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Ask HN: Our users don't want to pay taxes

Our platform caters to small business owners and individual sellers in a very particular niche. On the surface we're doing well; we have no trouble getting more users without spending a dime on marketing, our buyers and sellers are frequently using the platform and are happy, users are engaged and willing to talk with us, and we're even making a bit of money too. However, we have one massive problem: our merchants are not used to paying taxes and are deeply afraid of using our more monetized features because we are legally required to fill out a 1099-K on their behalf. It's one part "I don't want the government taking my money" to two parts "I don't know how taxes work" in most cases that we've looked into. Now, some of our sellers don't mind, but the vast (and growing) majority are not comfortable with taxes. This presents a problem as we're still growing, but not sustainably. We obviously want to keep pursuing this startup idea but unless something changes, it doesn't seem likely to work out. To solve this, we've tried hiring tax experts to explain how taxes work or why it's not as scary as they might think, but it hasn't been very convincing. On the more drastic side we've been thinking about switching business models a bit, but it seems so crazy to me when there is a huge opportunity right in front of us that we can't seem to capitalize on. Anyone have any experience with this sort of thing? What works? What doesn't?

gedy 4y ago
Not sure what your niche is, but there are a lot of cultures who absolutely prefer cash and under the table deals in their businesses to avoid taxes and having taxable income.
deleted 4y ago
[deleted]
Decker87 4y ago
I wish I could be more helpful, but the one thing I can tell you confidently is that you can't educate your users unless they are coming to your platform seeking an education. The best you can do is just give them a snappy UI where they mindlessly click through the "boring stuff" and a EULA that keeps you legally safe.
- zip1234 4y ago
  This is truth. Not a happy truth but truth. Education is friction against what they are using the tool for.
macinjosh 4y ago
Taxes are a huge burden on small and micro businesses so this is no surprise at all. Big and rich companies just hire fancy tax lawyers. Small folk just deal in cash. This is why we are seeing governments working hard to bring and end to cash. That’s when crypto starts taking over,IMO.
- polemic 4y ago
  Ah yes the tax avoiders dream: a permanent and public record of all your financial dealings, protected only by your own opsec.
- imtringued 4y ago
  I'm not convinced that any sane business owner would risk their business getting shut down over something stupid like cryptocurrency.
than3 4y ago
> Our users are not used to paying taxes and are deeply afraid of using our monetized features... The problem you are trying to address is not a new one. What's worse, solutions have only gotten worse and less palatable because of decisions made as a result from the past generation doubling down on failed policies and strategies that don't work. They've paid the price themselves, and that price will also be passed down to next generations in terms of lost opportunities, lower wages, and less availability of work. Its a cursed problem. The best solution people have come to a consensus about is that its about investments in technologies that augment labor, rather than replacing labor. This solution worked at a time when there was less regulation and labor was not as expensive as it is today. Currently, it just doesn't work because of the costs to businesses as a result of regulation, and incentivizes businesses to use financial engineering to take advantage of tax loopholes and invest in technologies that replace labor instead of augment it. On top of that is the runaway inflationary pressures that printing money from nothing causes. No one of any influence has gone to these failed policies and re-examined what didn't work and taken steps to fix it. Instead they've doubled and triple downed on their failures with a this time will be different. Also, people are rightfully worried about taxes because the things we get for those taxes are minimal, over half of their annual productive time spent working is done for free (to pay those taxes), if you count fuel, sales tax, social security, medicare, income tax, and those other costs that are tacked on at the business level and then passed onto the consumer in costs; you are basically slaving away for a promise that by the time its your turn there will be something for you (social security). Tax law primarily encourages investments in non-productive assets. The solution so far has been complex financial engineering (some of which resulted in frauds) and the bailout which has been to print money, and you can only kick that can so far before the jig is up and there is a currency crisis. The problem isn't experts. The problem is credibility. There have been multiple crises where people lost most of what they had accumulated where the experts failed them completely, they did everything right and lost it all and their answer which came after losing it all from the professionals was, "We've never seen this happen before". The policies that have been enacted deform economies and cause boom bust cycles. Debt is cheap, almost ensuring failures if you aren't bought out with a leveraged buyout when the economy sours. The incentives to invest in productive investments have been neglible compared to the returns on unsound investments; and the investment environment has never been so risky.
awinder 4y ago
… why are these businesses not paying taxes? Is it a lot of small-volume hobbyist merchants who might not legally have to pay taxes? Is it people who should be paying taxes and are just skirting the law? How much do you expect to monetize from this class of users?
- throwaway5678i 4y ago
  It's a mix of both, but the "hobbyist" portion is a quite bit larger. From what we gathered from our data and speaking to some customers directly, we have the belief that their profit margins are thin enough to the point where they will either pay nothing or nearly nothing in taxes anyway... but the idea of simply being on record is terrifying to them. Both groups generally have issues with taxes, they usually take payments using Venmo, Paypal Friends and Family, or even direct bank transfer just to get around the reporting. They pretty much use and abuse any form of electronic payment that they can get away with without presenting themselves as a business. As for monetization, we keep track of the "non-monetized" transactions and it's in the low 7 figures. It's not a crazy amount of money, but it's nothing to sneeze at either.
