PayPal & Income Tax Question

[pawpawdiv9]

Basically from what i read, its a mess. That we need 2 separate accounts for personal & business.

I did find some info regarding this tho:
1. OK. The $20,000 is revenue NOT profit. Pay-pal will report you made sales over $20,000 or 200 transactions. They have no idea if you made a profit. You will report that yourself on a Schedule C if you made over $400 in profit.

2. Your online store would be considered income from self employment. You are required to file a federal income tax return if your gross income from self employment is $400 or more. If your net income is $400 or more, at a minimum you will owe self employment tax. Depending on how much you make and the state in which you reside, you may also owe federal and/or state income tax. You are responsible for keeping your own records of income and expenses.

If you have other income which requires you to file a federal income tax return, you must report all income from self employment (even that less than $400) on your return.




I also found this very interesting as well:
Re: Paypal Tax Reporting Policy
GazCooperOnline's advice above is right on....Don't mess with the IRS....they need money to keep the govt running and their job is to extract every bit they can plus penalties and interest and in some cases throw you in jail to make you an example to others.

You are either in business or you are playing at it. If you have never read the IRS's publication for businesses, I strongly suggest you do so -

Publication 334 (2010), Tax Guide for Small Business

One thing you will learn is that you should never "co-mingle" personal and business funds, ever. Whether you think you can prove it was personal funds is of no regards to an IRS agent who needs to meet his or her quota for the month.

Debate the issue of what PayPal is or isn't all day but to the IRS and the US Govt. they are a financial business. I view the requirement of submitting an SSN or TIN for accounts having less than $20K in transactions as a pre-emptive CYA action on the part of Paypal.

If your business ultimately reaches that threshold and they are unable to obtain your SSN or TIN then they become subject to heavy fines and penalties and I am talking in the tens of thousands of dollars or more.

ALL financial institutions, car dealers, coin dealers, and other businesses are required to submit a special form to the government if someone deposits $10,000 or more in cash. Guess what, some banks are so fearful of the fines they might have to pay that they even file the form for $3,000. I know as I had to give them my driver's license to deposit $3K of my father's money into my father's bank account 5 years ago. NOT my account, his. So some banks have voluntarily lowered the limit from $10K to $3K (in my case) just to cover their back sides. Can't blame them if you do the research and see the $$$ of fines they are subject to.

I am neither an accountant or attorney, however, I did study accounting 30 years ago and have had first hand business experience dealing with numerous banks over the years.

In the past 10 years my small business has experienced over $1 million in fraudulent orders. Two times I had to shut down business acounts that were used for wire transfers due to fraudulent withdrawals.

It was interesting to note in the last instance the bank rep told me that they had at least one incident a day of someone trying to use stolen ID to get money fraudulently from the bank.

I know this post went a bit off subject but I keep reading about all the PayPal horror stories and then this post about why they are asking for some ID and I feel every needs to know that there is another side to the story.

My suggestion for those who have a business and who sell personal items on ebay is to set up a personal PP account in your spouse or partner's name for any non-business buying and selling and have it tied to a personal bank account with a very small balance.

In regards to your business PP account, don't do non-business ebay transactions or have your brother, sister, mother, father or anyone send you money if you need it into this account as it should not be co-mingled into your business funds.

Gaz Cooper gave some excellent examples in his post, believe me there are thousands more horror stories and you don't want to be one of them.