Paypal is now required to report to the IRS any user with over $20,000 in sales or 200 transactions in one year. The user or merchant (seller) will also get a form similar to a 1099. You will not pay taxes on the entire amount. You will file a Schedule C with your tax return and report the income and expenses against that income. Every one that receives a Paypal 1099, or whatever they designate the form, should already be keeping business records. If you're not keeping records you'll have to start.

It's very probable most of the small sellers will actually generate a business loss instead of income by the time they get thru with all the deductions they can take. For example business use of the home, vehicle deductions, actual business expenses for things like postage and packing materials and other office supplies. Schedule Cs really aren't all that hard to do. A good tax program will walk you thru it.

Feel free to PM me with any tax questions.

I believe the criteria set by the IRS is $20000 AND 200 transactions. That is not to say that Paypal could choose to send out forms for less.

I'm pretty sure I read OR. I think they'll have just as many taxpayers with business losses as profits.

Are you a Tax Professional?

Yes.

Remember that the guidelines are only requirements for Paypal to follow. IRS requires ALL income to be reported by a seller whether a 1099 is issued or not. Also there are different rules for business and hobbies. It's always best to use a trusted professional.

Here is a link from the Paypal blog

https://www.thepaypalblog.com/2008/08/proposed-irs-reporting-requirements-become-law/comment-page-2/]https://www.thepaypalblog.com/2008/0...omment-page-2/[/url]

"Under the legislation, PayPal will be required to report to the IRS the total payment volume received by PayPal customers in the U.S. who:

1. receive more than $20,000 in payment volume in a single year; and
2. receive more than 200 payments in a single year."

Doesn't this start in 2011. Would help to know this.

Yes, it's starts in January of 2011. You won't reicieve the first reporting form from Paypal until January of 2012 for the tax year 2011.

That means everybody gets to start record keeping fresh with a new year.

That works for me. I will get an accounting book and make columns. I am not a regular seller but want to cover myself for the little I do make. With the deductions, etc, the small seller will not have to pay. Thanks for the post. GOod to know.