noodlesUK 4y ago
The thing is, there's probably not much you can do. Now that the reportable threshold for 1099-k is so much lower, it's just going to be something people learn to deal with, or they won't. I'm not sure quite what your business does, but I've seen this personally where my family no longer wants to sell their stuff (which is not really a taxable kind of transaction, but they don't understand how they can report it to the IRS as such) on eBay because they don't want to be taxed on any money they get from it. The issue is that US taxes are so complex and punitive, and that Americans are so afraid of the IRS. Unfortunately your business won't be able to change that.
- HWR_14 4y ago
  US taxes may be complex, but they aren't punitive. Frankly, it seems like it should be trivial to make the tax code simpler, but then we would need to move a lot of subsidies into other, harder to navigate, programs. Meanwhile, I assume you mean "the stuff they want to sell on eBay is at a lower price than their cost basis". If there's some other way to avoid taxes on sales, I'm all ears!
  - noodlesUK 4y ago
    > US taxes may be complex, but they aren't punitive. The taxes aren't, but compliance certainly feels like it is. I owned a dormant UK company that I set up when I was living in the UK. The reporting for that as a US citizen is nightmarish (look up form 5471). People who are any sort of edge case who want to be tax compliant pretty much just can't be without spending mega $$$ on accountants. The only thing that is reasonably straightforward is for people with a single employer on w2 income. And even then, other countries put the US to shame for that circumstance, most don't even require filing anything to their tax authority. > "the stuff they want to sell on eBay is at a lower price than their cost basis" Yes, this is exactly what I'm describing. Many people I know use eBay as a sort of garage sale online. All their inventory is used items that are worth less than the original price they paid for it. They may make $1k or so across the year at best. They'd rather just not sell online, not make the money, and not worry about tax reporting when platforms start throwing terms like 1099-k around.
  - 4y ago
vm 4y ago
This reminds me of Thumbtack. Their customers, local service providers, are incentivized to move transactions off-platform to avoid paying commission fees (and taxes in many cases). However, those customers are willing to pay to connect to relevant leads, which seems to have worked out well for Thumbtack.
twblalock 4y ago
Small businesses make a lot of financial mistakes: commingling business and personal funds, not reporting taxes, not paying taxes, breaking a variety of labor-related rules, etc. Sometimes this is accidental, and sometimes it is intentional. When your clients are small businesses, you will find they have a wide range of business and financial and legal acumen, and some will lack basic professionalism in most areas. That's especially common in the case of small family businesses. I used to work at a company that targeted both small businesses and enterprise companies with different versions of the same product. Dealing with enterprises was predictable: they know about corporate governance, they have legal and accounting teams, etc. Every small business was a wild card. If your clients have not been paying taxes so far, they might be afraid of owing back taxes or fines if they start engaging with the tax system and their past behavior is discovered. Also, some of them are probably avoiding taxes on purpose, maybe because they are crooks, or maybe because they simply cannot afford to pay. You probably aren't going to convince them to start paying taxes just to use your product unless it is incredibly compelling for them.
- sicp-enjoyer 4y ago
  Absolutely this. Many small businesses (probably many food trucks) are only profitable because they do not pay taxes.
  - nly 4y ago
    That sounds odd, given that in most(?) countries businesses only pay taxes on their profits.
    - ComodoHacker 4y ago
      In many countries, small businesses pay taxes on gross income. Basically sales tax.
      - nemetroid 4y ago
        Are you saying that many countries with VAT have exceptions for small businesses? The number of countries without VAT arguably doesn't add up to "many". (of course, this is not relevant to the discussion at hand about a business in the US)
morpheuskafka 4y ago
The problem with explaining the whole 1099-K thing is as soon as you say, "the new form is just additional reporting, you report it as you would before and we can't tell you what the taxes will look like because it depends on what the payments are for (rent, goods, services), business structure, etc," you find out that they never reported their cash payments, don't know what a schedule C is, and don't have any interest in learning. If they don't understand the idea that they are running a business, pay tax on their net profit not their gross profit, that "deducting" business expenses is not an optional thing like itemized deductions, what self-employment tax is (and that it is just the employer and employee portions of a tax that already exists for everyone else), etc. then its hopeless trying to explain these forms to them. In fact, it seems that many of them don't even know if their business is profitable or not, since they have no records of expenses and COGS necessary to calculate that. That's the part that always puzzles me. For what its worth, the idea of users not wanting to pay taxes isn't that new--some websites even advertise that they don't collect sales tax and I will admit to having sought out businesses small enough not to charge it in every state.
- hn_version_0023 4y ago
  > In fact, it seems that many of them don't even know if their business is profitable or not, since they have no records of expenses and COGS necessary to calculate that. That's the part that always puzzles me. In my limited experience with folks who've run these types of small businesses, they seem to always have enough cash flow that in the short term, profit doesn't matter. Putting food on the table tonight matters. So if that's the case, why bother with the expense of accounting?
