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New 2011 Form 1099-K

Back in college, I used to sell all sorts of things on eBay for a little extra cash. Two of the more legitimate things I sold were John Deere hats, made popular by Ashton Kutcher and his Punk’d show, and Washington Wizards Michael Jordan jerseys, made popular when Jordan made his brief return to the NBA. Back then, as is the case today, eBay sellers had to report that income on their income tax returns. Many don’t because there’s no checks and balances in place forcing them, there aren’t any W-2s or 1099-MISCs for them because eBay doesn’t pay them, a multitude of sellers do.

The times have changed and now the IRS has produced a draft Form 1099-K [3] used to report Merchant Card and Third-Party Payments made to your ID number (social or employer ID number) in each month. This is a way for the IRS to capture some of the underreported income since sellers will not have to reconcile the third-party transactions, such as through PayPal, with their incomes.

There are a few huge caveats. If you have gross sales of less than $20,000 a year or fewer than 200 transactions, then 1099-K reporting will not be necessary. This is so your small time sellers, like those emptying their attics, don’t get stuck with a paperwork nightmare while actual businesses are still on the hook for sales.

This new form isn’t limited just to PayPal and eBay, though chances are that’s what most of you guys, myself included, are most concerned about anyway.