I'm having problems understand how I should calculate taxes to IRS from my PayPal account. 1. For example, if I receive $1,000 from someone or any money I receive to my PayPal account, do I need to take a tax from that amount to IRS? or 2. For example, if I receive $1,000 and I sent $500 to a person, do I only take the tax to IRS from the amount I sent to a person? I'm really confused, please help me.
1) You don't earn money "from Paypal". Paypal is just the payment processor. You get income from your buyers. Report all income to the IRS and also report your PayPal transaction fees as a business expense. It's the same as if the buyer paid you with a cheque. You'd report the gross income and also report the bank fees as an expense. 2) If the amounts are business related you would report the $1000 as income and the $500 as an expense - report both - not just the net difference..
So I have contacted PayPal and I spoke with 3 different representatives and they told me I'm not required to submit any tax information to IRS and they do not submit any tax information to IRS either. But what they told me is that they will be submitting tax information to IRS in 2012 and they sent me some information about it.
That new 2012 IRS requirement is just to make it easier to catch people who don't report income when it's paid through PayPal. Today, you are still legally required to self-report all income no matter what payment method (cash, check, direct deposit, PayPal etc....) is used to receive it.
For example lets say my taxes are around 30% and I earned $1,000 and sent $500 to a person, how much will I have to pay taxes? That would be much easier for me so I can calculate it. I have just made an appointment with an Accountant and I will ask her tomorrow everything about it, because PayPal told me its not required to submit any taxes since they don't report anything not IRS at this time.