- deleted 4y ago
  [deleted]
bitwize 4y ago
RyanShook 4y ago
The reporting threshold went from $20k last year to $600 this year so pretty much every selling platform is dealing with this change. But I think more context is needed. Sales tax rules vary so widely depending on the location and item being sold. I assume as a platform you legally have to report 1099-K? Here’s how eBay explains their 1099 to sellers: https://www.ebay.com/help/selling/fees-credits-invoices/ebay-form-1099k?id=4794 https://www.ebay.com/help/selling/fees-credits-invoices/ebay...
- throwaway5678i 4y ago
  Yup, and these merchants are keenly aware of that unfortunately. When the news broke of the change, suddenly they all became very concerned about taxes and reporting. We've actually done a good bit of work on our end to clear up what 1099-K's are and what taxes actually mean for their businesses, so the material is clear and accessible to all of them. The problem is that doesn't overcome the fear they have for the IRS, unfortunately.
dosman33 4y ago
Why you are not afraid: you make enough money to hire experts to shield you from making any business and tax mistakes. An emerging hobby business makes enough money to warrant hiring some VERY limited services, but not enough money to hire a book keeper, a CPA, and any other services that a "real business" needs. I converted a side-hustle into a "real business" that paid taxes for several years. It's not super hard to start a business as a beginner but you've got some hurdles to clear, more-so if you are selling durable goods as opposed to "apps". I made one single mistake while conducting out-of-state commerce that cost me thousands of dollars in one fell swoop: that was more than all the cash the business had on-hand. I had registered to do business in the other state and was trying to dot my i's and cross my t's and be above board, but the mistake was till mine though. I could have spent those same thousands of dollars to hire experts over the same course of time preventing all the wasted money, lost time, and headaches but my business would have made so little profit it would have nullified the reason to be in business as a real tax-paying business. Along the way I began to see various things as "cost of doing business" which was useful. I was glad to have the experience, I reinvested heavily into the business to save myself time and effort. But I never made enough money to hire others to do anything that I could do myself. The "cost of doing business" part only works if you have regular positive cash flow too. So again, you are trying to serve hobby businesses who are not profitable enough to warrant them hiring experts to dot their i's and cross their t's for them. They are correct to be afraid of lightly stepping into this world and you won't change that.
- moomoo11 4y ago
  I only know how to make apps thus far at least as far building any products is concerned. I’m curious if you can enlighten me how it works with apps. If I’m living and based in California and I launch an app that people/biz can pay for anywhere in the world, how does that work? If someone in Mew York buys a module on my app is that considered out of state commerce?
  - londons_explore 4y ago
    Every state and country has different laws. If you're doing things properly, you shouldn't start selling your product in a state or country till you have checked your product meets all the laws there and registered a business entity able to sell there. Then, you will need to submit taxes to that country, and in some cases even have an office there.
pyuser583 4y ago
I have personal experience with trying to serve legally non-compliant customers: don’t waste energy convincing them to follow the law - they won’t. I worked for a company whose reason for existing was because clients needed it to comply with the law. If you didn’t hire, or employ, someone like us, you were violating the law. Sales pitch was pretty simple: hire us, or you’re a felon. It was insanely hard to get people to use our services. It reached the point where sales gave up on trying to convince people to start following the law, and instead focusing on poaching clients from competitors (that is, folks who had already decided to follow the law). Best advice is don’t fight them. If they’re not gonna do it, they’re not gonna do it. Depending on the specifics you either reject them as a client, or accept them and file the appropriate paperwork.
- Fej 4y ago
  Would you be willing to divulge what law or type of law your company fulfilled?
  - pyuser583 4y ago
    Hazardous waste disposal.
    - aluminum96 4y ago
      Wow, it’s really scary that there are apparently tons of companies with non-compliant hazardous waste practices.
      - deleted 4y ago
        [deleted]
      - hansvm 4y ago
        Compliance is one thing. It's atrocious how many have an IDGAF attitude toward hazardous waste -- vending machine recyclers claiming that magically all the refrigerant had already leaked out before they touched it, warehouses "accidentally" losing a hundred barges full of deet, ...
simple-thoughts 4y ago
braingenious 4y ago
I’m kind of confused here. How is this a business issue for you? Would using Stripe Tax or something like it help? You either assist your users in avoiding taxes (probably a crime), or just shrug and say “We didn’t invent taxes” Do your users not pay sales or property taxes on their day to day lives? How is it your business’ job to figure this out for your customers? Would a referral link to H&R Block solve this?
- throwaway5678i 4y ago
  Essentially, we want to monetize transactions with a % fee through a payment handling offering for the merchant on top of our (free) platform. We give them tools to run their business but charging them appropriately for it is difficult since their margins can be thin. We figured that offloading the cost of the platform to their customers would be easier than convincing them to purchase a SaaS subscription. However, these merchants are reluctant to use this sort of service because if they used it, our platform legally has to report this in a 1099-K to the IRS. Same as any marketplace these days. As for the referral suggestion, we actually worked with tax professionals in order to do just that. We figured if we personally vetted some tax pros for referrals vs a link to something like H&R Block, it'd help make the difference. It didn't. (Also, we use Stripe Tax to handle sales tax for the customers who do use the monetized features. They love it!)
