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IRS E-Commerce and Cash Reporting Requirements For Business

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Negligence is not much of a defense

The IRS has come to the realization that millions of dollars are being made by thousands of small, online, businesses. Many of these are just one person shops selling goods or reselling goods from their home. Some of these have their own dedicated websites just like the "big" boys, but many simply have no website BUT have a Facebook presence and sell things via "live" selling to hundreds and thousands. Most of these are selling jewelry, handbags, clothes, that are bought at a discount and then resold retail to customers. These live sales are done using FB and once your presence is known, people are notified when the "live" sale begins and can join. Jewelry is very common and sold by the gram (if dealing with 18-24 karat gold). A live sale can easily bring in tens of thousands at $63.00 a gram. It is all very legal and rather under the radar because many simply start doing not realizing that it IS a real business. Of course, other businesses have a website and sell to people far away from where their physical presence is.

There could be a time when you are handling large amounts of cash and\or taking in thousands from followers who buy using Paypal, Western Union, etc. If you reach this point of success, and it can happen fairly quickly, you need to be aware of two IRS laws.

Form 8300

This has to deal with handling large amounts of cash of over $10,000. If you are a licensed business, and you receive $10,000 or more in cash payments within a year or a series of payments of that amount, the business must report it to IRS within 15 days using the form. A private person who receives it from a sale of something (like a car) would not since the seller is not normally in the business of selling cars. The cash can be USD or foreign. Money orders, cashiers checks, bank drafts that are less than $10k IS considered to be cash. But, if over the amount, it is NOT cash and the business does not need to report it! However, if one uses two money orders that total more than $10K, the form must be filed.

Cash is NOT a check written on a personal account. If the account owner writes a personal check for $10K or more, their bank MUST report it. If one writes several checks to the same business totaling $10,000 or more, the bank will be suspicious and report it to the IRS. Wiring money over $10K does not force the bank to report it, although, if done in large amounts frequently, a red flag goes up and they get suspicious and may call you about or freeze the account. If your bank is seeing frequent large deposits (even if under $10K, but certainly over it) in a month or so, they may get suspicious and report it or just freeze the account until you explain what is going on. Banks are very cautious because of the IRS.

Read the IRS Form 8300 Reference Guide.

E-Commerce 1099-K

This law is targeting the many 3rd party electronic payment businesses (like, Moneygram, Western Unions, World Remit, etc.).These businesses are used to send money across the world into the USA or out. Many tiny online businesses selling goods via FB "live" shows accept the payments from wherever in USD. It can add up quickly over a year's time.

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Also, besides Federal laws, most states also have a e-commerce threshold that must be passed until taxes occur. Most states have a $100K red line (stay under it and no tax reporting required). But a seller should check. As to IRS rules, their current law is that a 3rd party electronic payment business, such as, WU, Paypal, must send the IRS all payment records sent to the seller through their electronic payment system if the total is $20,000 or more OR more than 200 customers send money to the seller. Starting in 2022, the amount is reduced to a mere $600! This total is per year and the seller cannot stop it if the red line is crossed. This is per electronic payment business, like Zelle, WU, etc. These electronic payment companies are very savvy to those trying to send anything over $3000. Some will let you do it , but if too often (every week), they will freeze it and want ID from you and who is it going to.

The 1099-K is also sent to the seller so they can amend their taxes using Schedule C, as part of their tax return. So, if a seller on FB received over $600 (in 2022) in electronic payments from buyers using WU, then WU must send the IRS a 1099-K with seller info and total gross amount received via WU. If after a year, the seller received less than $600 from Paypal for sales, no 1099-K is required to be sent.

The only way to avoid the 1099-K is for the seller to keep track as sales come in from Zelle. Paypal etc., and whenever the amount is close to $600 (in 2022), stop accepting electronic payment from, say, Zelle. Of course, if you have more than 200 paying customers, your out of luck, it will be reported.

Read up on 1099-K to fully understand. Last year, the IRS collected over $40 million from sellers online.

As with anything, should the IRS think you are trying to avoid taxes in any way, you could get fined and\or end up in jail for tax evasion.

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