Online Sellers Face New IRS Rules

The effects could be chilling, both for the army of “underground economy” eBay sellers as well as for the on-line auction company itself. Paypal and other online transaction processors will soon be required to report to the IRS any individual who has gross sales topping $10k annually.  These sellers, and their numbers are legion, will now be classified as businesses –and possibly subject to income taxes, capital gains taxes and (worst of all) self-employment taxes. 


At a recent eBay gathering in Chicago, there was a near-riot and a threatened boycott by sellers simply over eBay’s new fee structures. Imagine their reaction now to this potential new IRS rule. Those disputed fee increases would likely pale in comparison to what the IRS has planned — which is to essentially force many of these folks into operating like full-blown businesses, paperwork and all, with all of the attendant costs.  

eBay has proven to be one of the greatest supporters of small business entrepreneurship in history . . . How many of those little operations will be forced to opt out when they discover the pressure these rules will place on their already thin margins?  And what effect will eBay see in possible reduced listings? 

Like it or not, eBay and other small, boutique web retail sites are playing an important role in backstopping rising costs and bolstering a sagging economy. For far too many people — from Coos Bay,  Oregon to Monson, Massachusetts — the profits they make annually on their $10k in eBay sales are the difference between having heat and food or lining up for government assistance.   


The irony of driving people out of business and onto welfare in order to save people from losing their homes, appears to be utterly lost on the Feds — and, not surprisingly, on the IRS.  Once again, the old economy is trying to save itself by sucking wealth from the new economy — and turning the tools of that new economy (in this case, computers and the Web) on itself.  And once again, we may be about to get a nasty lesson on just how important the Web economy is to our national economic health.



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