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Mon Oct 3 2011 11:49:26

Small eBay and Amazon Sellers Getting Screwed by New Tax Law

By: Ina Steiner

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The government and fraud experts tell us to carefully guard our social security number, but a new regulation is giving carte blanche to ecommerce companies to collect those numbers from small sellers.

PayPal won't disclose what triggers its request for tax ID numbers (see "PayPal Coy about Request for Seller Social Security Numbers"), but Amazon just revealed it will require sellers with only 50 transactions - no matter the dollar volume - to provide tax ID numbers (TINs).

The Housing and Economic Recovery Act of 2008 contains a provision, H.R. 3221-6, TITLE III-REVENUE PROVISIONS, which I've written a lot about since its passage. The law requires that payment processors send 1099K reports to the IRS each year, beginning in 2012 for tax year 2011, containing the gross amount of transactions processed on behalf of each customer.

The law is very clear that small businesses are exempt from the reporting requirement - companies such as PayPal, Google and Amazon need only issue form 1099Ks to entities with 200 transactions AND $20,000 in payment volume per year. Yet eBay and Amazon are requiring sellers that fall well below those limits to hand over their TINs.

Unfortunately many sole proprietors are unaware they can obtain tax ID numbers from the government so they don't have to provide social security numbers as they conduct business.

Thus, many small sellers on sites such as eBay and Amazon are facing a dilemma - hand over social security numbers or face account suspension, which would effectively kill their business.

This is not about whether small businesses should be paying taxes on their income - rather, these policies of collecting social security numbers go against the spirit of the law. Lawmakers exempted small businesses from this particular reporting regulation for a reason, and it's unpalatable for many individuals and mom-and-pop businesses to feel they must provide their social security numbers to companies like PayPal.

We'll be doing research this week for an EcommerceBytes Newsflash news story to see if the IRS is requiring companies to collect this information even for sellers that fall well below the law's reporting requirements, or if companies are being overly aggressive in collecting Tax ID numbers.

In the meantime, here's the full letter Amazon sent to sellers about the requirement.

Hello,
Beginning with the 2011 tax year, new IRS regulations require Amazon to file a Form 1099-K for sellers who exceed $20,000 in unadjusted gross sales and 200 transactions in a calendar year. To assist in complying with these regulations, we are requiring sellers who exceed 50 transactions in a calendar year, regardless of monetary threshold, to provide their tax identity.

Please provide your TIN to Amazon as soon as possible to prevent disruption to your seller account. Note that if the required information is not provided to Amazon by December 26, 2011, your Amazon selling privileges will be suspended until you provide the information.

You can enter your tax information in your seller account, using a short interview process that can be accessed from the Seller Account Information > Legal Entity section.

For additional information about entering your tax information, see answers to frequently asked questions:

http://www.amazon.com/gp/help/customer/display.html?nodeId=200663310

Learn more about the regulations and Form 1099-K at the IRS website:

http://www.irs.gov/govt/fslg/article/0,,id=226894,00.html

Important Notice: Information in this document does not constitute tax, legal, or other professional advice. To find out how this new legislation will affect your business, or if you have other questions, please contact your tax, legal, or other professional advisor.
Best regards,
Amazon Services




Comments (44) | Permalink

Readers Comments

Small eBay and Amazon Sellers Getting Screwed by New Tax Law   Small eBay and Amazon Sellers Getting Screwed by New Tax Law

by: Rick Watson

Mon Oct 3 11:58:06 2011

The IRS isn't requiring companies to collect below the threshold, but it is requiring them to collect it for them to continue providing the service.

To avoid sellers having a disruption in service, that basically means you need to collect below the threshold because a seller will keep adding sales throughout the year, or have more sales in one quarter than in another quarter.  The alternative is that a seller (or the marketplace) can't prepare in advance for something that could shut off their business.

