Even casual sellers could end up having to explain their activities to the tax office. Anyone using Paypal or similar payment processors should understand that these companies will report money transfers to the tax office if yearly transactions meet 2 specific criteria.
Here’s the explanation straight from Paypal’s website:
1. “Internal Revenue Code (IRC) Section 6050W states that all US payment processors, including PayPal, are required by the Internal Revenue Service (IRS) to provide information to the IRS about certain customers who receive payments for the sale of goods or services through PayPal.
2. “PayPal is required to report gross payments received for sellers who receive over $20,000 in gross payment volume AND over 200 separate payments in a calendar year. In order to help you understand these information reporting obligations, we have prepared the following FAQs. After reviewing the following FAQs, we recommend you consult your tax advisor to assess tax implications of Form 1099-K reporting.”
So if the payment processors like Paypal notice 200+ transactions and at least $20,000 coming into your account, they’re simply going to report you to the tax office and you’ll have to explain. There are situations where you could owe income taxes on the proceeds of such sales without even knowing this.
Sven Franssen