When do my online sales get reported to the IRS?
A top question i hear as a reseller and a marketplace reviewer on YouTube and VidMe, is "When does eBay report my taxes to the IRS".
Finding relative information for resellers big and small whether it be about State Sales Taxes or IRS Taxes can be relatively challenging despite the plethora of information available on Google and other search engines. So I decided to take it upon myself to provide the answer here on my reselling help blog.
I also discuss Taxes for Resellers on marketplaces like Ebay and Bonanza.com on my YouTube channel. Here are a couple of video links, but none of the current videos possess the information I am providing here on the Reselling Randy Blog.
So lets break down the current IRS Rule for the marketplaces that allow us resellers to sell our new and previously owned goods online.
The basic rule goes something like this, "Any marketplace that is involved in the processing of money, is required to report a seller on that marketplace once a 200 individual sales occur and $20,000 is created by those sales." That $20,000 is the Gross and not the profit. So all those final value fees you pay eBay when your product sells and on the shipping costs, any sales taxes and shipping costs are all part of that $20,000 threshold. Now for those of us who have been selling on eBay or Amazon in particular, we realize that those fees and expenses add up, making that $20,000 a lot smaller and faster to reach in reality.
Here is a more detailed breakdown of the 1099-K rule.
IRS regulations require all businesses that process payments to collect a Tax Identification Number (TIN) or a Social Security Number (SSN) for all sellers with more than 200 transactions in a calendar year, and to file a Form 1099-K for all sellers with more than 200 transactions and $20,000 USD paid to them in a calendar year.
How does this work?
1. You sell over 200 items but under $20,000 in sales in a calendar year.
= The marketplace is only required to request your tax id number or your social security number.
In the past two years, I've encountered a great many resellers visiting my YouTube channel in particular complaining because they were kicked off of eBay and/or PayPal for not providing a Social Security Number or Federal Tax ID. During those conversations, it became obvious that a great many of them simply were ineligible for such documents due to be illegal immigrants, or for operating from outside of the country via a third party connection within the USA. Once kicked off eBay and PayPal they jump to other marketplaces using either stolen documentation or alternative payment providers. Of course there are always those who open new accounts on eBay in particular using new bank accounts, e-mail address, even new names and stolen or borrowed social security numbers, but within two weeks or more, eBay kicks them off again. How? eBay and PayPal use a very sophisticated system to catch suspended and lifetime banned sellers on their marketplaces. Most criminal or illegal sellers who were caught the first time simply are not tech savvy enough to understand the digital trail of the internet and what it would take to start 100% clean on eBay, so they end up getting caught again. Even those paying out enormous money to buy eBay accounts from someone who sells eBay accounts will end up getting caught unless they had someone guide them through that process. The solution - don't operate illegally.
2. You sell 200 or more items AND your total sales is $20,000 or more in a calendar year.
= You will be required to give the marketplace your tax id number or social security number. The Marketplace will report your sales to the IRS and the Marketplace is required to send you form 1099-K to report on your taxes.
While we a marketplace is to collect a TIN (Tax ID Number) from sellers who have sold over 200 items, they are not required to report any information to the IRS unless the seller has sold over 200 items and has also had more than $20,000 in sales in a calendar year.
What is a TIN and who needs to provide one?
A Taxpayer Identification Number (TIN) is a number used by the Internal Revenue Service (IRS). If you are a sole proprietor like most resellers online, you can use your Social Security number, however, a safer option, assuming you are operating legally with a State Sellers Permit, any required city licensing and paying the IRS taxes, would be to get a Federal Tax Id Number to provide the marketplaces you sell on. This would help prevent your personal social security number from falling into an unscrupulous employee of the marketplace hands and from successful hacks on marketplaces in which your social security number ends up leaked for sale to the dark web,
Your TIN could be your Social Security Number (SSN), or if you run a business, you may have an Employer Identification Number (EIN) issued for that business by the IRS. Individuals can request a SSN through the Social Security Administration office near you. Business owners can apply for an EIN online at the IRS website. Here is the link to apply for a EIN
Under IRS regulations, all US sellers who a marketplace has determined likely to have more than 200 transactions on the marketplace during a calendar year is required to provide that marketplace with a TIN. On some marketplaces like Ebay.com and Half.com, If you have multiple accounts, they will all be taken into consideration when calculating your volume status. In other words, all of the sales from all of your accounts will be combined to determine if you meet the 200 transactions threshold, at which point you would be required to provide Ebay and/or Half.com with a TIN. If the combined sales exceed 200 transactions and $20,000 USD, those sales will then be reported on one Form 1099-K.
Smaller sellers rejoice
This is technically good news for lower volume sellers on eBay in particular. While eBay tracks your entire sales volume total from the first sale until present, the 200 transactions and $20,000 rule requiring a 1099-K gets reset every year. This means for example, if you have been selling on eBay for ten years and in year eleven your total volume of sales for the lifetime of your eBay account indicates you have sold $20,000 worth of items, as long as you didn't reach have 200 transactions and $20,000 in sales during year eleven, you won't get a 1099-K from eBay during year eleven, or reported to the IRS.
That also means, depending on what your state laws are about selling online, sellers permits and licenses, you may not even have to worry about the state coming and knocking at your door.
In my most recent YouTube video made two weeks before writing this article here on my blog, I candidly answer the question of a new eBay seller who had heard about the laws for selling online in California. In that video titled "Candid Thoughts About Ebay, California, Sellers Permits, New Sellers " I take a step back from all my previous videos that I had posted to YouTube about taxes and selling in California in which I simply regurgitate the law; and instead I reveal my personal thoughts about California's laws as a reseller on eBay, Amazon and other marketplaces, why I disagree with them, why they do not make sense for online sellers as currently written, why they are unfair to new sellers and other thoughts. While I want sales taxes and legal online sellers within California, I protest California handicapping new sellers and casual sellers who are cleaning out their closets on eBay and the heavy burden California's reseller laws place on these individuals. If you are interested, you can watch this video on YouTube.
So that is the 1099-K rule in a nutshell. Not all marketplaces currently follow those rules, especially those marketplaces that pop-up overnight. These rules and laws didn't exist when eBay and Amazon got started, in fact eBay and Amazon in particular are why these laws were created.
Here is a direct link to the IRS publication discussing the 1099-K and online marketplace regulations if you feel like reading the foundation of the law.
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