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Old 01-27-2011, 02:13 PM   #1 (permalink)
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Default IRS PayPal questions!? Help Us!!

ok I read this on the PAYPAL website:

4.7 Taxes. It is your responsibility to determine what, if any, taxes apply to the payments you make or receive, and it is your responsibility to collect, report and remit the correct tax to the appropriate tax authority. PayPal is not responsible for determining whether taxes apply to your transaction, or for collecting, reporting or remitting any taxes arising from any transaction. You acknowledge that in starting in 2011, PayPal will report to the Internal Revenue Service the total amount of the payments you receive each calendar year into all the Accounts you own if you(i) receive more than $20,000, and (ii) receive more than 200 payments, in that calendar year.

Now...

1) How will I know how much I have recieved in 2011?
2) Can I see how much I got in 2010 to compare?
3) I have been running a listing service for people so a MAJORITY of the payments are not going to be my income because I am selling for people.

Any help is appreciated.

This is so confusing. UGH!!
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Old 01-27-2011, 02:22 PM   #2 (permalink)
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I have these questions as well. On top of that...and I know this was touched on in the other thread.....do you only need to report it if you received $20K AND 200 payments? In other words, if I make less than $20K for the year on paypal, do I need to even worry about reporting it? Thanks for any help with garpike's questions, as well as mine.
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Old 01-27-2011, 02:24 PM   #3 (permalink)
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I did some research..and from my understanding...you have to meet BOTH criteria to be subject to the IRS stuff. So..you hafta do 200+ transactions AND go over $20,000 in paypal recieved. not guaranteeing..but that's my understanding of it...
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Old 01-27-2011, 02:32 PM   #4 (permalink)
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New Paypal changes for 2010! Thoughts?!
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Old 01-27-2011, 02:32 PM   #5 (permalink)
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better idea: talk to a certified public accountant.
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Old 01-27-2011, 02:34 PM   #6 (permalink)
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This is simply not true. I would suggest speaking with an Accountant. Since you sold the merchandise the sale belongs to you. It will be necessary for you to document the commission and/or purchase price of the items that you are selling when filing your business taxes otherwise you risk every dollar of the sale price being recognized by the IRS as your income.

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3) I have been running a listing service for people so a MAJORITY of the payments are not going to be my income because I am selling for people.
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Old 01-27-2011, 03:42 PM   #7 (permalink)
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Yup they just ask me to provide them with some info last night regarding all these tax stuff.

Today I'm trying to find that link again and its nowhere to be found, all I get is this message on paypal



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Old 01-27-2011, 04:06 PM   #8 (permalink)
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Keep everything. Receipts for boxes, mailers, shipping labels, etc. You can run a report on paypal to see your payments received.
Most of us don't make any money doing this, now we're being asked to prove it. But if the IRS wants to treat card collectors like businessmen, I'm going to run it like a business. I got a business license, so now I can write-off expenses and report my LOSSES.

It also helps to know a few CPA's (especially if they are named partners with the firm )
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Old 01-27-2011, 04:19 PM   #9 (permalink)
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Keep everything. Receipts for boxes, mailers, shipping labels, etc. You can run a report on paypal to see your payments received.
Most of us don't make any money doing this, now we're being asked to prove it. But if the IRS wants to treat card collectors like businessmen, I'm going to run it like a business. I got a business license, so now I can write-off expenses and report my LOSSES.

It also helps to know a few CPA's (especially if they are named partners with the firm )
Is it necessary to run a report for payments sent as well?
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Old 01-27-2011, 04:32 PM   #10 (permalink)
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Is it necessary to run a report for payments sent as well?
If I buy something with the intention of reselling it and I used paypal as my payment source, I print out a receipt and save it in a 12-month accordian file. At the end of each month, I run a paypal report for payments received. I add up my receipts and compare that to my payments received and then try to hide the evidence from my wife so she doesn't find out I'm spending $1,000 more per month than I'm taking in .

The IRS is more than welcome to know I'm losing $1,000 a month on what they've determined to be a "business." I look forward to that write-off on my Schedule C next year.
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Old 01-27-2011, 04:44 PM   #11 (permalink)
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I am a CPA who prepares tax returns.

You are responsible to claim income on ALL receipts regardless if you receive a 1099 or not. If you make over $20,000 and have over 200 transactions on Paypal they will send you a 1099. You are required to report ANY amount of income and you are responsible for any income you make, whether it's below $20,000 or not.

