About Me

Orlando, Florida, United States
McCarron Accounting & Consulting was established in 1990 to provide efficient, expert solutions to businesses and individuals. Our primary services include accounting, taxation, and business consulting. We also offer a host of specialty services to cater to the unique needs of our clients. We serve a wide range of individuals, corporations, partnerships, and non-profit organizations and have experience with the accounting issues and tax laws that impact our clients.

Tuesday, August 9, 2011

So you have a little ebay business? Do you need to report the income?

On a recent family road trip to visit my brother-in-law in Louisville, KY, my 14 year old daughter was anxiously awaiting payment confirmation for her largest sale-to-date for her ebay business.  Correction, her ebay hobby....

She's been busy generating cash for vacation....  I was a bit amazed that she was able to sell her old camera for $60, plus shipping.  I was even more surprised the buyer paid her extra money to ship it express mail so he would have it in time for his vacation, in Florida of course!

Always the skeptic, I suggested she not mail the camera to the buyer until she had confirmation that his payment was received in her paypal account.  She assured me the buyer had only positive comments in his transaction history, so I figured he was probably legit, but still......About halfway to Louisville, she received confirmation payment was received, so her business transaction went well!

However, it was time for this father to have another uncomfortable conversation with his 14 year old daughter.....this time about taxes.  You see, in order to help narrow the "tax gap" caused by unreported income, the IRS is enforcing a new tax regulation meant to ensure all taxable income is reported.  The new Form 1099-K reports the recipient and amount of credit card sales processed by third party settlement organization, like Visa, Mastercard, American Express and yes, Paypal.  This is sure to trip up many home-based ebay and internet businesses that may not have reported taxable income in the past.

The good news for my daughter is that she will fall under two exeptions from tax reporting requirements.

#1 Since there is no way she will ever sell her "inventory" for more than she(I) paid for it, there will never be any profit from the business.  Unless of course there is ever a resurgence of polularity of beannie babbies, in which case I'll gladdly bring up her tax reporting requirements!  A business in which there will never be profit is considered a hobby in the eyes of the IRS.  Income may need to be reported in certain circumstances, but expenses can never exceed income in order to generate a tax loss.  Disclaimer....other reporting requirments may be required.

#2 The new 1099-K is not required if credit card volume is under $20,000 and 200 transactions during the calendar year.  If she sold all of the "inventory" during the year, she would still be under these thresholds. (wanna buy a beannie babby?)

The hight of Louisville today was a predawn tour of Churchill Downs by my brother-in-law Kevin.  He is an exercise jockey and trained last years Derby winner Supersaver ridden by Calvin Borel.  Saw Calvin breeze by on a new horse this morning. Could be another Derby winner!

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