Paypal Tax Reporting Policy

Does anyone have any opinions about the tax reporting, paypal is doing for 2011 that I posted above?

My concern with this is that not all PayPal "income" is really income. For example, if my mom sends me $50 to do something for her online, will that get thrown into the mix? I have all kinds of friends online and we are always borrowing money and paying each other back, is the IRS going to consider that to be income too? From my point of view I know which transactions relate to sales but how is the IRS going to know the difference? They'll just get a form from PayPal and assume that if there are $25,000 in deposits then there must be $25,000 in sales. This is going to be a mess.

Amazon was about sales taxes.

This is about income taxes.

I had originally heard that it was going to be based on $6,000 per year, so these are new numbers that are a surprise to me.

Paypal did not have a choice in this matter, as the U.S. Federal Government told Paypal that they would need to start reporting income for their customers. Paypal did negotiate with the federal government on how "income" would be identified, since not all folks receiving money via Paypal are receiving that money as a result of a business.

They went to great lengths to ensure that if someone sold products on ebay, in place of a garage sale, then Paypal would not be obligated to report those monies as business income.

Paypal has even added new reasons for transferring money via Paypal. Go to the page that allows you to send money to others, and you will find: "gift", "loan" and "other" among the available choices.

I have always paid tax on paypal receipts. I made the assumption the IRS could still subpoena the records later, even if paypal did not provide them initially, even for years before 2011.

I expect that in a few years, these amounts and transaction numbers will come down.

Won't be surprised if the threshold is soon $5000 and the # of transactions 50 - 100.
That's how all new reporting requirements are phased in.
_____
Bruce

Hello,

I'm a PayPal user, and I do have a question about this. The PayPal email is saying that they
won't report to the IRS unless two requirements are met.

However, the email does not clearly explain whether they need the SSN of all Paypal users "right now",
regardless of whether these requirements are met or not.

Question is, if I don't give PayPal my SSN, will they limit my account, even if I don't
make $20,000 a year? Because, they keep nagging me about it, as if they're going to
do something soon.

Just request people to use the "Personal" option when sending you payments. That way it's not looked at as income. Because like a few others mentioned, what if my friend owed me $200 and just sent it via Paypal? That's not an income so he would send it as Personal and it wouldn't count toward my 20k.

Either that or get multiple Paypal accounts. I don't think you need to enter your SSN/EIN until you're close to the threshold do you?

Its called Good Bookkeeping Guys and ensuring you have a S$#%T Hot accountant that can deduct everything under the sun.

I would not mess with the IRS

talk about the Gesptapo

once they get their hooks into you, your history.

Mike Filsaime paid a Million Bucks in back taxes, when they caught up with him, cause he did not collect affiliates 1099's and when he was audited (mores than 6 years I believe) they wanted to see proof he paid his affiliates via tax documents, he did not have it and suffered massive fines and penalties.

Simple answer to this.

DON'T MESS WITH THE IRS

be sure if your lucky enough to be picked, you have all the answers they are looking for, or else ya gonna pay BIGTIME.

Kickin it on Amazon

Gaz Cooper
Amz Training Academy

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.

Thanks for providing information. Definitely, it will upset a lot of marketers not paying taxes.


- Steve

I wonder if this thing applies in Asia.

I actually have two PayPal accounts; one for personal one for business. The personal one does not accept credit cards and I don't sell anything from that account. Everything gets sold under the business one. I only have the two. Paypal, (I called and asked when I did it,) said I was allowed one of each under their rules.

That's where I would get money from things like relatives or friends or debts repaid. In my state you don't have to declare it if it's under $600. So The business one is where everything gets declared, the personal one I've never made more than $200 a year. (Truthfully, for the last couple years sitting inactive, but I still have it, just in case.)

All you need is two separate e-mail addresses. Who on this site doesn't have that?

if you receive $20K a year, you must know one thing or two about tax, otherwise you are in deep trouble