  - braingenious 4y ago
    I think I’d have to look at your service to figure out what the issue is, but if you’re legally required to make a 1099-K… then you’re legally required to make a 1099-K. I would point out that avoiding paying tax is a crime, that you don’t want to go to jail because of their preferences, and invite the people that want to commit the crime of tax avoidance (with your help) to take their business elsewhere.
rdtwo 4y ago
Not much you can do. I killed my micro business because compliance costs weren’t worth it. Imo 1099s actually make it easier though. Before I would have to make my own and hope it matched and that’s actually a bigger headache.
- jollyllama 4y ago
  This. The government is basically screwing over the OP and his customers with this new requirement. If you look on ebay, there's a lot less options than before. A lot of people are just quitting rather than deal with this. How they're making up the income, idk.
  - rdtwo 4y ago
    The bigger problem is that there is no reasonable minimum compliance threshold. If the governing were to just allow you an exemption for under 10k of profit it would allow small and micro business to try and fail without all the extra additional compliance issues that larger enterprises might be more capable of dealing with.
linuxftw 4y ago
Stick the 'any gross payments over $600' bit somewhere in your terms of service, operate as normal until people hit that threshold, stop disbursing money to them once they've hit that threshold and require them to provide the tax id. That's going to be what everyone does.
- behringer 4y ago
  This exactly. I think op is missing the very first rule of business. Always take the customer's money.
- datavirtue 4y ago
  And now your customers hate you.
  - linuxftw 4y ago
    The alternative is they're not your customers, so what is lost?
    - isbvhodnvemrwvn 4y ago
      You will have a shitton of bad press. Doesn't matter if it's right or wrong as in this case, it is still going to affect you.
      - linuxftw 4y ago
        There's no such thing as bad press for a very niche market, and again, anyone that doesn't like the rule wouldn't use the platform.
        thijsvandien 4y ago
        To the contrary, niches can be small worlds where stories spread quickly, since everyone knows each other.
collegeburner 4y ago
absolutely based lmao but seriously, you start talking about irs forms and surprised when a small business whon cant afford a fancy ass tax lawyer gets scared? most of them would get in trouble if the irs looked at them so it's not that they need it explained what it is, it's that they still don't like it for good reason.
mninm 4y ago
I have no real idea what the ins-and-outs of 1099-K and so I could be completely wrong. However, it seems like there may be some sort of threshold listed in the reporting requirements. Would it be legally possible to allow your users to use the enhanced functionality of your platform up to the edge of that threshold? Cutting off access to the premium services that the sellers of erotic coo-coo clocks (or whatever) have come to value might incentivize them enough to overcome the 1099-K hurdle. You could make the process gentler by constantly displaying the amount of revenue left that they can transact before being cut off. Be careful though. Cutting off access will equally incentivize users to bypass the restrictions you've put in place by creating multiple accounts, etc. Lacking the above you could also try to focus on the part of your platform the sellers do want to use and sell a premium tier to sellers that has features that would make them stand out to buyers. For example premium users could have flair (think something akin to a verified checkmark) next to their listings in searches and the ability to post an extra video of their clocks.
Joel_Mckay 4y ago
Tax obligations vary widely from place to place. Some tax on residency after a set time of stay, but entitle you to community services (Canada). Others tax on citizenship, and are still binding in the country of birth even if you have dual citizenship (USA). The US now has a per state and federal tax withholding obligation for international eCommerce businesses selling to US customers as of 2019. The amount and customer sale count grace thresholds vary state to state, but failure to file a US federal return (even for $0 taxable revenue) as a non-US company is still a $10k fine. Don't YOLO this one, talk with the US chamber of commerce rep for the areas you want to export/import into. People may not like taxes... but they will hate the fines, seized shipments, or jail even more. In many cases, the withheld taxes can be recovered if the buyer can prove the destinations tax rules were incorrectly applied. ;)
Lapsa 4y ago
But they are scary! Once upon a time messed up single checkbox - it took about 30 phones calls, notar signed job contract translation, a visit to general director of IRS (I kid you not). About a year of completely ridiculous hassle. Wasn't even attempting to cheat anything.
ineptech 4y ago
Are these taxes that your customer was supposed to be paying already, or taxes they pay on the savings your product facilitates (and hence don't need to pay without your product)?
londons_explore 4y ago
Are you aware of gumtree? Or Facebook Marketplace? It's a buying and selling platform, similar to eBay, but the platform only connects buyers and sellers, but doesn't do payments or complete the sale. Therefore, they have no reporting requirements (since they have no idea if those sales completed or not). Perhaps allow customers who are scared of government paperwork to put your platform into a mode that allows that?
obscurette 4y ago
I have worked with small businesses as well and yes, they don't like paying taxes. In this part of the world (Eastern Europe) the main problem is that these small businesses usually don't compete with other businesses. They compete with hobbyists and with gray market and paying taxes immediately hurts their competitiveness.
balderdash 4y ago
If I had a local small business that did let’s say a $1m in Rev, I could research and understand my state and local tax obligations, and file and remit applicable taxes. If I take the same business, and make it national, selling online in all 50 states, that just effectively became impossible to do (given time/budget constraints)

