Taxes - PayPal, other credit card processors reporting income (gross receipts) to IRS

[twdell]

no im just speaking if claiming things like your overhead cost. i'm not incorporated. i file self-employed, so that by it's self puts me at higher risk for being audited. then if my numbers do not look correct, or seem too low for what i own then they gives me an even greater chance of being audited.

and me personally i prefer to claim as much as i can because without a proveable income you can't get too far. couldn't buy houses, cars, etc...

[Modee]

IRS isn't Big Brother. Not sure if you understand how it really works - i.e. that audits come not from some IRS agent driving by your mansion, but rather by a computerized formula and in some cases, a code on the envelopes you use to mail in your return (if you are naive enough to use their supplied envelopes).

But the best advice is of course to be as truthful and accurate on preparation of tax returns as possible.

[aspkin]

Thanks, thats what I thought.

The money I withdraw is all my profit. Any cost are withdrawn to supplier banking accounts. And I just claim what I withdraw. Weird setup.

Originally Posted by Modee

twdell, no, you're wrong. That new rule about PayPal applies only to PayPal accounts where the funds are transferred directly overseas, such as to offshore (foreign) accounts. We already went into this in a thread on this forum:
http://www.aspkin.com/forums/paypal-...aypal-now.html

twdell, you're also wrong about the IRS having direct access to your bank accounts. You may think it works that way, but not quite.

Aspkin, basically, you can get away with whatever, but if you are audited, you will be asked to provide banking statements and so on, and if they do not jibe with your tax returns, then you would be in trouble and at a minimum owe back taxes and penalties. At that point, if you refused to provide the bank accounts and the IRS could show probable cause, they could subpoena your bank accounts, but it's really not as easy as it seems and they would do that only in a full blown probe.

The way the IRS works more typically is they just propose that you owe a certain amount of tax, and challenge you to dispute it. If you do not dispute, then they enter a federal tax lien if necessary for that amount. Of course, they estimate that tax and penalty so that it will be higher than the reality. If they really think that you got away with murder, and they can't even make a guaranteed (for them) highball estimate, they might take the drastic action I describe above - with the subpoenas and so on. And the deeper you get into it with them, and the more conflict between what you reported and what they unearth - the more chance the probe will end up criminal, which is why you don't want to give them any fake documents of course.

Aspkin, also, the amount of money that transfers from PP to your bank account is not income is it? I mean, you must have cost of goods and expenses to deduct against that.

[twdell]

when submitting your tax forms you can deduct the interest paid on your house, and the taxes. by that amount you claim i would assume that, like you said, with the computer fomula they can tell that, hey this guy cannot afford a $300,000 house. he claimed his net income was $15,000.

i have always assumed that their system is like ebay and paypal. there really isn't too many people analizing everything you do, but they are alerted by a computer that says you should be looked into more closely.

yeah, thats' what i try to do, is be truthful on the returns. i'm too paranoid not to.

[Modee]

Aspkin - Well as long as you keep track of what is going on, that does keep it simple.

twdell - well, what if you paid cash for your house? Or have a very small mortgage?

[Throb-n-Rod]

I know the banks report single deposits over 10 or 12k somthing like that to the IRS I made that mistake once.

[GreenBean]

xxxxrod, the magical figure in the USA is US $10,000 and in Australia it is AU $10,000.

Not sure if any of the poms would ever have any spare money so I
can not say what their amount might be. LOL.

[ivegotinfo]

what do people whos paypal accounts got suspended do, where you can't even log in to see your transactions...and you are audited and must prove every single penny.

[twdell]

i think that's why you're supposed to have paper copies of everything. i'm guilty of it too. it's hard to keep up with printing out all statements though.

[Modee]

When a PP account is permanently limited you still have access to all of it. Just can't do anything with it other than refund money.

[twdell]

how far back does paypal let you print out statements?

[amc]

How about ebay statements, do you add all statements even if they have different names ???
and the oversea wholesaler invoices?

