Taxes

I know this isn't the prettiest of hobby-selling aspects, but I just wondered how others handle this?  I read somewhere (and I need to track it down) that Paypal will be reporting income statements to the IRS per person with an account of what funds they've acquired?  Has anyone else heard this rumor?  This (rumor) is what has gotten my butt into gear to look at reporting income for this tiny hobby of mine.

I would like to see Knitted Home become sustainable, yes, but I don't feel ready or knowledgeable enough to take on income tax reporting, LLC, etc.  Does anyone out there have any experience with this?  Please feel free to take up as much space as you like in the comment section or email me (knittedhome[at]gmail[dot]com).  With it being the end of the year, this has started to surface on my mind since the beginning of the year (when I was doing my own personal taxes).  Perhaps I will talk to a tax specialist and get their opinion, but I was hoping for some advice from those who are already selling on etsy or as a hobby.

Thanks, friends :)