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Mon Dec 27 2010 16:11:59

Online Sellers Must Keep up with Tax Laws

By: Ina Steiner

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Congress passed legislation just before Christmas that saves employees 2% in payroll taxes next year, so we wanted to find out if this savings would also apply to the self-employed and small-business owners. Tax expert Barbara Weltman answers that question and covers some of the other ramifications for small businesses in today's AuctionBytes Newsflash.

Barbara said it's been a busy year for her - she has to submit manuscripts for her tax books in September, so her publisher will provide online supplements to bring readers the latest information to keep up with the December legislation. Even the IRS site has not been fully updated, Barbara told me this morning, after her appearance on CNN to discuss - of course - taxes.

The New York Times has an interesting article about what people will do with their 2% tax savings. Since health insurance premiums almost always go up, not down, I like this reminder: "before you splurge, think hard about whether a new big expense might pop up in 2011, say higher health insurance premiums or higher property taxes, for which you'll need to write a big check."  

While we're on the topic of taxes, many businesses make end-of-year purchases they can expense in the current tax year in order to offset their income - you have until Friday if that is part of your tax strategy.

I read a lot of industry discussion boards, and while you can pick up some useful information, there's also a lot of misinformation and misinterpretation of tax laws - so verify everything before counting on information you read from your colleagues.

You'll sleep better at night if you take the time to understand the basics. The best way to educate yourself is a combination of getting the advice of a CPA and reading everything you can in books from the tax experts, such as Barbara's book, J.K. Lasser's Small Business Taxes 2011 - I also like the Ernst & Young Tax Guides.

And don't forget the IRS website itself. There are forms and instructions, articles, a tax-calendar and even YouTube videos. (But don't fall for scam emails pretending to be from the IRS!)

You might also be interested in this recent blog post about how PayPal will handle the new IRS Form 1099-K for reporting online sellers' payment transactions to the IRS.




Comments (11) | Permalink

Readers Comments

Online Sellers Must Keep up with Tax Laws   Online Sellers Must Keep up with Tax Laws

by: Scotty

Mon Dec 27 16:34:34 2010

My question is related to the pending ''1099'' issuance issue for purchases (cumulative or one-time) to any vendor over $600.  This is still hanging out there and will be a nightmare.....any updates on this being repealed or ???

Online Sellers Must Keep up with Tax Laws   Online Sellers Must Keep up with Tax Laws

This user has validated their user name. by: Ina

Mon Dec 27 20:29:47 2010

I had the same question. When I spoke to Barbara today, she said it is expected to be repealed, but it hasn't happened yet, so stay tuned!

Online Sellers Must Keep up with Tax Laws   Online Sellers Must Keep up with Tax Laws

by: Terri

Mon Dec 27 23:00:01 2010

Ina,

I would like to make a friendly suggestion to possibly add a ''print'' button on all your blog posts, so I could print without the side ad's, and take your tax posts with me when I go see my accountant, and also to keep them for my own records.

I feel I angered you in my last email. It wasn't anything personal towards you, and I'm sorry if I hurt your feelings in any way.

Terri

Online Sellers Must Keep up with Tax Laws   Online Sellers Must Keep up with Tax Laws

by:

Tue Dec 28 08:17:26 2010

Acordingg to email from ebay the rule is 200 sales per year. Or 20,000 us dollars will get you a 1099k from the company if they process your payments.

Online Sellers Must Keep up with Tax Laws   Online Sellers Must Keep up with Tax Laws

by: Paul

Tue Dec 28 08:56:47 2010

QUOTE: "Acordingg to email from ebay the rule is 200 sales per year. Or 20,000 us dollars will get you a 1099k from the company if they process your payments."

Uhm... That's not the way I was given to understand it - I read it as doing 200 sales PLUS/AND $20,000 or more will trigger the 1099K.
I read it as you must hit BOTH those requirements to get the 1099K filed on you, just doing one OR the other won't trigger it?
Please correct me if I'm wrong here...

