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Pay Pal Story On Tax ID S.S. And The IRS.
 

eBay's online-payments subsidiary PayPal has already begun asking some merchants for their tax ID numbers to help them comply with a new tax law, but PayPal said it would not expand beyond the IRS reporting requirements it is obliged to follow for tax-year 2011

Rumors have been surfacing about how a new requirement might impact small sellers who accept PayPal payments. I've been writing about this issue for AuctionBytes.com since the new requirement was included in the Housing Economic Recovery Act of 2008, and some sellers are clearly still nervous about the implications of the legislation.

The law requires banks and other payment settlement companies that processes credit cards, debit cards, and electronic payments to file a new form, Form 1099-K, telling the IRS what online and offline merchants receive in payments, effective for the 2011 tax year.

For any person or entity that is selling goods or services and receiving payments through a payment processor, the money collected from sales will be reportable on Form 1099Ks - if they exceed $20,000 and 200 transactions in one year. (The "and" means that merchants who receive 1,000 transactions totaling $19,000 would not be affected - both criteria are needed to trigger the reporting requirement.)

One rumor circulating is that PayPal would issue 1099Ks for sellers with payments lower than the required thresholds. A PayPal spokesperson said this was incorrect. "PayPal will be using the IRS thresholds for reporting (merchants receiving over $20,000 in gross sales volume AND 200 payments or more)."

There has also been talk of sellers leaving eBay because of the reporting requirement, and that sites that allow sellers to advertise that they accept non-electronic forms of payment (checks, money orders and cash) may benefit from any such exodus.

Note that the law does not change sellers' existing obligation to report income. Some sellers who are in compliance and pay their taxes simply don't want to deal with more paperwork, while others may be wary of just how the IRS will use these reports.

PayPal has already begun collecting tax ID numbers - social security numbers for individuals and sole proprietors, and TIN or EINs for businesses. In response to my inquiries, a PayPal spokesperson said the following:

"PayPal has not begun reporting and will not report any payments received in 2010. Transactions occurring prior to 2011 will not be affected by this legislation. Starting in 2010, however, PayPal began asking impacted merchants to update their account by adding their SSN/TIN/EIN to their existing account(s). This information will only be requested from merchants that are potentially impacted by IRS requirements. If you are required to add this information, we will notify you via email and include an alert in your Account Overview."

Individuals and sole proprietors can obtain a Tax ID Number if they don't wish to reveal their social security number to payment processors. You can read more information on the PayPal website.

Sellers should be wary of phishing emails from scammers pretending to be from PayPal or the IRS, or any other payments processor such as credit card merchant account services.

Link:
PayPal Puts IRS Rumors to Rest

Good find, was a good read. Was reading things about this over the last couple months.

so what does that mean for stealth account owners?

It means, if you are in the US, that once you hit 20K and 200 transactions you are stood down until next year - multiple stealth accounts me thinks
:pop2:

same :thumb:

JUst get an EIN and post it. Then you are fine. YOu have to pay the taxes anyway even if you hit 5k, you just dont have paypal reporting it for you.

besides it can easily be reduced to nearly nothing with tax deduction, Gas, product costs, inventory, gifts, etc. the sky is the limit when it comes to business deductions

One thing that is odd though is that i am at 23k and still no email from paypal about the SSN/EIN.

I dont see any worry except people wanting to avoid paying taxes.

Great find!

The information is priceless.

Thank you.

is it 200 payments received? or is it just 200 payments sent and received?

Its received only, nothing to do with sent.

I'm confused.so its 20k or 200 transaction within a year. its a year counting from what point? your anniversary date? or from the time you started selling? and when you hit a year does that amount return to zero?

Really???? The IRS goes from jan 1st to the 31st of december. I guess I assumed EVERYONE knew this. I guess not.

All they are doing is reporting gross sales over 20k and that is IF you also hit 200items.

That keeps someone that sells a $20,000 car to have to pay income tax on it.

I bet they change it to 5k within a couple years. They know what is going on with online auctions, sales. you watch, it will happen.

Its really not that big a deal. 20k gross sales can be zero'd out so fast with deductions.

Use a good accountant. I pay my guy 650 bucks per year and he saves me so much money. Once I compared it to the tax software one gets in the mail and the savings were dramatic.

so you can get away with using a EIN instead of a SSN?

