Taxes and Paypal

Discussion in 'PayPal' started by star2323, Aug 7, 2006.

  1. #1
    How do people who receive payments by Paypal handle that income when it comes tax time?

    If I sell a link on one of my sites and receive payment by Paypal do I need to report that payment on my taxes at the end of the year as income?
     
    star2323, Aug 7, 2006 IP
  2. sysop

    sysop Peon

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    #2
    You can make a compilation of all transaction for the tax purposes. Anyway if the value is small enough, you should not report it either.
     
    sysop, Aug 7, 2006 IP
  3. star2323

    star2323 Peon

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    #3
    Lets say over the course of the year I sell 300 different links for an average of $6 per link. The total would be $1800. Do I need to report this?

    I know I will receive a 1099 form Google for my Adsense income and from Clickbank and I have to report these but the Paypal area I'm lost on.
     
    star2323, Aug 7, 2006 IP
  4. jhmattern

    jhmattern Illustrious Member

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    #4
    I believe you're supposed to report everything, but you pay taxes on it if you earn over $600. Don't forget, self-employment tax is a bit different, because you pay both the employer's portion, plus the "employee's" portion. Just go to www.irs.gov and look for info for self-employed people or independent contractors. You should get the right numbers pretty easily that way.

    Jenn
     
    jhmattern, Aug 7, 2006 IP
  5. star2323

    star2323 Peon

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    #5
    Also keep in mind I'm in the United States. I'm sure different counties have different laws.
     
    star2323, Aug 7, 2006 IP
  6. GsMen

    GsMen Well-Known Member

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    #6
    wow I must consider moving to the states. I sell only 10 euro virtual goods, this is small enough to not report it?
     
    GsMen, Aug 7, 2006 IP
  7. star2323

    star2323 Peon

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    #7
    I'm pretty sure it has nothing to do with the price per item. I believe in the US any total amount over $600 in a year needs to be reported. So it doesn't matter if you sell one item for $700 or 700 items for $1 it is all the same.
     
    star2323, Aug 7, 2006 IP
  8. GsMen

    GsMen Well-Known Member

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    #8
    yeah, was ment as a joke. Ofcource you count all income.
     
    GsMen, Aug 7, 2006 IP
  9. qrisp

    qrisp Peon

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    #9
    I'm sure you have some expenses you can deduct - just work under an LLC company name.
     
    qrisp, Aug 7, 2006 IP
  10. elklabone

    elklabone Peon

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    #10
    In the USA it's extremely easy to start a "small business"... you should get your own EIN (Employer Identification #) from the IRS, that way you're not doing things under your own SS# for affiliate payments and such... you don't need to register as an LLC if you're just getting started... that's probably overkill. It is a good structure for your business, but it's probably not the first thing you need to do.

    Get your own EIN here:
    http://www.irs.gov/businesses/small/article/0,,id=102767,00.html

    Other than that, just record the name of your own business when you sign up for your EIN and keep everything business and personal separate! Open up a second checkings account, paypal account, etc for sole use of the business.

    Everything into the account is income, everything out of the account is a business expense, and everything left (can be paid out to you whenver you'd like) is personal income, which you must report and pay taxes on. As your business grows, you may need to eventually do estimated tax payments, or even look into a payroll service like paycycle.com. When you do a personal payment (your profit) make sure you set 35% or so aside for taxes...

    Of course this is a slight oversimplication, but it's pretty easy once you start reading up and learning. I suggest you find a good CPA and spend some time talking to him as soon as you start making a regular income.

    Good luck!
     
    elklabone, Aug 7, 2006 IP
  11. jhmattern

    jhmattern Illustrious Member

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    #11
    In addition to that, you'll have to register with your state's Department of Revenue or similar government branch, and make sure you're not violating any local zoning regulations if you're working at home. That can be free, or at cost, depending on what state you're in and whether you choose to run your business under your own name or if you file a DBA request.

    Jenn
     
    jhmattern, Aug 7, 2006 IP