Small eBay and Amazon Sellers Getting Screwed by New Tax Law   Small eBay and Amazon Sellers Getting Screwed by New Tax Law

This user has validated their user name. by: Ina

Mon Oct 3 12:04:30 2011

Many small sellers will never see transactions come close to $20K. If your average selling price is $15, and you sell 10 items a week, that works out to less than $8,000/year.

These companies could determine which sellers have never gone above $10,000 in a year and exempt them from having to provide TINs unless they reach a certain trigger point.

Small eBay and Amazon Sellers Getting Screwed by New Tax Law   Small eBay and Amazon Sellers Getting Screwed by New Tax Law

by: Easy Solution

Mon Oct 3 12:43:13 2011

The simple solution is just to get a federal tax-id (takes about 2 minutes online). But my guess is that the reason many sub-$20k online sellers want to go this route is because they don't declare their sales as income. The above example (10 items a week, $15 per item) is very common, and I'll bet you very few of these hobby-sellers bother to report the sales as taxable income.

Small eBay and Amazon Sellers Getting Screwed by New Tax Law   Small eBay and Amazon Sellers Getting Screwed by New Tax Law

by: anyone out there yet

Mon Oct 3 13:05:44 2011

If you don't want to get a federal tax ID then you will have to give you SS number. ITS YOUR CHOICE.

I would suspect the all these credit card companies are going to report everyone with a 1099, it won't matter if you make 1.00 or 1 million. It will be report as income and you will have to report it on your income taxes.

Come January the boards are going to be full of how unfair it is that we have to pay taxes on income.

Well folks if you haven't been reporting this as income you are going to have a nasty surprise, and when you finally have to report it, it will probably trigger the RED flags with the IRS.

CHEATERS ARE NOW GOING TO PAY.

Small eBay and Amazon Sellers Getting Screwed by New Tax Law   Small eBay and Amazon Sellers Getting Screwed by New Tax Law

by: Theo
Web Site

Mon Oct 3 13:24:54 2011

No one is "getting screwed" except the minority of sellers like me who have been collecting and remitting sales and income tax since Day 1. Enjoy the interest and penalties, tax evaders.

Small eBay and Amazon Sellers Getting Screwed by New Tax Law   Small eBay and Amazon Sellers Getting Screwed by New Tax Law

by: CPC_Andrew
Web Site

Mon Oct 3 13:43:06 2011

Quite the situation in between a rock and a hard place. This is unfortunate but a majority of sellers should have no problem trusting Amazon and eBay with their information. Unless there's a story about it's misuse in the past that I've missed...

Small eBay and Amazon Sellers Getting Screwed by New Tax Law   Small eBay and Amazon Sellers Getting Screwed by New Tax Law

by: Anonymous

Mon Oct 3 13:54:49 2011

I think the best I did on eBay was about $3000 in one year. If I declared that on my taxes, I would also declare my ''business expenses'' which are about $3000/year. It does not benefit you or me or the IRS for me to go through this exercise.

The IRS limits are reasonable and appropriate. The Amazon limits are not.

Small eBay and Amazon Sellers Getting Screwed by New Tax Law   Small eBay and Amazon Sellers Getting Screwed by New Tax Law

This user has validated their user name. by: Ric

Mon Oct 3 14:02:27 2011

Amazon has an ulterior motive for insisting sellers who will fall below the reporting threshold to provide their Social Security numbers.

Amazon has opposed thus far all attempts to require sales tax collections, even going so far as to cancel accounts of sellers in states where sales tax laws have been changed to induce collections.

By compelling under threshold sellers to file their Social Security numbers, Amazon likely believes their actions will spur individuals to contact their elected officials and express their dissatisfaction, thus hoping to influence legislators into opposing the legislation.

It is Amazon's way to spur grass roots opposition and add thousands of voices to their own in the process.


Small eBay and Amazon Sellers Getting Screwed by New Tax Law   Small eBay and Amazon Sellers Getting Screwed by New Tax Law

by: Theo
Web Site

Mon Oct 3 15:10:50 2011

Anonymous,

I guess you're saying then that you and the thousands of other tax evading sellers are making zero profit selling stuff. Bullshit. Go ahead and report your sales as income AND your expenses like the rest of us, THEN see if you get audited.

