eBay Now Reports Seller Revenue to IRS on Form 1099-MISC

Your good friend eBay will help you pay your taxes starting in 2011. Hey, they want to help you pay your fair share. This from a quote on the eBay website in their Community Forums section:

"For Tax Year 2011, eBay and PayPal are going to send out a form telling you and the IRS how much money you ran through them. The official threshold is $20k, but I would imagine PayPal will take the position that they report based on a much lower number, much like many corporation do now w ith 1099-Misc." (http://forums.ebay.com/db1/topic/Accounting-Assistant-Record/1099-Misc-Tax/510074131)

If you thought selling on eBay was the best way to get top dollar for your stuff, 2011 may be the year to reconsider. The cost of selling on eBay has steadily risen. Now, with the added requirement of calculating capital gains on one-time sales, it may no longer make sense to sell on eBay. If you have inherited or owned an old coin collection for many years, your "cost" is very low. Let's say you inherited a coin collection. Your cost is zero. You sell it on eBay for $20,000. After paying eBay and PayPal commissions and fees, you net $16,000 (roughly 20% in fees and commissions is pretty much standard now on eBay if you set a minimum or Buy-It-Now price). But wait, a year later at tax time you get a 1099 in the mail from eBay, a copy of which they have also sent to the IRS. Now you must calculate your capital gain tax. On a $16,000 net sale, at the 35% capital gain rate (standard), you will have to mail a check to the IRS for $5600.00. On that $20,000 sale, you actually get to keep only $10,400. You kick yourself because you turned down a cash offer from a buyer earlier in the year for $15,000 because you thought you could get more on eBay.

It now makes more sense to sell direct to an internet buyer who does not report to the IRS. There is no reason why anyone should expect to pay capital gains on one time, person-to-person sales. If you can find a trustworthy internet or local buyer, you are much better off selling direct than selling through a large marketplace like eBay.

eBay does not advertise or alert you to the fact that they are tracking your sales. The IRS keeps a very close watch over the eBay marketplace now that it has grown so large. Sellers should beware, Big Brother is watching. And eBay is helping.