IRS Coming After Online Auction Income

The days of easy cash from selling your baseball cards, comic books, and Pokémon figurines may be coming to a close. The IRS wants auction sites like eBay to start collecting Social Security numbers so users can be more easily taxed.

Technically, income from auctions is no different than offline income. But few people report income from sales of used goods, nor are they required to. Online auctions fall into the same category as making money from a garage sale: You generally don't have to report income from sales of used household goods if you aren't making a profit on them. I don't have any statistics, but isn't this what the bulk of stuff on eBay is? Still, as of 2001, the CNet story linked above notes that the IRS estimated it was not receiving $345 billion owed to it due to underreported or unreported income.

Naturally this proposal hasn't been met with much approval or excitement, probably because the IRS is only considering half of the equation. Business expenses are deductible against any income you make, so the raw materials you spend constructing the homemade dreamcatchers you sell on eBay can be used to offset any income earned. Auction fees are also deductible. In other words: I think it's quite likely that most people selling on sites like eBay aren't making any money at all. The few exceptions are people who run serious businesses off of auction sites, and I'm sure most of them are already paying taxes on their sales.

Auction sites are only the latest online forums the IRS has targeted to scrape up a little extra cash. Late last year talk started generating about virtual assets like those in Second Life being subject to taxation.

Naturally, it's casual sellers of used items who are going to get caught up in the IRS's messy web should this come to pass. I sell a fair amount of junk on eBay, but I've never made a profit on any of it against what I paid. Do I want to have to explain a few hundred or thousand dollars in income to the IRS every year that came at a price of several times higher? Really looking forward to it...

LINK: Selling stuff online? Here comes the IRS