12-2-11 UPDATE end of this post …
Due to a new IRS reporting rule, PayPal is now asking online sellers for their tax ID number. The new rule, however, doesn't apply to all sellers. The IRS is requiring payment-service providers (such as PayPal & Amazon) to report gross payment volume from sales of goods or services received by merchants if they receive more than $20,000 in gross payment volume from sales of goods or services in a single year AND receive more than 200 payments for goods or services in the same year. Both conditions must be met to trigger the reporting requirement.
Although my sales this year have exceeded any previous year, I didn’t think I’d ever make $20,000 in sales. So when I first heard of this new IRS rule, I wasn’t concerned; but then I started receiving requests from PayPal for my tax ID. Naturally, I was a little miffed. You see, I was under the mistaken assumption that only the Sales Price was considered payment by the IRS. Unfortunately, ALL income received from sales is subject to this new ruling, including payment for shipping!
I keep an Excel spreadsheet of the details of all my transactions (includes eBay, Bonanza and Etsy). And, when I added up the total paid for each transaction, I was not too surprised to see that I have exceeded $20,000 in payments.
So, after doing some research and getting over the idea of providing my SSN, I submitted my info to PayPal. Am glad I did, now that I see eBay is blocking users for non-compliance.
What I’m not happy about is paying taxes on my sales. You can be sure I’ll be going through all my receipts (expenses) and recreating my mileage. So glad I kept everything, even if it is just thrown in a box. With the new year just around the corner, I’ll definitely be more diligent about keeping expense records for write-offs!
UPDATE 12-2-11: Oops! Momtoqts is right! Obviously I'm not the math major in the house! Just to clarify, if you have BOTH a minimum of 200 transactions AND have received $20K in TOTAL payments - this includes what you received for shipping - then you do need to report. And it also includes what you have received from Amazon, Etsy, Bonanza, etc. - any payment you received thru PayPal or Amazon or any payment processor.
In my case, I have over 1400 transactions and just over $17,500 in eBay sales; but adding what I received for shipping puts me over $20,000. I also had a handful of sales from Etsy and Bonanza that were paid thru PayPal.
Now eBay is blocking buyers for not providing their tax ID, even though some buyers do not meet this criteria. Not sure if eBay has corrected this, but AuctionBytes has a great article here.