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Originally Posted by Exhibitman
I don't get that logic either. Most of the average person's income is already reported and papered: W2, 1099INT, K1, etc. What difference does it make if there is one one piece of paper in the pile? The tax reporting obligation remains the same regardless.
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Although I believe that the main issue and reason for reduced Ebay business in 2022 is because most sellers who previously weren't reporting their Ebay sales on their tax returns don't want to risk getting a 1099 and having to report those sales for income tax purposes going forward, there is possibly another issue/reason that may influence those who were already reporting their sales for tax purposes.
By receiving a 1099, that seller's activity is now formally entered into the IRS' system and subject to additional scrutiny and review as part of their automated system. ALL 1099's the IRS ever receives are matched to the recipient's respective income tax returns, and ANY perceived tax discrepancies or errors are going to result in an automated response from the IRS.
And maybe even more importantly to some, there is the intrinsic belief or perception that receiving a 1099 indicates the recipient is operating a business and acting as a dealer, and is therefore not an investor or collector. It at least opens the door for the IRS to come asking questions as they will likely assume the 1099 recipient is operating as a dealer in business as well. And lacking any direct evidence or documentation to the contrary, the IRS ALWAYS assumes the most negative impact to the taxpayer, until it is proven to them otherwise. All for which means the 1099 recipient should prepare and be ready for such questions in advance, and have answers and records ready to prove their purpose and intent to the IRS, if and when needed.
At a minimum, the negatives for being treated as a dealer include having all your net income always treated as ordinary income, subject to the highest possible tax rates. There is no potential long term capital gains tax rate limit of 20%/28% on business net income, that is only available if you can claim you are a selling items as a collector or investor. Also, being in business means that in addition to income taxes, the net income you make from selling your cards/items is now also subject to self-employment taxes (social security and Medicare taxes), which can be as high as 15.3% of you net taxable income from such sales, AND THAT IS IN ADDITION TO THE INCOME TAXES YOU'LL OWE ON THAT NET INCOME. On the plus side, you do get to deduct additional business related expenses you don't get as a collector or investor, but I can see many people not wanting to bother with the work and hassle of doing so, and dealing with the additional scrutiny it can bring from the IRS as a result.
So, there are possibly some other very good reasons for people not wanting to receive a 1099, other than just not wanting to have to report the sales income on their tax returns.