Hi, For my business as a online entrepreneur and internet marketer I'm using ONLY PAYPAL as a method for earnings and business expenses. How can I do my bookkeeping, what records I have to have as proofs for expenses. Is it enough to have just Paypal records? How need to look my paperworks, records... How I can manage my USA TAX responsibility in this case that I'm working through PayPal only? When I can find information for such a thing? How are You doing that? What are yours records? What are you collecting? Is there any of you who has experience in audit with IRS? What type of documents are they looking for business expenses if you using ONLY PAYPAL? Thanks, Nikola
In 2007 I done various things on the internet such as affiliate marketing, selling small softwares, websites, blogs, on-line books, etc I'm just doing this business as an individual. For my on-line activity in 2007 I have filed my Taxis as Small Business in schedule C(form 1040). And I give to IRS more then half what I really earned. But I steel worry do I know all rules for such a thing. All information that I have for my earnings as well as for the expenses are on PayPal history records. At the tax-time I just calculate "+" and "-" from Paypal History. Is it enough for IRS? All this informations about SMALL BUSINESS book keeping, paper records for expenses, accounting etc. are not quite applicable for that what I and so many people from this forum are doing. For example if I have paid $10 to some guy from India to write a article for me and I show this $10 as my expense, how I can have PAPER PROOF that it was really my expense? It is not just like you buy a ticket for your business trip and have paper bill from the bus station. And I have hundreds of expenses that are actually fees paid to individuals from over the world. To print all this e-mails like verbal agreements as a proof? No sense. Also It isn't possible to make records that are connected particular expenses to particular activities (earnings)
When you purchase something from a person, have them send you an invoice. Whether its a email or not. To operate a business, no matter what your organization (LLC, Sole Propriatorship, Inc, etc.) you have to keep books. I keep records for 4 years of anything and everything I plan on claiming as income or taxes. I have been audited before. So has my aunt (who runs her own graphics design business). My records were neat and organized, hers weren't. Hers was very stressful for her. Mine was a piece of cake and didn't take long at all. Here is a good resource about record keeping from the IRS website: http://www.irs.gov/businesses/small/article/0,,id=98575,00.html Emails actually wouldn't be verbal agreements but written agreements. Record keeping is very imporant as it will help you when it comes to filing your taxes, as well as proving things in case of an audit. At the very least keep a runnin track for the year on an spreadsheet (i.e. Excel). I keep multiple records. I have my staff print out each and every invoice, so we have paper records. I keep them in my billing software (it punches out a spreadsheet). We keep track of everything in an Excel Spreadsheet, as well as on Microsoft Access. Each electronic record has 3 backups. One stored in a remote location, one I email to my parents each month and one I keep on an external hard drive. As well as the copies on my work and home computer, and shared drive at work. Good record keeping is very important. Also, if you get audited, and you don't have a paper proof of something you deducted, they will not allow it to be deducted. I suggest you consult an accountant for your taxes (this year if you haven't already done them) and talk to him about it. Have him do it this year, and show you what he did for your taxes. Have him explain to you about record keeping and the like. Then, next year, you can keep track of everything the right way and you may not need him to do them for you.