I've been thinking about this for a few days now. How is it possible that the IRS can determine what you make through paypal? I mean, paypal is basically like western union, which is a way of transferring money. Can the IRS tax or audit me on the money I earn through paypal, neteller, or similar services? I know they will send you a W2 or 1099 if you are living in the United States and you earn money through Adsense or affiliate programs. Google makes it clear that they need your tax id or social security number for tax reasons. However, Paypal has never asked for this info or stated your earnings will be reported. Some here at DP have said that the IRS will audit your account, but I disagree. The reason I do is because how can determine what money was earned and what money was given to you as a gift?
No, I'm not a priest, and you spelled the word "priest" wrong. Look, if you want to contribute something helpful to this discussion, please do so. Otherwise, you're wasting both your time and mine. I asked simple questions, and I'm looking for helpful responses. And what are you talking about when you mention tax fraud? I'm asking do I have to report my earnings or not?
I hate it to, and this is why I started this thread. The income tax is a fraud, and I don't want to pay the IRS unless I'm absolutely sure that they know what I'm making. I don't believe they do, because it is next to impossible for them to tell the difference between income and gifts unless they audit my account. However, if the IRS decide to audit my account, they will have to audit the account of every member of paypal or similar services, which is possible. I know the IRS has audited Ebay, but Ebay is different because it is more than just a simple way to transfer money. I think the internet will kill the ability of the IRS to tax the income that is made from freelance programmers, writers, web designers, etc. The reason I say this is because it is impossible for the IRS to tax all the transactions that are being conducted on a global network such as the internet.
You already know that you have to report any income you receive for services. The IRS can't tell by looking at your transactions if it is taxable income (although the person sending you money can say it is for services), but chances are, people aren't gifting you this money. People sending you money no doubt want to use it as a deduction and are going to show that they paid you money. The IRS just won a case to audit eBay/paypal records to find people who are not reporting income. Of course they aren't going to catch every one. If you get flagged for an audit (maybe from someone who paid you money being audited) then it will be up to you to prove you reported the income. There is no statute of limitations on income tax fraud so every person gets to decide if the want to risk being the next Richard Hatch. I think the internet and electronic payments are going to make it a lot easier to find tax cheats as unlike cash payments, they is always an electronic record of the money flow.
If the money you receive is for a business you conduct, but the finer details would depend on your individual country tax laws.
Well, I understand that by law I'm supposed to report the money I earn to the IRS, but I personally think the income tax is a joke. First off, the taxes that Americans are paying can barely pay off the interest of the national debt, and informed people know that the Fed is a private bank that is basically a mafia. Either pay or be thrown in jail or killed. I don't want to become the next Richard Hatch, and you are right that the internet does allow a paper trail to be produced. Since most people use paypal, it is going to be hard to get around this. Well, I will pay the taxes if I have to. But I will use every legal means necessary to avoid it.
Here is a quote I just pulled up from Wikipedia about the topic of the underground economy: The growth of online commerce may have increased the size of the undeground economy. eBay has over 40 million regular users, including international users. The sellers are legally responsible to pay taxes[1]. However, there is no report on how many actually do, and government rarely if ever intervenes to ensure that they do. The underground economy, when trading decisions are not the result of coercion, is arguably a free market, since, by definition, it lacks government intervention. However, various governments have engaged themselves in the underground economy, thus blurring the line between public intervention and its absence. Furthermore, underground economy may result in monopolies and oligopolies, which contradict the very notion of "free market". Thus, the mafia usually enjoy an important control over individuals. Based on these paragraphs from Wikipedia, it appears that the US government is not regulating the flow of money online, and the internet is in fact an "underground economy." The IRS will send you a W2 or 1099 each year that has been reported to them by Google or your affiliates. If paypal does not report, or my clients don't report, then a large part of my income can never be taxed. Furthermore, what if your clients live in India or China? They will not report anything to the IRS, because their country does not fall under US laws. If paypal gets bad enough, people will simply switch to another online payment company, and the IRS will again have to win the right to audit them. Given the fact that I personally save about 80% of the money I make, even if the IRS demanded me to pay money I earned, I could simply pay it without making a dent in my savings. I can simply say that I wasn't aware of confused about the law.
i'm an american citizen living in china, i'm not sure how i'm going to go through things to setup paypal (or YPN if i'm lucky). What i'm wondering about is if i can pay taxes here somehow, or if i have to go through america. It mainly depends on if i actually have to setup a legal company here (which is absurdly expensive), or if i can just do it as a service for something between 8-10% tax total.
