posted on February 17, 2001 05:52:34 AM
I was at a party last night, and a fellow who does computer work for the IRS was telling me about a new program that the IRS has developed.
With eBay constituting over a billion dollars in sales, the IRS has started an initiative to collect all gross sales for every eBay seller.
As he explained it to me, eBay must cooperate with the IRS, and they have been sending feeds of total sales for 2000, along with the contact information and credit card numbers. The IRS then cross-references the CC numbers to get the sellers Social Security Number.
This did not disturb me so much as a statement he made that the IRS will not allow less than 40% of the gross revenue to be claimed as a buying expense. He said that they are cracking down and will no longer allow seller to say they have no receipt because they bought their items at yard sales.
In sum, he said that sellers must report more than 40% of their eBay gross sales as profit. He also told me that the IRS expects to re-coup hundreds of millions of dollars from this initiative.
This fellow was quite drunk at the time, so I’m not sure how much of this is true, but I do know that he is a programmer for the IRS, and he said he has been working on this project for six months.
posted on February 17, 2001 06:21:51 AM
And what percentage of sales are they going to accept are never completed because of deadbeat buyers? I don't try to recover my FVF because I would be making less than minimum wage to jump through hoops to get it back on small items.
posted on February 17, 2001 06:48:48 AM
I will believe anything about the IRS.
Keeps records as well as you can, and get yourself a good accountant that will go toe to toe with them if the need arises.
The IRS folks will be less that honest with you if you don't know the facts.
But I do not believe that Ebayers are going to have a free ride on income taxes or sales tax for long. In Texas, you are supposed to have a tax certificate to sell on Ebay and, although you only collect (or pay, if you don't collect) taxes fo sales within the state of Texas, you have to report ALL sales. Now what do you think they are doing with that information?
posted on February 17, 2001 08:12:10 AM
Considering the source (a drunken IRS programmer vs. a sober IRS auditer) the 40% number is probably a load of crap. You would be hard pressed to find a computer seller on Ebay making 40% gross profit, let alone net.
As for Ebay reporting sales to the IRS, I am surprised it has taken so long. They should have been doing it from day one. The more legitimate taxes they can collect, the less I will have to pay to make up for it.
posted on February 17, 2001 08:19:16 AM
You are probably right, the guy was just talking. But I do believe it will come. The 40% figure may just be the one that 'flags' you for audit--like outside sales.
Now do I believe that if everyone paid every penny of taxes they should (according to IRS), my taxes would go down??? Never happen. They always find uses for any money that comes in.
I do believe everyone should share and share alike in tax burden, but that is never going to happen either.
Just keep good records, be honest, and don't let them frighten you.
I once heard someone say, "It only takes one IRS audit to make you become a libertarian."
posted on February 17, 2001 08:36:59 AM
I often pay close to 75% of what I end up selling an item for. Sometimes I have paid MORE than I end up selling an item for. All in all, I still tend to make a profit--although it's probably around $10 for every $80 I spend to get the items.
It's just a little hobby, and only slightly profitable.
By what you're telling us, I will be charged income tax for a lot of money I NEVER made!
Also:
---What about selling items you've had for 25 years and collected as a kid? How much was paid for that--and will they calculate what the dollar amount was 25 years ago (if you know it) to equal today's dollars?
---What about items that NEVER ended up being paid for? (Ebay is a selling venue--not a cash register with a recepit tape) How do you "prove" the item wasn't purchased? You cannot prove a negative!
posted on February 17, 2001 08:44:20 AM
Right now, my accountant figures my purchase price at 50% of sales price. That works great for me. He has used that for items from my personal belongings also. That also worked for me. I am not sure about things that had appreciated dramatically. That's where you need a good accountant. If your purchase price is actually higher, you probably need to keep really good books and receipts. Even garage sales will give receipts if you ask.
As for items for which you never received payment--all you report is actual monies received. If you didn't receive the money, you didn't have income.
posted on February 17, 2001 09:00:09 AM
Boy, I have never cooperated 'willingly'. I just think that anyone who generates income in such a public, traceable venue as Ebay, needs to be prepared.
These are not nice people when you deal with them and as I said, they are not always honest, or perhaps knowledgeable. We were very naive the first audit,believed the IRS person and it cost us $600.00 plus interest and penalties--and she was wrong--either intentionally or mistakenly.
The best way to deal with them is not to deal with them. Let you accountant do it!! The last (and 5th time) we were audited, they owed us $80+. They do not have to pay you unless it is over $100.--Don't even apply to next year's taxes. But, they stopped auditing us.
All this does is create major headaches for the small seller. By the way, EBay's greatest asset IS the small seller. WHY? Because that's where all the variety comes from (the bigger sellers tend to be more K-mart-like in their items and customer service).
The BS users who create problems on Ebay will go on doing their thing--this won't change that or thin that herd.
[b]ALSO...{/b]
The fact remains that Ebay is a trading VENUE---not a cash register.
HOW can it be assumed that any deal was closed and paid for?
posted on February 17, 2001 09:10:39 AM
If what you're saying is true, then I will be taking an overall loss on just about EVERYTHING I've sold in the last 2 years!
