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How the IRS Can Tax Online Selling

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Many new sellers online do not realize that what income they earn on FB or other online selling platforms is taxable by the IRS. Many think, that somehow, their income is exempt from the prying eyes of the IRS and is tax-free. However, this is NOT the case.

Facebook has its Marketplace for online sellers of just about anything. People can make thousands of additional income there but did you know that FB must report individual sales to the IRS at the end of the year? So, if you earned an additional $2000 in income during the year, the IRS will send you an 1099-misc form showing the total you made and that must be included in your total annual income. If you ignore it and do not include it, the IRS will know by your tax return. FB also takes 5% of the selling price (whatever it is) before sending you the balance. That is their price for selling on their Marketplace.

Now, many think that the way to avoid being taxed is through "live" selling on FB. Many do it, selling jewelry, clothes, watches, etc. During the live selling, a viewer will buy an item and then pay via a third party payment system, such as, Western Union, Zelle, Paypal, and others. Some of these are in other countries to handle transactions to send money.

If the amount for the year is over $20,000 and 200+ payments sent to the same seller, the third party payment party MUST sent the IRS the amounts, regardless where they are based or if foreign. The IRS will then send the seller a 1099-K showing the total amount of income made the past year. Again, it is income and it must be included on your annual tax return or the IRS will penalize you. Electronic payments for goods is easily tracked in this manner by forcing the third party payment firms to disclose amounts made to a seller if over $20,000. If the amount is under, there is no disclosure.

The one unclear aspect of this is whether the IRS code means $20,000 or more regardless of the number of third party payment parties are used by buyers to send money to the seller OR is it $20,000 per electronic payment third party. It would seem to be the former, because the IRS defines reportable income of $600 or more.

In any case, online sellers must keep track of their gross earnings and number of customers when selling "live", especially, if you are generating thousands from customers sending you electronic payments for you to collect. Those companies sending the electronic payments are keeping a tally of the amount to you during the year, you should too!

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