1099 Rules Expand for 2011 Tax Year

I read a short note somewhere last week about the expansion of the tax form 1099 which reports miscellaneous income.  It was too short and did not have enough information for a good post.  Fellow appraiser Maureen Heenan sent me an article from the Washington Post on the subject.  It is something many online dealers should be aware of.  The IRS is now watching.

According to the article, any vendor selling on a site, such as eBay or Craigs List will receive a 1099K if the online sales total more than $20,000 per year and more than 200 transactions. This is to start in the 2011 tax year. The new rules should not impact the causal seller, but it does make the active hobbyist more accountable, and they could be considered a business.

The Washington Post reports

As online commerce grows, it is drawing increased attention from tax collectors. Beginning next year, a new law "requires the gross amount of payment card and third-party network transactions to be reported annually to participating merchants and the IRS," according to an IRS summary. For their 2011 tax returns, "taxpayers who annually sell more than $20,000 worth of goods and have more than 200 electronic transactions" will receive a new IRS form, known as 1099-K, reporting the proceeds, said a spokesman for H&R Block, the nation's largest tax preparation company.

Those tax issues shouldn't be a concern for people who sell just a few small items online for less than they paid for them. As the IRS points out, income from auctions that resemble a garage or yard sale "generally" isn't required to be reported. But if an online garage sale turns into a business with recurring sales and purchases of items for resale, "it may be considered an online auction business." And the complexities can be manifold.

The idea behind the law is simple: Research shows taxpayers do a much better job of reporting taxable income when they know the IRS is receiving information about their transactions.

With an estimated $290 billion tax gap, the difference between what is collected and what the IRS thinks is owed, it is politically easier to raise additional revenue from people who haven't paid their fair share than by raising taxes.

"Time and time again, we have seen that better information reporting helps the system by ensuring that everyone pays what they owe," IRS Commissioner Doug Shulman said late last year. "The new law gives us an important new tool for closing the tax gap and also provides business taxpayers better documentation to compute and report their income and expenses."

Although nobody knows precisely how much the new law will bring in, or how much it will cost to enforce, congressional staffers have estimated it will make only a very small dent in the total tax gap.

To read the full Washington Post article, click HERE.