My profit margin is small, so I lose everything to the IRS?
posted on February 17, 2001 09:48:05 AM
Goes to show you how much power the IRS can derive by frightening its citizens. Stand together and we can abolish the IRS. My Congressman is already working to abolish the IRS. The "Fair Tax Act" was introduced to the House of Representatives, the purpose of it to ensure that Americans never have to worry about confusing tax forms, keeping stacks of receipts, or getting traumatic IRS audits.
The Fair Tax Act will eliminate the personal income tax, corporate tax, capital gains tax, payroll tax, self-emplyment tax, and death tax.
Do you want to sit back and continue being frightened year after year of getting an audit and being told that you have to pay an extra $1000 because the IRS lies and cheats during audits, or just write a letter to your Congressperson to support the Fair Tax Act? Your savings will grow, you'll be able to invest more in inventory which will help your business grow, and America will become stronger as more jobs will be created.
Remember, my Congressperson already supports this, but it's important your Congressperson does too. It's terrible to spend your life in fear. Isn't that better energy spent growing your business?
Personally I don't spend my time wisely selling all my profitable items because I need to devote some of the time selling things at loss just to keep my tax bill down. That can't be good for me or America, especially if thousands and thousands of people like me are doing it.
\"They say the grass is greener on the other side. But have you flipped it over and looked?
\"
posted on February 17, 2001 09:56:23 AM
Thin the herd of the Vendors who believe that as 'it is just stuff out of my home' or, its just grandma's estate.....Its just pin money......or the like.
They are mostly fine people....but once their take is over 400.00 per year then they need to be accountable to the tax man.
If these vendors are frightened back to the flea market and yard sales....great.....more for me and the professional dealers..who do this full time or part time...but are accounting for their income.
If more people did treat their Ebay activity seriously and invested a couple of hundred in sound acounting advice and set-up it would be even MORE worthwhile for them. If they do not want to 'take the trouble' then they will not be able to share in the benefits. It cannot be had both ways.
posted on February 17, 2001 09:57:53 AM
I have no doubt that eBay is "cooperating" with the IRS...any company that is asked to do so, must. But there's no way the IRS is going to set some arbitrary limit beyond which you can't claim expenses, or that you must report X dollars in income (or profit), whether you made that much or not. This is bullpucky, plain and simple.
If you have legitimate, validated expenses, take them! If you really do qualify for a home office deduction, take it! Keep good records of the purchases you make to sell at auction. A notebook in your car on garage-sale days will work, just as it does for business mileage.
If your tax situation is at all complicated, use a good licensed preparer (a CPA or EA who specializes in taxes) and let that person handle any questions from the IRS--up to and including any audit. Even if your situation is simple, pay for a consultation and review of your bookkeeping and tax records. Or have a pro set you up the first year or two and then go on your own. The advice you pay for is deductible as a business expense, like any other.
Finally, don't listen to pontificating drunks at parties.
posted on February 17, 2001 09:59:20 AM
I would like to see a 'fair' tax. I am not sure what that would be. Only a tax per person would be fair.
It is, in my opinion,a pipe dream to ever think they are going to seriously revamp the tax system. It would take a major revolution (peaceful) to do so. Those folks in Washington buy votes and campaign funds with their 'targeted' tax cuts. They also rely on making it so confusing and frightening that everyone will just roll over. Just be prepared!!!
nnt
posted on February 17, 2001 10:25:56 AM
IF (and I emphasis IF) this is true, the first things they're going to do is compare the Ebay information with the tax returns for individuals - who do you think they're going to go after - those who had Ebay sales that filed a Schedule C/SE or those who didn't?
If the IRS can prove the income, and those people cannot substantiate expenses, they'll get taxed on the gross income amount - and the IRS gets another notch on their belt. Those who have followed a Schedule C is more than likely prepared for an audit with the prepared paperwork, a knowledgeable auditor behind them, and wouldn't be worth the effort of an audit because 90% of the time, the audit wouldn't provide any $ to the IRS.
Those who know enough to file the Schedule C are the ones the IRS would be more likely to avoid going after, IMHO.
So I'm not worried. I have the documents to back my Schedule C up should they ask...
posted on February 17, 2001 10:44:17 AM
Its only a matter of time before the IRS is abolished. Americans don't like paying on an incremental basis, per dollar made even if it is the fairest way. It's never worked successfully before. Remember when ISPs charged per hour? Where are those companies now? How about your phone bill, do you pay a flat rate or per usage? Cable- per usage or flat rate? Convenience is the tradeoff of fairness, and we live in a convenience society, not a fair society.
Awww Amy, I know how the saying goes, it's just a laugh at the briefer way people say it.
\"They say the grass is greener on the other side. But have you flipped it over and looked?
\"
posted on February 17, 2001 10:54:34 AM
quickdraw - From your lips to God's ear. But I really don't see it happening. Do you realize how many jobs are created with this monstrosity of a tax system? Do you think Congress is going to give up the ability to promise a deduction for this or that in order to get campaign finances from the industry that will benefit? Do you think Congress is going to give up the ability to buy votes by seeing that a large number of people pay no tax (income tax) at all?
