anyone know if we need to pay taxes on paypal income? for instance if i have my dad transfer me 500$ to my paypal account as a gift, its almost as cash. but if i sell a product and get paid thru pay pal it looks the same as a gift. anyone know if we are being tracked for payments from paypal?
Depending where you are and what volume of payments cross your account. I have had to pay tax on paypal incomings, keep everything documented.
The mechanism for being paid does not impact on if tax has to be paid or not. If you had a bank account and your father paid into it as a gift and likewise customers wired/ BACSed money in it would look the same. At the end of the day it is up to you on if you want to attempt tax evasion. Certainly in the UK it is a criminal offense and therefore run the risk of jail as well as heavy fines.
ok so i get the notion that any money being payed thru paypal is considered income to my bank acct (social security number) and therefore taxed here in the US. the safest way it to just get a check in the post mail. which is untrackable.
"the safest way it to just get a check in the post mail. which is untrackable." This would also be tax evasion. And if the person who sent you the money deducted it as an expense it is possible to come back at you. IE, if they are audited and the auditor does some digging.
Paypal is not tracked for taxes, it is more like a bank account. Unless you do large volume and large amounts of money, you are pretty safe. You will have to pay taxes on any interest paid by Paypal but otherwise, the IRS will only flag your account if there is a payment over $10,000 at once. Otherwise it is up to you rather you file it as business income or not. If you have a company, file it if you just do business once in a while or small amounts of money, forget it.
As stated, the biggest risk is that someone who pays you logs the invoice in their own tax return and then the IRS/ HMRC (or which ever is applicable in your country) sees an inconsistancy between people saying they are buying from you but you arent saying you are selling things. Obviously the risks of this happening depend firstly on the volumes your trading, secondly if you are more or less likely to be selling to businesses and thirdly on your countries rules on tax returns.
Whether you are tracked or not, it is your obligation to declare your income for the purpose of taxation. Most places only requires you to pay taxes based on your net profit (income minus cost).