Small Business Owners Beware: Say Goodbye to Tax-Free Internet Sales
If you can take the IRS at their word, then supposedly the U.S. Treasury loses nearly US$100 billion in unpaid taxes from small businesses. That's a big number, and I believe it's a gross overstatement. I'll explain why in just a moment. But in reality whatever the number is, the new housing bailout bill is designed to dramatically reduce it.The IRS believes that America's small businesses are evading billions of dollars in taxes through unreported credit card transactions. And for that reason, it's long been at the top of their legislative agenda to require credit card issuers and electronic payment systems like PayPal to report sales data to the IRS.
Tax Inquisition Planned to Bailout Deadbeat Homeowners
The housing bailout bill does just that, broken down in terms of payments to businesses accepting the cards. Essentially, the bill requires Visa, MasterCard, Discover, American Express, PayPal, Amazon, Google Checkpoint, and virtually every other "electronic payment system" to track, aggregate, and report to the IRS, information on nearly every electronic transaction. They must report:
The gross amount of payment card and third-party network transactions
The name, address, and taxpayer identification number of the participating merchant
However, the bill gives these systems more than two years to gear up for these requirements. Mandatory reporting won't come into effect until 2011. Basically, what the bill does is to give the IRS a way to check what a credit card company or electronic payment system is actually paying a small business compared to what the business owners are reporting on their tax returns. If the two numbers are wildly out-of-sync, then you're likely to be audited.
eBay Powersellers, Beware!
How might this bill affect you? If you're an eBay Powerseller, for instance, and sell US$40,000 of cosmetics each year over the Internet, at the moment, eBay doesn't have to tell the IRS anything about the sales. But starting in 2011, eBay will have to send you - and the IRS - an annual report. The report would say for example that Connie's Cosmic Cosmetics received US$40,172.13 in gross payments from eBay for that year. And here's where it might get very dicey with the IRS. People who operate businesses are supposed to declare their gross income on Schedule C (or a corporate tax return). Then they're supposed to deduct all the costs of doing business to arrive at a net figure of taxable income. However, a lot of small businesses don't keep particularly good records. All the owners may know are what they have left at the end of the year. And that's what they report as their income, without accounting for their gross income or their expenses. Any Internet business that takes this approach after 2011 will be in for a serious wake-up call!
If you can take the IRS at their word, then supposedly the U.S. Treasury loses nearly US$100 billion in unpaid taxes from small businesses. That's a big number, and I believe it's a gross overstatement. I'll explain why in just a moment. But in reality whatever the number is, the new housing bailout bill is designed to dramatically reduce it.The IRS believes that America's small businesses are evading billions of dollars in taxes through unreported credit card transactions. And for that reason, it's long been at the top of their legislative agenda to require credit card issuers and electronic payment systems like PayPal to report sales data to the IRS.
Tax Inquisition Planned to Bailout Deadbeat Homeowners
The housing bailout bill does just that, broken down in terms of payments to businesses accepting the cards. Essentially, the bill requires Visa, MasterCard, Discover, American Express, PayPal, Amazon, Google Checkpoint, and virtually every other "electronic payment system" to track, aggregate, and report to the IRS, information on nearly every electronic transaction. They must report:
The gross amount of payment card and third-party network transactions
The name, address, and taxpayer identification number of the participating merchant
However, the bill gives these systems more than two years to gear up for these requirements. Mandatory reporting won't come into effect until 2011. Basically, what the bill does is to give the IRS a way to check what a credit card company or electronic payment system is actually paying a small business compared to what the business owners are reporting on their tax returns. If the two numbers are wildly out-of-sync, then you're likely to be audited.
eBay Powersellers, Beware!
How might this bill affect you? If you're an eBay Powerseller, for instance, and sell US$40,000 of cosmetics each year over the Internet, at the moment, eBay doesn't have to tell the IRS anything about the sales. But starting in 2011, eBay will have to send you - and the IRS - an annual report. The report would say for example that Connie's Cosmic Cosmetics received US$40,172.13 in gross payments from eBay for that year. And here's where it might get very dicey with the IRS. People who operate businesses are supposed to declare their gross income on Schedule C (or a corporate tax return). Then they're supposed to deduct all the costs of doing business to arrive at a net figure of taxable income. However, a lot of small businesses don't keep particularly good records. All the owners may know are what they have left at the end of the year. And that's what they report as their income, without accounting for their gross income or their expenses. Any Internet business that takes this approach after 2011 will be in for a serious wake-up call!
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