I've heard that in the US, credit card companies are required to report to the tax board, so by selling something to yourself, you will be required to pay income tax on whatever money comes in. Can anyone shed light on this?
When payments made in settlement of payment card transactions (e.g., credit card) exceeds a threshold then the payment processor must report that as income to the IRS, using form 1099-K.
That threshold is currently $20K USD but only if you received 200 or more payments in the year.
- http://www.irs.gov/Businesses/New-1099-K-Reporting-Requirements-for-Payment-Settlement-Entities
What that means is if you sell on eBay and have received $20K in the year on your PayPal, then you'll get a 1099-K reporting that income.
That just means that your income tax return must include this income. Obviously you will have expenses against that income -- like the cost of the merchandise, the selling fees, shipping costs, etc. Only on the profit that results would there need to be income tax paid.
Now, while this is a new requirement (2012 the second year where selling activity is subject to this reporting requirement) there have been reports of problems already. Some payment processors are reporting even those with well under $20K having been reached. People who received personal payments through PayPal from family members are now finding they now need to keep records, proving that the transfer was truly a gift or for tuition, for example, rather than proceeds from selling on eBay, for instance.
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