It does sound like you can get away with a EIN number instead of a ssn. That would be great if that is the case. Can someone answer killed by ebays question because I'am curious too. :amen:

Depends.. sometimes you can, but a SSN is VITAL
sometimes they will ask for ssn and yes if you provide a EIN you're good to go.. but other times if they ask you for SSN and you provide a EIN... limit WILL NOT be lifted unless u also add a SSN:eek:
i know sucks.. but y not give it a try with the EIN

I have not heard of anyone actually getting asked for the SSN after they have given the EIN. I have only heard of posters saying that they THINK it will happen. Until I hear of it really happening then I dont beleive it.

as far as using the EIN instead of your SSN, Its really the same thing. you have to post your REAL SSN to the IRS to get the EIN so its the same thing just paypal only sees the EIN # instead.

Its not a clean way to get paypal accounts going unless you know what you are doing.

You still are liable for taxes even if you made 1k. You have to report it under the 20k yourself.

People think that they are getting away by just keeping under 20k but I can almost assure you that one day you will get hosed bad by the IRS if they find out you are making money under a stealth name and not reporting.

Have you hit 200 payments yet?

Good find on this post by the way. The smart thing to do would be to get multiple stealth accounts and have each hit 18,000 or so, then let it cool off a year while working on your next stealth account. And repeat.

Im not saying this to bypass paying the IRS. But PayPal will limit your account if you go past the threshold and not supply them EIN/SSN. Id like to keep my stealth accounts stealth. Know what I mean? :)

I hit 200 payments my 1st month of the year. Actually the 1st month of that account as well. Another reason I have a different opinion on how much one should sell on a new account. Just my situation though. NO vero, maybe a good category, not sure why.

Yeah if you dont sell vero, your account does not necessarily follow a lot of the restrictions that vero selling accounts would.

Hey KingRay you seem knowledgeable so I got a question for ya on this topic. Can I use multiple EIN's (one for each stealth account)? I have always planned on paying taxes- I have kept documents of purchases, fees and all that. Just confused on how to do it unless I can have a different EIN for each account. I thought that there can only be one EIN to an individual because it is like a SSN.

I may be ignorant on this subject so any info is greatly appreciated, thanks!

You would have to create a complete business entity for each EIN for the IRS. You would need to separate assets, real estate, stock, deductions, tax paid, depreciation,etc on each.

You would need to file separately on each EIN. You would also need a business name for each.

There is a lot to it and another thing that people dont understand is you cant just have tons of sales the very 1st year of business without getting looked at differently by the IRS. That is good cause for an audit. most good business plans dont make any money for 3-5 yrs so making money like people are on ebay will just raise flags.

I would speak to a tax adviser and a business attorney before going further. Even i fyou get the EIN and dont use it more than likely they will want an explanation if audited. And messing with EIN's will likely bring you an audit if not done correctly.

I can assure you that the IRS is looking at the Billions of dollars they are losing in taxes for online sales very closely starting this year. They arent going to let this go much longer.

Okay my next step then is to talk to a tax advisor and a business attorney. Thanks Kingray, for breaking that down for me. Always very valuable information!

I have several questions and will provide a bit of background to help.

I have 4 ebay accounts - all created after ebay suspended my other 3 almost 3 years ago. All of my current accounts are in the names of friends of mine. I sell items that range from $8 - $60 or so and sell probably with all 4 accounts 110 items a week. So, I am not doing BIG business or am I selling any illegal items that I could be suspended for.

On 2 of my accounts I do not sell the $20 per year so currently I do not have to supply any ss # or such. The other 2 of my accounts do. Interestingly enough, 1 account, I have received probably 8 emails regarding adding the tax id #, ss# or such and the other -- absolutely NOTHING! Now, I do pay taxes on my income and I can get EIN # in the other persons names on the accounts if I need to but I have a couple of questions that perhaps someone out there might be knowledgeable about:

#1): One of my friends has passed away since she gave me permission to use her account - and this is the paypal that has had NO email requests for EIN # yet but can I get an EIN # in the business name and make me the sole proprietor without paypal linking my name and ss to the EIN? In otherwords, does it make ANY difference whos name is on the EIN and paypal if it is all under a specific business name? I believe my paypal is under a business name as well.

#2) is there a way to tell whether or not you have reached a certain $ or payment amount on paypal?

If someone can help with any insite, I would appreciate it. The EBAY STEALTH book sure helped me out in getting me back going :) I do enough to survive these days and that is my main goal :) I am not out to make a ton of money or to scam anyone BUT ebay! They are so not nice and unreasonable.

#1 I would leave well enough alone and just continue to sell until push comes to shove, and just provide the EIN.

#2 Just go to your account on paypal to the dropdown menu under payments received for each month of the year, add them up, and you will have your GROSS payments into the account. 200 payments received that total over 20k and you reached your threshold.

You have to get the EIN in your real name. There is no way around it. Also as said above, get a tax accountant and attorney involved. YOu are a business now if you like it or not.

You will need to do a ton of work with these accounts so you will get the taxes right on them.