gedy 4y ago

Not sure what your niche is, but there are a lot of cultures who absolutely prefer cash and under the table deals in their businesses to avoid taxes and having taxable income.

deleted 4y ago

[deleted]

Decker87 4y ago

I wish I could be more helpful, but the one thing I can tell you confidently is that you can't educate your users unless they are coming to your platform seeking an education. The best you can do is just give them a snappy UI where they mindlessly click through the "boring stuff" and a EULA that keeps you legally safe.

zip1234 4y ago
This is truth. Not a happy truth but truth. Education is friction against what they are using the tool for.

macinjosh 4y ago

Taxes are a huge burden on small and micro businesses so this is no surprise at all. Big and rich companies just hire fancy tax lawyers. Small folk just deal in cash. This is why we are seeing governments working hard to bring and end to cash. That’s when crypto starts taking over,IMO.

polemic 4y ago
Ah yes the tax avoiders dream: a permanent and public record of all your financial dealings, protected only by your own opsec.
imtringued 4y ago
I'm not convinced that any sane business owner would risk their business getting shut down over something stupid like cryptocurrency.

than3 4y ago

> Our users are not used to paying taxes and are deeply afraid of using our monetized features... The problem you are trying to address is not a new one. What's worse, solutions have only gotten worse and less palatable because of decisions made as a result from the past generation doubling down on failed policies and strategies that don't work. They've paid the price themselves, and that price will also be passed down to next generations in terms of lost opportunities, lower wages, and less availability of work. Its a cursed problem. The best solution people have come to a consensus about is that its about investments in technologies that augment labor, rather than replacing labor. This solution worked at a time when there was less regulation and labor was not as expensive as it is today. Currently, it just doesn't work because of the costs to businesses as a result of regulation, and incentivizes businesses to use financial engineering to take advantage of tax loopholes and invest in technologies that replace labor instead of augment it. On top of that is the runaway inflationary pressures that printing money from nothing causes. No one of any influence has gone to these failed policies and re-examined what didn't work and taken steps to fix it. Instead they've doubled and triple downed on their failures with a this time will be different. Also, people are rightfully worried about taxes because the things we get for those taxes are minimal, over half of their annual productive time spent working is done for free (to pay those taxes), if you count fuel, sales tax, social security, medicare, income tax, and those other costs that are tacked on at the business level and then passed onto the consumer in costs; you are basically slaving away for a promise that by the time its your turn there will be something for you (social security). Tax law primarily encourages investments in non-productive assets. The solution so far has been complex financial engineering (some of which resulted in frauds) and the bailout which has been to print money, and you can only kick that can so far before the jig is up and there is a currency crisis. The problem isn't experts. The problem is credibility. There have been multiple crises where people lost most of what they had accumulated where the experts failed them completely, they did everything right and lost it all and their answer which came after losing it all from the professionals was, "We've never seen this happen before". The policies that have been enacted deform economies and cause boom bust cycles. Debt is cheap, almost ensuring failures if you aren't bought out with a leveraged buyout when the economy sours. The incentives to invest in productive investments have been neglible compared to the returns on unsound investments; and the investment environment has never been so risky.

awinder 4y ago

… why are these businesses not paying taxes? Is it a lot of small-volume hobbyist merchants who might not legally have to pay taxes? Is it people who should be paying taxes and are just skirting the law? How much do you expect to monetize from this class of users?

throwaway5678i 4y ago
It's a mix of both, but the "hobbyist" portion is a quite bit larger. From what we gathered from our data and speaking to some customers directly, we have the belief that their profit margins are thin enough to the point where they will either pay nothing or nearly nothing in taxes anyway... but the idea of simply being on record is terrifying to them. Both groups generally have issues with taxes, they usually take payments using Venmo, Paypal Friends and Family, or even direct bank transfer just to get around the reporting. They pretty much use and abuse any form of electronic payment that they can get away with without presenting themselves as a business. As for monetization, we keep track of the "non-monetized" transactions and it's in the low 7 figures. It's not a crazy amount of money, but it's nothing to sneeze at either.

noodlesUK 4y ago

The thing is, there's probably not much you can do. Now that the reportable threshold for 1099-k is so much lower, it's just going to be something people learn to deal with, or they won't. I'm not sure quite what your business does, but I've seen this personally where my family no longer wants to sell their stuff (which is not really a taxable kind of transaction, but they don't understand how they can report it to the IRS as such) on eBay because they don't want to be taxed on any money they get from it. The issue is that US taxes are so complex and punitive, and that Americans are so afraid of the IRS. Unfortunately your business won't be able to change that.

