems to me that if people have a PP account as a business and sell a few razors through the same PP address, they'll have to pay tax on it or at the minimum it will be reported to the IRS.

3. If the limit is 200 now who's to say that it won't be 100, 50 or 10 in a few years. Don't laugh--mission creep is a hallmark of government. When the income tax began in 1913 it applied to the one percent of the population who made in excess of $500,000. The top rate was seven percent.

4. For BIN items, sellers will sell the higher priced items in lieu of the lower priced items if they are trying to stay under the 200 unit limit.

5. For people who sell on ebay and B&B as well, they may have to keep track of their number of transactions on PP if they want to stay under the 200 limit.

6. If you did have to keep track of what you sold here or ebay, that means that you've have to prove (I think) your cost on each razor sold in order to determine profit/loss.

etc, etc.

 

[Go West Young Man]

The point of those limits isn't that you don't have to pay tax on those transactions, it's that Paypal is now going to send data on them to the IRS so that if you don't declare the IRS will know. If you sell fewer items, you're on the honor system to report them.

 

[Tony Miller]

The IRS has set guidelines as to what is a business, not just whether one has declared themselves in business.

Its been a few years since I read them but basically when a person is selling a few things from his own collection on a very casual basis it is considered a hobby. If one is regularly selling items on a continuious basis, or buying to resell it is considered a business by the IRS.

The 200 a year limit by Paypal is a lot of items for just a hobby. I could see 200 things on a Saturday yard sale being a hobby or one time, non-business type sale, but selling 200 razors, or Nascar collectables, etc.... spread out over a year, along with a pattern of continuosly buying the same items as being in business.

Tony

 

[raisindot]

The point of those limits isn't that you don't have to pay tax on those transactions, it's that Paypal is now going to send data on them to the IRS so that if you don't declare the IRS will know. If you sell fewer items, you're on the honor system to report them.

+1.

Paypal isn't 'requiring' anyone to pay taxes. They're just reporting sales figures for those who make many sales.

The odds of any one PP vendor whose data is reported to getting audited by the IRS are pretty slim, especially if you're not making a mintload of profits.

Frankly, if the IRS wanted to, it could cast a much wider net by auditing the 'top sellers' on Ebay (always easy to find) to see if they're collecting state sales taxes and paying federal taxes. (Ebay may already be reporting this data. Who knows?)

Bottom line is: Businesses are supposed to pay taxes. If you don't, and you get caught, that's the risk you take.

Jeff in Boston

 

[the beav]

OK--good info everyone. It doesn't affect me in any way but I thought that someone here might find it useful.

 

[CraigarTA]

Well why not Washington State has a new thing they asking the people to vote on a income tax for people making over $200,000 and double for joint filers.

Sounds good, but up here they have a nasty habit of amending things and I can see it being applied to everyone and not to mention the 9.5% sales tax we have already in most areas already

 

[patrisVII]

Reduce, reuse, rethink, recycle, and support your local black market.

That's why Ebay was an explosive success - it was a black market.

It's been turning progressively lighter shades of gray for the last few years and will soon be simply another online retail site.