Have Tax Information questions? Post here!

[PayPal_Adrian]

Welcome to the Tax Information thread!

Should I post my question here?

Starting in 2011, all U.S. payment providers, including PayPal will be required by the IRS to report sales information about merchants who exceed $20,000 and 200 transactions to the IRS. If your question is related to this topic, please reply with a question or to assist another member.

We will  be merging existing questions in the Community into this board.  More information will be made available later.  Until an update is provided, please check out the previous IRS Workshop and www.paypal.com/irs. 

What questions don't go here?

All other tax-related questions, such as Profile settings for Tax, adding tax to invoices, adding tax to payments, whether or not you should charge your buyers tax, what tax rates to charge, are considered Off Topic and will be moved.  These questions are better placed in the About Business board instead.

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[brewhardware]

The IRS doesn't add things to your tax bill. It MAY cause an audit trigger if it appears that you made a lot more income than you reported but if you lawfully reported all your income (including the money that came through paypal) you have nothing to worry about.

The thing that worries me is that people seem to be using "did paypal send a 1099 to the IRS?" as the litmus test to determine if they are going to report income or not. All income needs to be reported obviously. The IRS also doesn't have sympathy for folks who "didn't know".

[4Crawler]

I know it has been discussed before, but my problem is that I do report my Paypal income.  My issue is that the amount and number of transactions Paypal reports is not the same as what I come up with in my books.  I can get within a few percent of their numbers, but the IRS usually goes to the nearest dollar. I would like to see a simple document describing EXACTLY how to download and filter your transaction history file and produce the numbers Paypal is reporting on the 1099-K form.  Obviously Paypal sent that sort of information to the 3rd party that generated the 1099-K forms so it MUST exist.  Why can't they share that information with us, their fee-paying merchants???  I mean they can send MY financial data to a 3rd party but they can't send ME information on how to process my own history file.  And I don't cinsider this "tax advice", I am only asking for instructions on how I can double-check the number Paypal is reporting.  How am I supposed to sign my 1040 form and vouch that all the information contained on it is correct when I can't vouch for the accuracy of that 1099-K number (and YES, I know it is not being reported this year, but it is likely to be reported in the future).

And how am I supposed to file my state sales tax form every year when that is must be filed PRIOR to me receiving the 1099-K form?  And YES, I reazlize Paypal does not send those forms to the state sales tax folks, but if Fed income tax form sales number is not equal to State income tax sales number is not equal to State sale tax income number, the various tax agencies do get to see the others data.  So if I report my numbers on sales tax and Paypal's numbers on Income tax and those numbers are not the same, I get called in to explain.

[brewhardware]

I agree that reconciling personal records with the paypal outputs is a drag but I'd just go with the numbers you trust the most (and can defend in an audit).  The state sales tax that I pay quartery is calculated by taking the full CSV file from the download history page and filtering all the transactions by rows that contain my state code in the address. I add up all the gross amounts, subtract the amount that was for shipping, subtract any refunds, and then multiply that by 7% (our tax rate). That's what I pay to the state. I don't care what Paypal says. I do notice a small discrepency in the total tax collected via the paypal download than what I calculate and I can't figure out what that is but I'm only paying something like $100 a quarter in sales tax at the moment and the couple dollars left or right isn't going to be a problem in my opinion.

The one place users may find the most discrepency is in refunded or partially refunded transactions. If someone in state pays 100 and they are charged say 5% sales tax on top of that it's $105.  I don't think Paypal will automatically refund a porton of the tax paid if you refund like 50, technically the sales tax due is now $2.50 but you still have $55.

[naseller]

I don't want to argue. Ithe point is that we do not meet the criteria as set out by the IRS to pay tax on monies that were paid into or Paypal accounts. Yes, we easily can write off all of it, but we made no provision in our tax keeping for this. Did I mention the 1099s we received came on April 4 leaving very little time to correct this mess. we have very few transactions. The tax laws in effect are there for a reason, and we don't fall into 1099 categories.

[brewhardware]

It's not an arguement. I'm just a paypal user trying to help another paypal user for free.

I think you are mistaken however that you don't meet the criteria of paying taxes on this money. Whether you met the 200 transactions and 20k in gross transactions is only the trigger for the 1099 to be sent. Nowhere does it say that if you stay under this threshold that you are shielded from tax liability. If you sold something for $500, that is income that needs to be reported on your tax return. What makes you think otherwise?

I understand that you probably didn't keep up with good book keeping because you didn't think you would have to report the income. Hopefully you'll keep good records next year just in case. It's unfortunate that Paypal messed up and sent them out accidentally, but if you already prepared to report on all income, it wouldn't be a problem now.

[naseller]

AND it IS a litmus test!

[brewhardware]

I don't know what you mean. Call the IRS and ask them. It's a little weird that you seem to be getting angry with me. I'm not the IRS or Paypal.

[naseller]

I am very frustrated by all of this. no money was gained in our sales. I am not required to report my sales if it is done as a hobby. it is not a money making venture. but PayPal as made a huge mistake and filed incorrect information with the IRS. as I originally explained, I was hoping for a viable suggestion by someone who had experienced the same problem, or had tax knowledge in order to avoid having to call and straighten the mess out with the IRS. PayPal messed up, not me. ninam not a business owner trying to avoid paying tax. I owe no tax.

[brewhardware]

How do you reach some 20k in transactions for a hobby? If there was no profit, you just report it as income with 100% of erased by costs. The IRS may inquire about the amount and you may have to file an amended return to account for it even if it ends up being a zero-tax thing.

The thing is, sometimes hobbies end up making money when you weren't really trying. If it really did net profit, that's taxable. If your costs were equal to the amount you made, that does belong on the tax return too.

[Disposable_Hero]

So... I havent received a 1099K either... I get only gift payments for upkeeping a server and upgrading our servers/host.  I was gift donated about 19.5k in donations last year.  We didn't meet 20k total.  I have a 8-5 job that I make income on and have not touched any of the money my community has gifted.

Am I required to markthis as income on my tax return?