HWR_14 4y ago
US taxes may be complex, but they aren't punitive. Frankly, it seems like it should be trivial to make the tax code simpler, but then we would need to move a lot of subsidies into other, harder to navigate, programs. Meanwhile, I assume you mean "the stuff they want to sell on eBay is at a lower price than their cost basis". If there's some other way to avoid taxes on sales, I'm all ears!
- noodlesUK 4y ago
  > US taxes may be complex, but they aren't punitive. The taxes aren't, but compliance certainly feels like it is. I owned a dormant UK company that I set up when I was living in the UK. The reporting for that as a US citizen is nightmarish (look up form 5471). People who are any sort of edge case who want to be tax compliant pretty much just can't be without spending mega $$$ on accountants. The only thing that is reasonably straightforward is for people with a single employer on w2 income. And even then, other countries put the US to shame for that circumstance, most don't even require filing anything to their tax authority. > "the stuff they want to sell on eBay is at a lower price than their cost basis" Yes, this is exactly what I'm describing. Many people I know use eBay as a sort of garage sale online. All their inventory is used items that are worth less than the original price they paid for it. They may make $1k or so across the year at best. They'd rather just not sell online, not make the money, and not worry about tax reporting when platforms start throwing terms like 1099-k around.
- 4y ago

vm 4y ago

This reminds me of Thumbtack. Their customers, local service providers, are incentivized to move transactions off-platform to avoid paying commission fees (and taxes in many cases). However, those customers are willing to pay to connect to relevant leads, which seems to have worked out well for Thumbtack.

twblalock 4y ago

Small businesses make a lot of financial mistakes: commingling business and personal funds, not reporting taxes, not paying taxes, breaking a variety of labor-related rules, etc. Sometimes this is accidental, and sometimes it is intentional. When your clients are small businesses, you will find they have a wide range of business and financial and legal acumen, and some will lack basic professionalism in most areas. That's especially common in the case of small family businesses. I used to work at a company that targeted both small businesses and enterprise companies with different versions of the same product. Dealing with enterprises was predictable: they know about corporate governance, they have legal and accounting teams, etc. Every small business was a wild card. If your clients have not been paying taxes so far, they might be afraid of owing back taxes or fines if they start engaging with the tax system and their past behavior is discovered. Also, some of them are probably avoiding taxes on purpose, maybe because they are crooks, or maybe because they simply cannot afford to pay. You probably aren't going to convince them to start paying taxes just to use your product unless it is incredibly compelling for them.

sicp-enjoyer 4y ago
Absolutely this. Many small businesses (probably many food trucks) are only profitable because they do not pay taxes.
- nly 4y ago
  That sounds odd, given that in most(?) countries businesses only pay taxes on their profits.
  - ComodoHacker 4y ago
    In many countries, small businesses pay taxes on gross income. Basically sales tax.
    - nemetroid 4y ago
      Are you saying that many countries with VAT have exceptions for small businesses? The number of countries without VAT arguably doesn't add up to "many". (of course, this is not relevant to the discussion at hand about a business in the US)

morpheuskafka 4y ago

The problem with explaining the whole 1099-K thing is as soon as you say, "the new form is just additional reporting, you report it as you would before and we can't tell you what the taxes will look like because it depends on what the payments are for (rent, goods, services), business structure, etc," you find out that they never reported their cash payments, don't know what a schedule C is, and don't have any interest in learning. If they don't understand the idea that they are running a business, pay tax on their net profit not their gross profit, that "deducting" business expenses is not an optional thing like itemized deductions, what self-employment tax is (and that it is just the employer and employee portions of a tax that already exists for everyone else), etc. then its hopeless trying to explain these forms to them. In fact, it seems that many of them don't even know if their business is profitable or not, since they have no records of expenses and COGS necessary to calculate that. That's the part that always puzzles me. For what its worth, the idea of users not wanting to pay taxes isn't that new--some websites even advertise that they don't collect sales tax and I will admit to having sought out businesses small enough not to charge it in every state.

hn_version_0023 4y ago
> In fact, it seems that many of them don't even know if their business is profitable or not, since they have no records of expenses and COGS necessary to calculate that. That's the part that always puzzles me. In my limited experience with folks who've run these types of small businesses, they seem to always have enough cash flow that in the short term, profit doesn't matter. Putting food on the table tonight matters. So if that's the case, why bother with the expense of accounting?
deleted 4y ago
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bitwize 4y ago

RyanShook 4y ago

The reporting threshold went from $20k last year to $600 this year so pretty much every selling platform is dealing with this change. But I think more context is needed. Sales tax rules vary so widely depending on the location and item being sold. I assume as a platform you legally have to report 1099-K? Here’s how eBay explains their 1099 to sellers: https://www.ebay.com/help/selling/fees-credits-invoices/ebay-form-1099k?id=4794 https://www.ebay.com/help/selling/fees-credits-invoices/ebay...

