direct bank deposits and us taxes?

how do you keep records of something like this? if you're transferring large sums of money through paypal or something similar?

I really have no idea what I'm going to have to do for my taxes, so I'm just keeping records of everything I can (adsense mainly) and I'm going to have someone look over it at the end of the year. I'm a bit lost on how to deal with paypal, though.

how do you seperate what you're actually earning from expenses for taxes? a lot of people I'm guessing do SEO/some sort of consulting work- so if you're paid a certain amount, but part of that will be used to cover expenses related to your service (buying links or something) and only a fraction of it is actually a "payment" do you have to pay taxes on all of it?

 

While I am no expert, this is what I do. I keep track of all my income and expenses in Money. Every quarter you are supposed to pay an estimate to the IRS and your state Dept of Taxation based on your net profit for that period. You can base the percentage on what you owed last year or contact the IRS and Dept of Tax. to figure out what your estimates should be. Just remember that you have to pay medicare and social security for both employee and employer (yes, that's twice).
You might want to contact a bookkeeper and have them do your books every quarter if you don't want to be bothered with all this. It is a good idea to keep a record of your income and expenses so you know where you stand at any given time.
I hope this helps.

 

so I guess I should keep a record of all my payments and all my expenses, since I'll only be paying on my earnings?

I still don't know how to keep a record of transactions that give no paper records though (paypal direct deposits, etc)

for keeping track of expenses, would just my credit card statements be enough?

 

It really helps to keep track of them either on paper, or better yet in excel. You can then write down what each is for and have a tally at any given time of what your net profit is. Make sure you label each category well. I recommend breaking down each income vendor so when you get statements next year, you can verify them. Then have expenses categories like supplies, advertising, entertaining, web hosting, mileage, etc.
You will need to keep receipts, and no, credit card statements will not be enough. Keep them in a separate envelope or something so you can get to them when you need them.
Of course, as I am writing this, I am thinking, are you in the US? I am, and this is how things are done here.

 

Credit card statements provide sufficient evidence for expenses. I remember you posting what your earnings were earlier and I would definitely advise you to seek a professional accountant right away who has experience with the internet. If you have not been filing any federal/state forms (sales tax, quarterlies, etc...) you could get have problems. You are probably best off setting up an LLC for approx $300 and getting the protection and tax benefits it affords you.
Mike Ryan, C.P.A.

 

I can't tell from your profile what country you live in, so I'll talk in general terms.

You pay taxes based on your net earnings. Assuming you have no company (I'm assuming your in the US for this discussion), these taxes will include Federal, State and Self Employment Taxes.

Net earnings are basically your revenue minus your expenses.

What is revenue? It is the amount of money earned during the calendar year. This may differ from how much money is actually collected. Typically, you can track this on a simple spreadsheet.

Jan
Feb
Mar

You may have different columns for your various advertisers (how much your charged them), even though you may not have physically collected the money.

What are expenses? Money you spent running your business. Examples would including ISP, hosting fees, computer hardware and software, office supplies, advertising expenses and so forth. Most people will keep track of this with a credit card, but it's also possible you spent money by checking account or paid cash out of your pocket. If you paid with a check, your check register will keep track of these expenses. If you paid by cash, you should reimburse yourself with funds from your checking account.

Checking account. I would set up a separate checking account for your business activities. Do not mix your personal funds with the business ones. It will an absolute nightmare trying to untangle the two when you finally get down to the accounting at year end.