A few days ago I talked about the new Housing Bill and how it relates, good and bad, to home owners. There was another a little piece that was stuck in there that has the potential to have even further ranging consequences.
This new piece of legislation calls for all merchant account providers to start reporting data on merchant sales to the IRS. So, as an example, all the people who sell on eBay using PayPal who thought they were under the radar are going to have to start reporting their sales, if they meet the criteria. So far, the reporting starts for anyone who has sales of $20,000 or more per year plus 200 transactions or more per year.
I’ve been doing a monthly online workshop on eBay for years now and without a doubt I can always count on someone asking me, “Does eBay report my sales?” And the answer has always been “No, but you are required to report sales.” Now, the answer is “No, eBay doesn’t report, but PayPal does.”
This reporting doesn’t start until 2011, so that merchant accounts providers have time to gear up for this new law. There is also a comment that mandatory withholding will start for sales after December 31, 2011. But there is no further explanation on what that might mean.
Besides catching a lot of people who have been operating small businesses under the radar, I think this is also going to cause merchant account fees to go up. We can also expect a rise again in audits of Sole Proprietorships (unincorporated Schedule C businesses). That’s because these are the ones most likely to be under-reporting sales.
How do you prepare for this? Make sure you have good books and records. If you’re currently trying to operate a small business and not pay taxes, come clean. You’ll find that it’s a lot easier and simpler to take the legal tax loopholes that are available for you then trying to hide sales.