Lots of people will tell you just to claim it's a hobby. That doesn't help you any either. You still have to claim hobby income, and your expenses are only deductible if 1) you itemize your deductions, and 2) they are subject to a 2% AGI limitation floor. You are better off having it be a business than being a hobby because most people won't be allowed to claim hobby deductions.
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Old 01-27-2011, 04:47 PM   #12 (permalink)
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Originally Posted by raiderguy10 View Post
I am a CPA who prepares tax returns.

You are responsible to claim income on ALL receipts regardless if you receive a 1099 or not. If you make over $20,000 and have over 200 transactions on Paypal they will send you a 1099. You are required to report ANY amount of income and you are responsible for any income you make, whether it's below $20,000 or not.

Lots of people will tell you just to claim it's a hobby. That doesn't help you any either. You still have to claim hobby income, and your expenses are only deductible if 1) you itemize your deductions, and 2) they are subject to a 2% AGI limitation floor. You are better off having it be a business than being a hobby because most people won't be allowed to claim hobby deductions.
there it is people. straight from a CPA... AND you got the information for free!
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Old 01-27-2011, 04:47 PM   #13 (permalink)
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Now they are going after kool-aid stands and garage sells...If you buy from a company taxes are paid. If you buy a box the taxes have been paid on the cards,they are yours to do with whatever you please. Keep the receipt from BO. It looks like the 2000 chaos all over again!!
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Old 01-27-2011, 04:48 PM   #14 (permalink)
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Now they are going after kool-aid stands and garage sells...If you buy from a company taxes are paid. If you buy a box the taxes have been paid on the cards,they are yours to do with whatever you please. Keep the receipt from BO. It looks like the 2000 chaos all over again!!
Sales tax is not income tax. Those are 2 types of taxes. You still have to report any gain you have from the sale as income. If you sell the cards out of your $100 box for $500; you have $400 worth of net income to report, and you will be taxed on your gain.
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Old 01-27-2011, 04:50 PM   #15 (permalink)
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Sales tax is not income tax. Those are 2 types of taxes. You still have to report any gain you have from the sale as income.
Looks like trading will become more popular now!!!
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Old 01-27-2011, 04:50 PM   #16 (permalink)
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I have these questions as well. On top of that...and I know this was touched on in the other thread.....do you only need to report it if you received $20K AND 200 payments? In other words, if I make less than $20K for the year on paypal, do I need to even worry about reporting it? Thanks for any help with garpike's questions, as well as mine.
How much you make has nothing to do with the new law. Your income is always taxable. If you report it or not is up to you but. The 200 & $20000 are the trigger points for when the financial transaction sites are required to send out a 1099 on you. The tax laws for individuals have not changed. As other have said if you are unsure of what should be done the best thing is to get advice from a CPA.

http://www.forbes.com/2009/03/17/irs...t-sellers.html

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Old 01-27-2011, 04:51 PM   #17 (permalink)
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I'd like to know if you can deduct the fees you are charged by Paypal And Ebay?
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Old 01-27-2011, 04:52 PM   #18 (permalink)
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I am a CPA who prepares tax returns.

You are responsible to claim income on ALL receipts regardless if you receive a 1099 or not. If you make over $20,000 and have over 200 transactions on Paypal they will send you a 1099. You are required to report ANY amount of income and you are responsible for any income you make, whether it's below $20,000 or not.