There is no way you will be able to have the time to figure out all those accounts and the Business mess that goes with them without professional help first. If you dont you will be in for a bigger mess than you want to deal with.

Thanks KingRay for all your wonderful knowledge. I've been reading over threads like this for a few weeks now. I too plan to pay all my taxes due, and I understand having multiple stealth accounts can be a headache come tax time. Best advise has already been mentioned, get an attorney & get a tax adviser.

First off, I don't believe you HAVE to open up a business entity for every stealth account you have. My tax adviser said that is unnecessary. One business is fine. You total up the sales from all accounts, and you pay your taxes accordingly.

Second, Profits in the first year does not = audit. Have a PROFESSIONAL do your taxes and you have nothing to worry about. Uncle sam doesn't care if you made money or lost money in your first year, just pay your taxes.

Finally, what everyone really cares about is HOW TO KEEP THE STEALTH ACCOUNTS "STEALTH" & STILL PAY UNCLE SAM. My adviser told me this is actually quite simple. You don't give your tax id to pp unless it is dire like FREESAILING is doing. Avoid it like the plague. Also, stay UNDER the threshold per account (200 sales 20K) and you will be fine.

i think it would be easier to turn a profit selling online vs. owning a brick and mortar business because with a brick and mortar business there are many many expenses to pay and you don't really know if your going to have enough customer to turn a profit..i agree with kingray regarding not being able to turn a profit for a few years...but with selling online, it might be different, you are able to see if an item will sell for a profit before purchasing in bulk to resale....you don't have the huge expenses that would come with an actual brick store, ie insurance, rent, employees, etc.

so it is definitely possible to turn a profit your first year selling online and in my opinion it should not raise any kind of red flag with the authorities.

Short of being an IRS employee, NO one knows what will trigger an audit. What is a fact is that if you are audited, IRS will demand all your bank account info. If you hide accounts/money and they find out, you will be in for tax evasion. Using someone's identity if they have passed is ID theft. They are not alive to prove they gave you permission. It is like listing a ⊗⊗⊗⊗ item on Ebay. You should have known better in the eyes of IRS.

IRS informed me that I should have an EIN number in case I want to start a business. I told the employee that I wasn't sure I was going to, but I was just getting information. The rep told me to go ahead and get an EIN number even if I don't use it. He said I could keep it for life and use it when/if I start my own business. He assured me if I do not end up using it, it will NOT trigger an audit.

You guys took it too literally, Just warning you of what could trigger an audit.

You can get an EIN yes but to get the EIN you have to provide the business name.

as for the profit thing, Its not a secret when a company shows large profits the 1st year that they are looked at differently. Ididnt say you would be guaranteed an audit on any posts. I say that if you go to any sites that talk about audits, usually 1st year profits that look like 5yr profits are one of the things that do it.

What I meant about the EIN's in multiples, you need to have a different business entity for each or there is no reason to need more than one EIN.

In order to get more than one to use for paypal accounts there would have to be different business names. Thus different business entity for each.

If you are just talking to your brother in law about taxes then go to someone that specializes in online businesses, They will help you instead of harm you.

a regular HR block tax return moron will not be your best bet. I know many losers that do this at tax time because they cant get jobs any other time of year.

I post what I know on here. If you ask someone else and they say this or that then try it. I am just posting on here to help you guys out. Its not doing anything for me to spend hours on here posting what I know about EIN and online business tax strategies.

Well some of it is actually. I am trying to make sure you guys/gals dont throw EIN's around and screw it up for us that use them correctly.

Once paypal decides that people are abusing them then its over. Like everything else that works fora while until people that have no idea what they are doing mess it up for the rest of us.

Actually they gave me the EIN already and I do not have a business or name. They told me I can let them know when I do.

Maybe a state issue where its required in some states then. Thats the only thing it can be. when I go online it requires that field to go any further in the application. Also requires start date of business and it has to match the start date when going to a business account on PP.

All of the other topics discusses are still issues though.

Hmm, I thought it would be the same for everyone. It was an 800 number. I think I better check with them again just to be sure. I hope I didn't upset you. I come on here for the same reason you do. I have been were you are. You do a lot to help people. I'm not the expert, but I do have a lot of info. If we could help even one person beat Ebay, then what we do it worth it =)

Oh, I actually spoke with a person who assigned me the number. I spoke with him for over an hour. I never had to fill out an application. He was very helpful and I kind of explained my situation of having an "online" business using a business name. I told him I wasn't sure whether I would do this for sure and her said it didn't matter. I could just get it and keep it for reference. He said the EIN would be a permanent number, that I wouldn't need another. I can give you all the details if you PM me. I do not want Ebay or Paypal to find out what can be done to get back online with the EIN.