throwaway5678i 4y ago
Yup, and these merchants are keenly aware of that unfortunately. When the news broke of the change, suddenly they all became very concerned about taxes and reporting. We've actually done a good bit of work on our end to clear up what 1099-K's are and what taxes actually mean for their businesses, so the material is clear and accessible to all of them. The problem is that doesn't overcome the fear they have for the IRS, unfortunately.

dosman33 4y ago

Why you are not afraid: you make enough money to hire experts to shield you from making any business and tax mistakes. An emerging hobby business makes enough money to warrant hiring some VERY limited services, but not enough money to hire a book keeper, a CPA, and any other services that a "real business" needs. I converted a side-hustle into a "real business" that paid taxes for several years. It's not super hard to start a business as a beginner but you've got some hurdles to clear, more-so if you are selling durable goods as opposed to "apps". I made one single mistake while conducting out-of-state commerce that cost me thousands of dollars in one fell swoop: that was more than all the cash the business had on-hand. I had registered to do business in the other state and was trying to dot my i's and cross my t's and be above board, but the mistake was till mine though. I could have spent those same thousands of dollars to hire experts over the same course of time preventing all the wasted money, lost time, and headaches but my business would have made so little profit it would have nullified the reason to be in business as a real tax-paying business. Along the way I began to see various things as "cost of doing business" which was useful. I was glad to have the experience, I reinvested heavily into the business to save myself time and effort. But I never made enough money to hire others to do anything that I could do myself. The "cost of doing business" part only works if you have regular positive cash flow too. So again, you are trying to serve hobby businesses who are not profitable enough to warrant them hiring experts to dot their i's and cross their t's for them. They are correct to be afraid of lightly stepping into this world and you won't change that.

moomoo11 4y ago
I only know how to make apps thus far at least as far building any products is concerned. I’m curious if you can enlighten me how it works with apps. If I’m living and based in California and I launch an app that people/biz can pay for anywhere in the world, how does that work? If someone in Mew York buys a module on my app is that considered out of state commerce?
- londons_explore 4y ago
  Every state and country has different laws. If you're doing things properly, you shouldn't start selling your product in a state or country till you have checked your product meets all the laws there and registered a business entity able to sell there. Then, you will need to submit taxes to that country, and in some cases even have an office there.

pyuser583 4y ago

I have personal experience with trying to serve legally non-compliant customers: don’t waste energy convincing them to follow the law - they won’t. I worked for a company whose reason for existing was because clients needed it to comply with the law. If you didn’t hire, or employ, someone like us, you were violating the law. Sales pitch was pretty simple: hire us, or you’re a felon. It was insanely hard to get people to use our services. It reached the point where sales gave up on trying to convince people to start following the law, and instead focusing on poaching clients from competitors (that is, folks who had already decided to follow the law). Best advice is don’t fight them. If they’re not gonna do it, they’re not gonna do it. Depending on the specifics you either reject them as a client, or accept them and file the appropriate paperwork.

Fej 4y ago
Would you be willing to divulge what law or type of law your company fulfilled?
- pyuser583 4y ago
  Hazardous waste disposal.
  - aluminum96 4y ago
    Wow, it’s really scary that there are apparently tons of companies with non-compliant hazardous waste practices.
    - deleted 4y ago
      [deleted]
    - hansvm 4y ago
      Compliance is one thing. It's atrocious how many have an IDGAF attitude toward hazardous waste -- vending machine recyclers claiming that magically all the refrigerant had already leaked out before they touched it, warehouses "accidentally" losing a hundred barges full of deet, ...

simple-thoughts 4y ago

braingenious 4y ago

I’m kind of confused here. How is this a business issue for you? Would using Stripe Tax or something like it help? You either assist your users in avoiding taxes (probably a crime), or just shrug and say “We didn’t invent taxes” Do your users not pay sales or property taxes on their day to day lives? How is it your business’ job to figure this out for your customers? Would a referral link to H&R Block solve this?

throwaway5678i 4y ago
Essentially, we want to monetize transactions with a % fee through a payment handling offering for the merchant on top of our (free) platform. We give them tools to run their business but charging them appropriately for it is difficult since their margins can be thin. We figured that offloading the cost of the platform to their customers would be easier than convincing them to purchase a SaaS subscription. However, these merchants are reluctant to use this sort of service because if they used it, our platform legally has to report this in a 1099-K to the IRS. Same as any marketplace these days. As for the referral suggestion, we actually worked with tax professionals in order to do just that. We figured if we personally vetted some tax pros for referrals vs a link to something like H&R Block, it'd help make the difference. It didn't. (Also, we use Stripe Tax to handle sales tax for the customers who do use the monetized features. They love it!)
- braingenious 4y ago
  I think I’d have to look at your service to figure out what the issue is, but if you’re legally required to make a 1099-K… then you’re legally required to make a 1099-K. I would point out that avoiding paying tax is a crime, that you don’t want to go to jail because of their preferences, and invite the people that want to commit the crime of tax avoidance (with your help) to take their business elsewhere.