Lots of people will tell you just to claim it's a hobby. That doesn't help you any either. You still have to claim hobby income, and your expenses are only deductible if 1) you itemize your deductions, and 2) they are subject to a 2% AGI limitation floor. You are better off having it be a business than being a hobby because most people won't be allowed to claim hobby deductions.
Raiderguy, I know you aren't here to give free advice, but just a quick question: for the majority of us who spend way more than we take in with this "hobby", if we are organized as a sole-proprietorship we can deduct business losses and expenses such as supplies, etc correct?
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Old 01-27-2011, 04:53 PM   #19 (permalink)
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I'm not sure how paypal gets bye with a $20,000 1099 limit. The limit for independent contractors is $600. I don't know how they got around the $600 limit. Anything over $400 you are not only required to pay federal income tax (ie your marginal tax rate), you are also required to pay 13.3% of self employement taxes this year and 15.3% in every other year on 92.35% of your self employment earnings (Obama lowered FICA taxes by 2% for 2010).
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Old 01-27-2011, 04:55 PM   #20 (permalink)
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Raiderguy, I know you aren't here to give free advice, but just a quick question: for the majority of us who spend way more than we take in with this "hobby", if we are organized as a sole-proprietorship we can deduct business losses and expenses such as supplies, etc correct?
If you are a sole proprietorship, and if you can legitimately prove to the IRS that you shouldn't classify it as a hobby, then yes your statement is correct. Getting an EIN for a sole proprietorship can go a long way in proving that (and it's free). But the burden of proof is on you to show it wasn't a hobby (ie you don't get personal pleasure from doing it on top TRYING to make a profit). You can't do it trying to create a tax shelter.
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Old 01-27-2011, 04:55 PM   #21 (permalink)
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I'd like to know if you can deduct the fees you are charged by Paypal And Ebay?
Claim your income, and you can deduct the expenses associated with claiming the income. You can put paypal/ebay fees as an "other expense" on your schedule C of your 1040.
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Old 01-27-2011, 05:19 PM   #22 (permalink)
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Maybe I have it easy being an accounting major in college. I just write up a profit and loss statement in excel, and total it up at the end of the year. If you don't have excel use google documents with the spreadsheet feature. Its great even if you aren't paying taxes to know how much your income/expenses are for doing cards. Then at the end of the year, you include your ebay income as miscellaneous income on your 1040 form. I've been doing that for a couple years now. You can also claim the 100% of the business expenses if you make a profit on the cards for a couple of years. If you have never made a profit, it goes to a hobby loss. As my tax professor always said: Tax is on any income that you make. Although there are limits (Lottery ticket winnings over $500, or hobby income of over $500.00) you can still enjoy selling cards. The government just wants their cut.

Just one thing to note, At first when i started writing up profit/loss statements on my hobby, I began to realize how much money I was spending on cards, where my expenses need to be cut. So now I can run my hobby sales more efficiently and provide a better service to my customers.
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Old 01-27-2011, 05:53 PM   #23 (permalink)
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Originally Posted by kajshack View Post
Raiderguy, I know you aren't here to give free advice, but just a quick question: for the majority of us who spend way more than we take in with this "hobby", if we are organized as a sole-proprietorship we can deduct business losses and expenses such as supplies, etc correct?
Another thing kajshack is to have a CPA prepare your return. The IRS looks closely as "pass through" entities; ie the businesses (partnerships, LLCs, LLPs, SCorps, and Sole Prioprietors) because they are allowed to write expenses off. Having a qualified individual prepare and file your return goes a long ways to proving in the IRS' view that what you claim is legitimate. Obama also passed more stringent laws in order to be a tax preparer (you either have to be a lawyer, CPA, or pass an exam in order to prepare taxes. Before you could have high school dropouts working at H&R Block) and part of the reason is they want to make sure what gets submitted is truthful without having to spend more taxpayer dollars chasing those that are trying to cheat the system. So while it may cost you $50 to prepare (or cards in trade ), it's probably worth it in the long run.
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Old 01-27-2011, 06:23 PM   #24 (permalink)
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Another thing kajshack is to have a CPA prepare your return. The IRS looks closely as "pass through" entities; ie the businesses (partnerships, LLCs, LLPs, SCorps, and Sole Prioprietors) because they are allowed to write expenses off. Having a qualified individual prepare and file your return goes a long ways to proving in the IRS' view that what you claim is legitimate. Obama also passed more stringent laws in order to be a tax preparer (you either have to be a lawyer, CPA, or pass an exam in order to prepare taxes. Before you could have high school dropouts working at H&R Block) and part of the reason is they want to make sure what gets submitted is truthful without having to spend more taxpayer dollars chasing those that are trying to cheat the system. So while it may cost you $50 to prepare (or cards in trade ), it's probably worth it in the long run.
I thought the "burden of proof" for determining hobby vs. business was time spent, resources used, organizational set-up, etc. Of course I enjoy opening cards, but I do run it as a business, pay sales tax on in-state transactions, etc. So while I may not be making money doing it, I do consider it a business.

However, if the IRS considers it a hobby, and I did not make any money from it (spent more than I received), I don't have to worry about anything do I?

Just for the sake of an easy example, let's say I spent $25,000 on wax last year and made back $20,000. That would be a loss of $5,000. Now, if I can prove that I am a business, I can claim a business loss of $5,000. But if I'm considered a hobbyist, would I have to claim $20,000 in additional income, or would I just not report anything?
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Old 01-27-2011, 06:29 PM   #25 (permalink)
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That's all part of it. If you can show you are in it to make $ first you are ok.

Example can't be answered as given. If a business yes the 5,000 is right. If a hobby you can only claim if you itemize. Its aslo subject to 2% AGI limit in addition. If you make 100k that means only the hobby expenses exceeding 2k (18,000 in your example) is deductible.
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