The only totally fair system would be for everyone in the country to pay X number of dollars-period. I can just hear the screams now.
Just don't see it happening.
Just be prepared with you records. An audit is not fun, and it is time consuming, but they don't need a descrepancy to call for an audit.
posted on February 17, 2001 11:09:33 AM
A few years ago, a friend had his business audited. It was a very small retail store.
He had failed to keep a written record of any/all items he pulled from the shelves for his family's personal use. Items pulled for personal use become income.
Because he had not done this, IRS used a formula based on the number of people in his family. He ended up paying additional taxes and penalties.
He argued the number was too high because he was very careful about not yanking things off the shelve unless absolutely necessary.
Bottom line, the auditor told him IF he had written anything down, THEN IRS would either accept it OR have to prove it wrong. They DO NOT use the formula in those cases. The auditor said normally they accept the documented numbers. The numbers are documented because they are written down! You will not have to prove them right, IRS will have to prove them wrong.
Also, I do not believe that IRS or anyone else can make you claim more profit than you actually had!
Do you know how many new jobs will be created without the current tax system? Plus the jobs being eliminated are unproductive, and the new jobs gained would be productive.
A tax deduction is like getting your arm cut off to win a million dollars in a law suit. Getting that million dollars is great, just getting my arm cut off to get it is very unpleasant. I don't think people are that dumb.
Congress will get more votes if they favor tax reductions. Like I said before, my Congressman already supports abolishing the IRS, and is reintroducing the Fair Tax Act in the 107th Congress meeting. The margin it got voted down in the 106th wasn't that great either, so many Congresspersons see the new tax system as the best way.
\"They say the grass is greener on the other side. But have you flipped it over and looked?
\"
posted on February 17, 2001 12:08:04 PM
Another hard to believe story! A report just out this week said audits were at an all time low due to poor machinery at the IRS ... oh and probably a high count of unemployment to boot!
Sorry, but ebay and IRS should both do what they do best, stay out of it.
posted on February 17, 2001 12:30:59 PM
Quickdraw!! I am with you on better and simpler system. And yes, I believe a reduction in taxes and a simpler, more equitable system would create many new jobs and make this an all around better country.
The jobs I spoke about, are government jobs, career employees and those little appointments that are handed out by politicians to pay for services rendered.
Now, don't you think that ALL of congress already knows the taxpayers want relief. I don't believe there is one up there that is not aware of what is in the minds of the taxpayers and I believe that 99% of them (taxpayers) thinks something should be done. I didn't say the people, now, I said taxpayers. Until they are forced to do so, they do nothing.
The taxpayer's voice means very little to them. Taxpayer's are too busy trying to make a living, we don't have time to scream and threaten, and quite frankly, we are outnumbered.
posted on February 17, 2001 12:54:24 PM
I think "drunk" is the operative word. The government would gladly send a SWAT team into every home in the country and haul away your possessions, send your women to Clinton's new Harlem harem, and empty your bank account. I wouldn't be surprised.
The problem is that to search all of the sellers records is likely to have the IRS answering to more lawyers then were in Florida recently and get eBay sued till the cows come home.
posted on February 17, 2001 01:43:03 PM
Some interesting views here....
"We are outnumbered" Really?? I don't think that at all.
"there's no way the IRS is going to set sone arbitrary limit..." Oh yeah??? Talk to any waitperson - the effing IRS has decided long ago that they earn a fixed percentage of the checks they write in "tips" - and they tax them on this un-proven "income"
So, yes they can "make" you "claim more profit than you had" - unless (as was already pointed out) you keep great records.
"Only a Venue" ... It ceased to be that long ago, when they decided to become a regulating body. "How can it be assumed that any deal was paid for?" - Easy! If you paid FVF you would have a hard time convincing a Judge that you paid a comission on a sale that fell out.
The bottom line here is that if the IRS leans on E-bag to "help" them, they will. They have laid the groundwork before - rember UV ?? All they really have to do is require a taxpayer ID number from all sellers, then provide the IRS with a 1099 form at the end of each year, reflecting the FVF's paid - the IRS will then use some "formula" to guess at your income from sales, and if you do not have any proof to the contrary they will bend you right over.
I personally file a 1099 form on EVERYBODY that I have spent over 400.00 with each year, including E-Bay. It give me a record for my taxes, and give several IRS worker bees something to do.... BTW if you do not have a taxpayer ID number for the payee, the form can still be filed - The IRS will contact the seller directly for the info!
posted on February 17, 2001 01:58:08 PM
What makes you think we are not outnumbered?
When you consider all the people who work directly for the government--all the people who work indirectly (government contracts)---all the people who don't work and live off the worker bees -and all the rich (and I don't think the rich should be soaked), who like the system because they can use it--how many does that leave?
Evidently we are outnumbered or they would be paying attention to us. We are outnumbered and outgunned--in more ways than one.