Small eBay and Amazon Sellers Getting Screwed by New Tax Law   Small eBay and Amazon Sellers Getting Screwed by New Tax Law

by: Fruity This user has validated their user name.

Mon Oct 3 19:03:38 2011

Ina,

Paypal is already aggressive in running credit inquiries. Think about this, what happens if your account gets hacked and you end up owing ebay or paypal money. Do you really feel like they're gonna help you? If you value your credit report, register an LLC & get a Federal Tax ID, that way they can go after the biz and not your personal assets. Think real hard about how far you're willing to trust Paypal w/your social.

Small eBay and Amazon Sellers Getting Screwed by New Tax Law   Small eBay and Amazon Sellers Getting Screwed by New Tax Law

by: Asd

Mon Oct 3 21:38:34 2011

Gota wonder if they are gona require TIN numbers from all these chines sellers

Small eBay and Amazon Sellers Getting Screwed by New Tax Law   Small eBay and Amazon Sellers Getting Screwed by New Tax Law

by: Rich

Mon Oct 3 22:34:34 2011

As I see it, Amazon and Ebay/Paypal will do whatever the goevernment/IRS tells them to do.  So most of what they do is so they can avoid problems themselves with the IRS.  As far as telling sellers who might go under the limit to send info now; it's possible Amazon wants to be prepared as best they can because they'll have to have all their 1099's sent out before Feb 1st.  It's also possible the IRS has asked them to do this.  The real problem starts with the law itself.  Someone who does 225 transactions that total $22,000 gets a 1099; while someone who sells big ticket items and does 150 transactions for $40,000 doesn't get a 1099?  This makes sense?

Small eBay and Amazon Sellers Getting Screwed by New Tax Law   Small eBay and Amazon Sellers Getting Screwed by New Tax Law

This user has validated their user name. by: Ina

Mon Oct 3 22:51:49 2011

Glitch? Amazon sellers say their names are displayed on their storefronts after they provide Amazon with their tax information.

http://bit.ly/n6Fy1E

Small eBay and Amazon Sellers Getting Screwed by New Tax Law   Small eBay and Amazon Sellers Getting Screwed by New Tax Law

by: Theo
Web Site

Mon Oct 3 23:12:25 2011

"Asd": duh! Foreign citizens are not subject to US tax law.

Rich, when the IRS sees how many online sellers suddenly start complying because of 1099-K and how much revenue is being lost, the rather arbitrary thresholds could be lowered.

Small eBay and Amazon Sellers Getting Screwed by New Tax Law   Small eBay and Amazon Sellers Getting Screwed by New Tax Law

by: Y.D.D.D

Tue Oct 4 05:54:45 2011

This is all no big deal, only for the people who don't keep records, and are not honest about their income.

If you make over $400 a year profit it is not a hobby, you owe taxes !

Since I have been honest and pay and keep records, I think everyone should be honest and pay, I am sure the majority of eBay sellers do, but the ones that have not been you better get your butts in gear !

States and Federal need revenue, so me thinks they will be really keeping an eye on peoples numbers, so honesty is best when it comes to taxes

Small eBay and Amazon Sellers Getting Screwed by New Tax Law   Small eBay and Amazon Sellers Getting Screwed by New Tax Law

by: CorporateAmericaIsMyCongressman

Tue Oct 4 07:37:09 2011

The easiest way to steal some ones ID is not to get the information needed from them but those they give it to. Companies will use the laws for data mining rather than the intended purposes. Each time you have to provide your information to a company your chances of being a victim of ID theft increases. Eventually the information needed to steal your ID will be available to everyone because every place you deal with will insist you provide it.

To keep your information out of the hands of every tom dick and harry that ask for it the law should have been set up so you file with the government and get verification you did so which you provide any company that needs it. The information itself should not be provided to any company. The government is controlled by corporations so it is not surprising the way the laws are set up.

