In the wake of Hurricane Katrina, my husband and I found ourselves picking up the pieces—our home on the Northshore of New Orleans had been ravaged by floodwaters, and we lost nearly everything. As we rebuilt, I needed a way to supplement our income to help with my son's college expenses.
That’s when I turned to eBay. What began as a side hustle quickly became a new beginning, not only as a way to help with my son’s college expenses but it became so much more—it gave us something to focus on, a sense of purpose, and a reminder that even after devastation, new opportunities can emerge.
But, if today’s tax regulations were in place, I’m not sure I would have succeeded or even tried. New regulations require anyone who sells more than $600 worth of items online, even if they don’t earn a profit, to receive a 1099-K form and have their sales reported to the IRS. When I was first starting out, this requirement — and the need to consult a tax professional just to sell a few items online — may have discouraged me from ever trying.
While I’m grateful I didn’t have the new 1099-K requirements hanging over my head when I sold my first sale – a set of vintage books we no longer needed, through eBay auction – I’m concerned the regulation is discouraging for new would-be business owners. Fortunately, there’s a path forward. Congress can stand up for future entrepreneurs by raising the reporting threshold to an appropriate and realistic number. There’s even a provision to do so in the new tax and spending bill.
Policymakers established the $600 limit in the 2021 American Rescue Plan. Previously, only people who had $20,000 in sales and had 200 transactions were subject to the requirement. The IRS has delayed the rule several times, but the $600 limit will be in place by next year.
Now, neighbors selling their furniture before moving or supplies from a hobby they’ve given up will have their sales reported as income, even if they’ve taken a loss on the items. Selling products on online marketplaces provides many Americans with a little extra income, something that’s taken on new importance during a time marked by high inflation. Students sell their textbooks from previous semesters to pay for the books they need for their current courses, while parents sell clothes their child has outgrown and use the funds to buy new, bigger outfits.
These Americans are not running small businesses and should not be taxed as though they are. They’re essentially running online garage sales. In fact, polling shows 86% of casual sellers made less than $5,000 in 2021 and 83% said they sell used goods, meaning they’re likely taking a loss instead of earning any income to be taxed. A looming, confusing tax requirement will likely discourage at least some of these sellers from continuing their activities and new ones from ever starting out.
That would hurt buyers too. Parents looking for gently used sports equipment or twenty-somethings trying to furnish their first homes will find fewer options at higher prices.
Congress can avoid this fate by passing legislation that would raise the reporting threshold. The proposal in the reconciliation bill would increase the limit to more than $20,000 in total payments and more than 200 transactions in a calendar year. That would be a huge help to anyone with a side hustle. It’s time to pass this legislation so Americans get back to launching their small businesses instead of worrying about tax policy.