Online Sellers Must Keep up with Tax Laws   Online Sellers Must Keep up with Tax Laws

This user has validated their user name. by: Ina

Tue Dec 28 09:15:59 2010

There are two laws affecting 1099s. I believe Scotty is referring to the one that will require businesses to issue 1099s to retailers for purchases over $600 (you've always had to do that for freelancers and independent contractors). That would be burdensome and is expected to be repealed.

The other law affecting 1099s is the law making payment processors report transaction totals for accounts with $20,000 AND 200 transactions on 1099-Ks.

See the blog post I link to above for more info on the 1099-Ks.

Online Sellers Must Keep up with Tax Laws   Online Sellers Must Keep up with Tax Laws

by: Jinx

Tue Dec 28 11:50:15 2010

I just moved from TX and we reported any amount that sales tax was paid to the Seller. The State had several pages of the Counties and sometimes each County had different sales tax, depended on your zip code.  How in the world are we going to get that info from each State so our "reporting" will be accurate? I now live  in Carson City, NV and even this small town has 2 sales tax!

It is my understanding that if we smaller Sellers don't reach the 200 customer mark we are not liable for reporting the tax, hope I'm correct

Online Sellers Must Keep up with Tax Laws   Online Sellers Must Keep up with Tax Laws

by: for Jinx

Tue Dec 28 12:29:08 2010

You don't have to fill in all those counties -- only the county where the sale was made (your county). Just because you shipped it doesn't mean it wasn't purchased in your store, which is located in your address. Hire a CPA, folks. Any good CPA will save you more than he costs.

Online Sellers Must Keep up with Tax Laws   Online Sellers Must Keep up with Tax Laws

by: Rich

Thu Dec 30 01:05:28 2010

8 comments in 4 days?  I know this is Xmas season but do taxes scare the crap out of people this much?  Or are people realizing the downside to a 1099 and maybe planning on doing less Ebay and Amazon?  Ina Steiner; there is a major flaw in this tax thing--Paypal sends a 1099 based on the total payment, but included in the payment is the ebay bid plus the postal sticker and cost of box.  So for sellers of low priced items, or sellers who ship overseas; or sellers who sell heavy priority packages; the 1099 might be $30,000 while the  total ebay sales might only really be $15,000.  Good luck getting a 1099 for $30,000 and explaining to the IRS why the profit and loss statement shows a profit of only maybe $4,000.  Do people realize that the law stating "$20,000 in sales" does not refer to their ebay sales, but instead to their total Paypal receipts?  

Online Sellers Must Keep up with Tax Laws   Online Sellers Must Keep up with Tax Laws

This user has validated their user name. by: Philip Cohen

Thu Dec 30 02:45:40 2010

@Rich,

I think the IRS will allow those “professional” sellers caught by this “1099” process to deduct their legitimate outgoings from any gross sales figure that they receive from eBay’s ugly daughter. All you previously “under-the-radar” professional sellers may well have to start running your “businesses” in a business-like manner in the future. What a shock that will be to some!

Online Sellers Must Keep up with Tax Laws   Online Sellers Must Keep up with Tax Laws

by: Lisa

Thu Dec 30 10:58:08 2010

Jinx said: "I just moved from TX and we reported any amount that sales tax was paid to the Seller. The State had several pages of the Counties and sometimes each County had different sales tax, depended on your zip code.  How in the world are we going to get that info from each State so our "reporting" will be accurate? I now live  in Carson City, NV and even this small town has 2 sales tax!

It is my understanding that if we smaller Sellers don't reach the 200 customer mark we are not liable for reporting the tax, hope I'm correct.

"we reported any amount that sales tax was paid to the Seller."  Were you the seller in those cases?  Texas allows any resident up to $2,000.00 per year in the sale of personal items without paying taxes on that amount.  

As far as reporting sales tax from other states, as of right now, I don't believe you are required to use the 1099 for that. Per irs.gov's site, the 1099 for that income. The 1099's instructions state: "Box 9. If checked, $5,000 or more of sales of consumer products was paid to you on a buy-sell, deposit-commission, or other basis. A dollar amount does
not have to be shown. Generally, report any income from your sale of these products on Schedule C or C-EZ (Form 1040)."

You should probably talk to a tax specialist, but I couldn't find anything about calculating sales tax from other states.  But even if that's not the case, all the information you're seeking is available at irs.gov



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