rdtwo 4y ago

Not much you can do. I killed my micro business because compliance costs weren’t worth it. Imo 1099s actually make it easier though. Before I would have to make my own and hope it matched and that’s actually a bigger headache.

jollyllama 4y ago
This. The government is basically screwing over the OP and his customers with this new requirement. If you look on ebay, there's a lot less options than before. A lot of people are just quitting rather than deal with this. How they're making up the income, idk.
- rdtwo 4y ago
  The bigger problem is that there is no reasonable minimum compliance threshold. If the governing were to just allow you an exemption for under 10k of profit it would allow small and micro business to try and fail without all the extra additional compliance issues that larger enterprises might be more capable of dealing with.

linuxftw 4y ago

Stick the 'any gross payments over $600' bit somewhere in your terms of service, operate as normal until people hit that threshold, stop disbursing money to them once they've hit that threshold and require them to provide the tax id. That's going to be what everyone does.

behringer 4y ago
This exactly. I think op is missing the very first rule of business. Always take the customer's money.
datavirtue 4y ago
And now your customers hate you.
- linuxftw 4y ago
  The alternative is they're not your customers, so what is lost?
  - isbvhodnvemrwvn 4y ago
    You will have a shitton of bad press. Doesn't matter if it's right or wrong as in this case, it is still going to affect you.
    - linuxftw 4y ago
      There's no such thing as bad press for a very niche market, and again, anyone that doesn't like the rule wouldn't use the platform.
      - thijsvandien 4y ago
        To the contrary, niches can be small worlds where stories spread quickly, since everyone knows each other.

collegeburner 4y ago

absolutely based lmao but seriously, you start talking about irs forms and surprised when a small business whon cant afford a fancy ass tax lawyer gets scared? most of them would get in trouble if the irs looked at them so it's not that they need it explained what it is, it's that they still don't like it for good reason.

mninm 4y ago

I have no real idea what the ins-and-outs of 1099-K and so I could be completely wrong. However, it seems like there may be some sort of threshold listed in the reporting requirements. Would it be legally possible to allow your users to use the enhanced functionality of your platform up to the edge of that threshold? Cutting off access to the premium services that the sellers of erotic coo-coo clocks (or whatever) have come to value might incentivize them enough to overcome the 1099-K hurdle. You could make the process gentler by constantly displaying the amount of revenue left that they can transact before being cut off. Be careful though. Cutting off access will equally incentivize users to bypass the restrictions you've put in place by creating multiple accounts, etc. Lacking the above you could also try to focus on the part of your platform the sellers do want to use and sell a premium tier to sellers that has features that would make them stand out to buyers. For example premium users could have flair (think something akin to a verified checkmark) next to their listings in searches and the ability to post an extra video of their clocks.

Joel_Mckay 4y ago

Tax obligations vary widely from place to place. Some tax on residency after a set time of stay, but entitle you to community services (Canada). Others tax on citizenship, and are still binding in the country of birth even if you have dual citizenship (USA). The US now has a per state and federal tax withholding obligation for international eCommerce businesses selling to US customers as of 2019. The amount and customer sale count grace thresholds vary state to state, but failure to file a US federal return (even for $0 taxable revenue) as a non-US company is still a $10k fine. Don't YOLO this one, talk with the US chamber of commerce rep for the areas you want to export/import into. People may not like taxes... but they will hate the fines, seized shipments, or jail even more. In many cases, the withheld taxes can be recovered if the buyer can prove the destinations tax rules were incorrectly applied. ;)

Lapsa 4y ago

But they are scary! Once upon a time messed up single checkbox - it took about 30 phones calls, notar signed job contract translation, a visit to general director of IRS (I kid you not). About a year of completely ridiculous hassle. Wasn't even attempting to cheat anything.

ineptech 4y ago

Are these taxes that your customer was supposed to be paying already, or taxes they pay on the savings your product facilitates (and hence don't need to pay without your product)?

londons_explore 4y ago

Are you aware of gumtree? Or Facebook Marketplace? It's a buying and selling platform, similar to eBay, but the platform only connects buyers and sellers, but doesn't do payments or complete the sale. Therefore, they have no reporting requirements (since they have no idea if those sales completed or not). Perhaps allow customers who are scared of government paperwork to put your platform into a mode that allows that?

obscurette 4y ago

I have worked with small businesses as well and yes, they don't like paying taxes. In this part of the world (Eastern Europe) the main problem is that these small businesses usually don't compete with other businesses. They compete with hobbyists and with gray market and paying taxes immediately hurts their competitiveness.

balderdash 4y ago

If I had a local small business that did let’s say a $1m in Rev, I could research and understand my state and local tax obligations, and file and remit applicable taxes. If I take the same business, and make it national, selling online in all 50 states, that just effectively became impossible to do (given time/budget constraints)