One advantage is that ID theft will become so easy to commit odds are no one will no who anyone is for certain.

An unscrupulous company could over report  users income to look good to stockholders and call it a computer glitch putting individuals in a situation of having far more taxable income than they actually do. When you shift the burden of tax reporting from individuals to corporations they deal with somebody is going to get screwed.

Small eBay and Amazon Sellers Getting Screwed by New Tax Law   Small eBay and Amazon Sellers Getting Screwed by New Tax Law

by: John

Tue Oct 4 09:04:53 2011

JMO,  but for most of the really really small sellers this might not be an issue. In most cases the money brought in should be offset by the money going out.

If someone is making between $1,000, and say $20,000 a year then they could have expense's that would write off all or nearly all the amount of profit.

Of course people cannot do this all the time, and at some point have to show a profit. But I believe there is not a profit ratio they need to show.

I would suggest a good accountant though. One who has been indicted by the government and walked out with a wrist slap is the best. Means they are good enough at what they do but not good enough requiring them to be observed.

I would talk to the accountant and inquire about establishing an LLC and making yourself an employee, which I believe requires 2 EIN #s (employer Identification number). One for the company and one for yourself. I believe you could then pay yourself a salary, which I also believe could be a write off for the company but you would need to this with with your accountant all the particulars....

Here is the IRS link which is easy to navigate and search with keywording.

http://www.irs.gov/businesses/small/article/0,,id=98011,00.htm
l



Even
the IRS states you will have to supply a SSN, TIN or EIN number if you are in the  earned income range this law address's. IMO better to supply it with them and not an outside corporation, or get a TIN or EIN, and be done with it.

Small eBay and Amazon Sellers Getting Screwed by New Tax Law   Small eBay and Amazon Sellers Getting Screwed by New Tax Law

by: exdwh This user has validated their user name.

Tue Oct 4 09:57:09 2011

@Theo,

In case you haven't noticed, the Chinese sellers have moved to the US and now ship domestically. I guarantee that they falsify the import documentation and it's very unlikely that they pay US taxes.

--David

Small eBay and Amazon Sellers Getting Screwed by New Tax Law   Small eBay and Amazon Sellers Getting Screwed by New Tax Law

by: Cyn
Web Site

Wed Oct 5 09:52:46 2011

Get yourself a CPA, set up an LLC or S-Corp through Legal Zoom, with your CPA's guidance, your CPA will get you an EIN and you're good to go. So many advantages to having a corporation rather than a sole-proprietorship, I don't know why people are so stubborn about this.

Small eBay and Amazon Sellers Getting Screwed by New Tax Law   Small eBay and Amazon Sellers Getting Screwed by New Tax Law

by: Small Seller

Wed Oct 5 14:06:19 2011

I'm a small seller that has received 2 emails from Paypal requesting a TIN number. The second email contained stronger language including ''What's the problem?''. That really made me mad and I called Paypal. The rep said that I did not need to give them my TIN since I was below $20,000. That is not what the email says, and a yellow banner comes up everytime I log into Paypal. My total payment volume is around $6,000 so far this year. I've heard that if you don't give them a TIN by January 1, 2012, you will be subject to backup withholding of 28%. I haven't been able to get a straight answer on this. After 10 years on eBay, I have decided to hang it up. I will end my last listing in early December in time for all payments to clear before December 31. After the first of the new year, I will call Paypal and ask to convert from a Premier account back to a Personal account, and have the yellow banner removed. If they won't do it or let me close my account, I will close the bank account and deactivate the credit card linked to it. Then I will abandon the Paypal account. I have already opened an account on Bonanza, and will be importing my eBay feedback. They allow acceptance of money orders and personal checks, with no electronic payment processor required. I will begin listing there next month. I believe that many small sellers will leave eBay and Amazon because of this. Bonanza may not have a lot of traffic now, but I believe that will change in the coming year as more small sellers look for a new place to sell.  

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