I don't care if you pay taxes or don't - but it would be a mistake to think that you can simply pay the back taxes from your savings even if they don't bring any criminal charges. The IRS works at least 3 years behind, so by the time they catch a cheater, the interest and penalty will greatly add to the amount owed. I have a friend who didn't report $25K in income from a construction job. He just wound up paying $30K to settle the back taxes, penalties, and interest - which is more than the entire gross amount he didn't report. They only "demanded" he pay after they had cleaned out his personal and business bank accounts (without any notice) - leaving only $1 in the accounts. No one likes paying taxes.
Well, your friend paid a lot, but it would not have hurt him too much if he had for instance, made $100,000 total, saved up $65,000, and only ended up having to pay $30,000, because that would have still left him with $35,000. Whether or not you care if I pay my taxes is completely irrelevant in this argument. By maximizing my unrealized income before taxes, the IRS can't touch me. In other words, If I save up 80% of my income(which I do) the percentage I pay to the IRS in the form of income tax will do little to damage my net worth, especially If I put it in a legal tax haven. This is the secret to wealth. I will report all the money I made to the IRS. But I will always save more than I pay them in taxes, and once I begin earning compound interest, I win.
The penalty is 15% per month - plus 7% interest. There is no "compound interest" that is going to offset that so "you win". "The IRS can't touch you" ... They just put in you in jail. The "Secret to Wealth" isn't not paying taxes.
I've never said or implied that. I said that if you save up 80% of your income and then pay taxes, you still win because you have saved 80% of your income. You can never pay more than you put away. Yes, you do win, because if you take your savings and put it into a tax free investment that earns compound interest, you will become wealthy. Does that make more sense? I never said the secret to wealth is not paying taxes. I said the secret to wealth is maximizing your unrealized income before taxes
Even if you save 100% of your income, you can still wind up with a tax bill that exceeds it. There is nothing that says you can't wind up with a tax bill that exceeds your gross income. I pay almost 50% in taxes, but even if you only made $100K a year - and say you saved it all (no expenses) and didn't pay approximately $40K in taxes due - by the time the IRS audited you it is entirely possible to get a tax obligation of more than $100K. You would get a bill for whatever you couldn't pay (or they didn't sieze) and still be accruing interest until it was paid. Since there is no statute of limitations for fraud, you would be worrying about the IRS catching you for the rest of your life.
Just pay your taxes, you don't have the resources to fight income tax, you're just going to cause yourself a lot of trouble by doing so. If anything try to find a legal way out of paying so much tax. Hire a good accountant that can save you as much money as possible.
Yes, you need to report your earnings to IRS. I believe that is the law of the land. As to whether they can trace it to you or not is another matter. You may get around the system and under-declare your taxes and you may get escape from any tax audits but it doesn't make it legal. I hate taxes and I hate some of the laws but as a private individual, I cannot do anything about it. I live here so I have to comply with the house rules. I would believe that Paypal would pay their taxes to the IRS and I am not sure if they do file documents for payment transfers but I guess if the government wants to create a paper trail of the transactions made to and from you via Paypal, they should be able to obtain it. This article http://news.com.com/IRS+to+search+PayPal+records+for+tax+evaders/2100-1030_3-6060920.html might help you in your decision.
i have heard that taxes in the US are 30% of your income, so always try to keep some in the bank, i was wondering about this topic too, tnx for the great thread. got alot of info.
You have to pay taxes on "gifts" too, at least over certain levels (not sure what the numbers are). Pretty much any way you get money, the IRS wants to know about it (and can probably find a way), because you likely owe some kind of tax or another on it. Jenn