[trg005]

Online Sellers Face New IRS Rules

By MARTIN VAUGHAN
See Correction Below
July 30, 2008; Page D3

If you regularly sell items on online auction sites, you may find yourself on the Internal Revenue Service's radar. Recent legislation aims to help the IRS collect more taxes from online enterprises, many of which either don't know about their tax obligations or are ignoring them, according to the agency.
The provision, part of the housing rescue package that President George W. Bush is expected to sign within days, will require PayPal and other processors of online payments to report annual gross receipts to the IRS for all but the smallest online merchants.
Processors' Requirement
The new reporting requirement is similar to a proposal the Bush administration has put forward in its most recent budgets as a way to ensure that taxes owed are being collected. It also applies to intermediary banks that process card payments for restaurants and brick-and-mortar retailers. Congressional tax estimators predict the reporting change will help the IRS collect an additional $9.5 billion in taxes owed by online and traditional businesses over the next 10 years.
The payment processors will be required to file a 1099 form for each merchant to the IRS and to the merchant. They won't have to file for merchants with less than $10,000 in gross sales and less than 200 transactions in a given year.
And they won't start reporting until 2011, giving the banks and the merchants a couple years' head start to make sure everything is in order.
Business Transition
Confusion about taxes may be more prevalent among eBay sellers than brick-and-mortar firms because it is comparatively easy and cheap to set up an eBay business. The transition from casual seller to profit-seeking business can seem almost spontaneous.
Like many eBay sellers, Sarah Davis didn't set out to be a business owner. But somewhere between her first online sale and last quarter's $560,000 in sales of second-hand luxury handbags, it dawned on her that she had become one. From the time she started selling in 1999, Ms. Davis reported income from her eBay sales on a Schedule C. By 2005, her business had grown large enough that she sought tax advice. Soon after, she incorporated her business, Fashionphile, as an LLC.
"You start out selling some stuff from your closet, and then the random clearance handbag," Ms. Davis said from her Beverly Hills, Calif., office. Mix in some shoes you never wore and "It's hard to say when you are really, 'in business.' "
Here are a few suggestions to help eBay entrepreneurs protect themselves and their profits, while complying with tax laws:
Report all income from online sales, even from casual or hobby selling. If you made a profit from goods sold on eBay -- whether vintage KISS action figures or hand-knitted doggy sweaters -- you owe income or capital gains taxes, and likely self-employment taxes, too. No taxes are owed, however, on used items that you sold for less than what you paid for them, essentially using the online service as a virtual garage sale.
If you mean to deduct expenses, act like a business. One of the most common mistakes eBay sellers make on their tax returns is to claim deductions to which they aren't entitled. The tax code allows deductions for business expenses, but deductions are limited for individuals who sometimes make a little money on the side from hobbies.
One rule of thumb the IRS uses to determine whether an individual is engaged in a business is whether they made a profit in any two of the past five years. Another is if the person would still, say, frame landscape photographs, or carve garden gnomes, or buy and sell rare 45s, regardless of whether or not they made any money from the activity.
"If the answer is yes, you may be on the wrong side of an IRS argument that you are taking a hobby loss," said Tom Ochsenschlager, vice president of taxation for the American Institute of Certified Public Accountants.
Keep your personal and business accounts separate. Make sure you have a PayPal business account separate from your personal one, an eBay business account that is separate from any casual buying and selling you do, and a separate business checking account.
These steps will not only make it easier for you to determine how much you owe, but may help protect your deductions by signaling to the IRS that you are serious about running a business. "Everything you can do to treat it like a business will help," says Kristine McKinley of Beacon Financial Advisors, based in Independence, Mo. Ms. McKinley specializes in tax advice to eBay sellers.
Claim the home office deduction. While this deduction has fallen out of favor because of a popular belief that it triggers IRS audits, it is still a valuable deduction if you have a separate space in your home that you use exclusively for business purposes, according to Ms. McKinley. It's true that you will owe more taxes when you sell the home on amounts that you have depreciated. But the deduction can still be a major benefit because it will reduce your income for the purposes of self-employment tax, she said.

[aspkin]

Good stuff, I always claim 100% of the income I make online and deduct as much as possible within the law and I'm fine.

Paypal will start asking for a SS# even sooner in a couple years.

[hungrymarketer]

Hi, My sister let me use SSN and her information to create paypal account. However, she is afraid that she might have to pay taxes of amount I earn through paypal. Does government or credit company monitor paypal account if I put SSN?

I mean by borrowing her SSN , is there anything that might harm my sister?

There is 0 chance that she is going to create paypal account for her.

[aspkin]

No Paypal doesn't report anything... Yet...

Soon they hinted they will, a couple years from now though.