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Jason Arthur
01-30-2006, 06:02 PM
Just wondering (because I know nothing about taxes) how much money do I have to make via PayPal before I have to start worrying about the taxman taking a looksee?

I make very little on my lettering work and it doesn't really cover any bills, so I don't really see it as "employment" but I'm curious to see how all of you handle this situation.

thanks,

-- J

eDuke
01-30-2006, 06:07 PM
PayPal sends out 1099s.

Val
01-30-2006, 07:22 PM
PayPal sends out 1099s.

No kiddin'?
I never knew that. That's helpful.

JasonArthur:

If a US based company is paying you money, odds are they are reporting it paid out to you.
So that means at least one government record exists that you have this money.

If they didn't pay you over a certain amount (I think it's 750.00, not sure), they aren't required to send you a 1099.
But they are supposed to if it's over that.. .regardless of what means the payment was sent (check, PayPal, etc).
Regardless if they send you a 1099 or not, they are no doubt writing this off so they don't have to pay the taxes on it... which pushes the responsibility to you.

You have to report all your income, well, at least you are supposed to.
And then how much you pay in taxes is all relative to your annual income.

Plus, you have to fill out a Schedule C for independent contractor fees you have received, as you have to pay a business tax on that amount in addition to your regular tax withholdings.

You don't have to pay anything to Uncle Sam if you don't want... and you may go your entire life without ever being busted on it.
But, if you're ever audited, you'll be up crap creek without a paddle... owing back taxes and a lot in fines.

Justice41
01-30-2006, 10:49 PM
All my paypal money goes directly to my checking account so i earn no interest hence no 1099. I do declare the money I make on ebay as salary though. Since I am a freelancer all my earnings and payouts are reported. I get a lot of deductions. Home office, utilities, car, art supplies, comics, everything. I even deduct the fe Paypal charges my customers for using their service because it's my money that is being taken from my final price.

eDuke
01-30-2006, 10:55 PM
I even deduct the fe Paypal charges my customers for using their service because it's my money that is being taken from my final price.
Exactly! My PayPal fees are outrageous. Same with my eBay fees.

Jason Arthur
01-30-2006, 11:13 PM
Last year I maybe made $200 on PayPal, but already this year I'm well over $600 but from various clients.

So I should keep a ledger showing who paid me what and how much I actually net after PayPal fees right? I should also write off anything that I see as a cost of doing this business (lettering)? I'm not listed as a contractor or a business. I do this as a freelancer, does that matter in this equation?

Christ I'm dumb when it comes to taxes. Thanks for the help guys.

-- J

Justice41
01-31-2006, 01:07 AM
Get a copy of Turbotax 2005 and just run the numbers using the self employed settings. Also Paypal allows you to download your entire history as a tab delinieted file which opens in Excel or you can download it in Quicken format which can be imported into Turbotax. I checked last year How much I made over my entire Paypal/Ebay history and it was somewhere around 40-50 thousand over 6 years. So 8+ grand a year just selling stuff on eBay. Not bad. I wish I could output more

down21
01-31-2006, 03:03 AM
This is really interesting guys. Justice I was hoping to see what kind of stuff you sell on ebay? Do you have a new link?

Also I have Quicken for home I think and I'm just trying to figure out how to keep track of incoming and outgoing. Do you mind if I ask which program you use for that?

And I have a proper fear of the IRS since those 1099's caught up with me one year and I had to pay them off over a period of time.

down21
01-31-2006, 03:08 AM
Oops, and I apologize if I've stumbled into a kind of private conversation. It's great info though.

Justice41
01-31-2006, 04:17 AM
I changed my website link to my old site.
I get paid cash for the most part and request checks to be made out to cash. I have every receipt for everything. Last year I amended my returns and got back 8 grand from the IRS for 2001 to 2004.
Quickbooks may be your best bet, I'm not sure how quicken works but it can't be far off from how quickbooks works.

down21
01-31-2006, 12:34 PM
Dang, that's how that's done. I do definitely keep my receipts for everything.

Ok, I'll check out Quickbooks. The quicken version that I've got was really cheap second hand but it's just for home finance I think.

Thanks!
:)

JMan
01-31-2006, 01:03 PM
Keep in mind too that if you're running a business you can write off purchases you've made for research and reference.

Amtekoth
01-31-2006, 01:52 PM
Like comic books :thumbs:

JAQ
01-31-2006, 02:29 PM
Like comic books :thumbs:Just keep in mind that you might someday be asked by the IRS to justify all the things you deducted as "business expenses", and if they don't buy your argument that you needed to buy (for example) the entire output of DC and Marvel as "research" just in case you ever get a gig inking for them, you can expect to make some substantial "amendments" to your tax filings.

D.J. Coffman
01-31-2006, 04:13 PM
Uhm... I've never received a 1099 from Paypal. As far as I know, they don't send them out at all. They do for the money market account things I think.

What my accountant told me to do was simply add it all up, and I can also claim the paypal fees as a business deduction as well. -- Paypal just started doing monthly statements last October which make printing out your month to month stuff much easier.

Man, writing things off rules though. It rules.

Jason Arthur
12-29-2006, 10:21 AM
Just going to bring this up once more as we approach tax season to see if anyone else has any insight into this matter.

It's really got me worried.

I'll gladly file taxes on the meager income I've made via lettering, but I'm not sure how much money is TOO MUCH for me to make.

I'm pretty sure that only two of my clients last year will list their payments to me as payment for services rendered and file taxes on it. One of those was an $800 job and the other is a book that I've only lettered one issue on so far, so not much money there.

My wife is an account, but even she is baffled when it comes to PayPal and income.

any insight will be appreciated.

-- J

acgrant
12-29-2006, 11:06 AM
Whether or not someone reports and deducts a payment to you for services rendered, or issues a 1099, is irrelevant to your duty to report the income on your personal income tax return. If your overall income level is below the exemption amount, then you don't have to file an income tax return. However, you may still owe self-employment taxes (essentially the gov't's way of getting social security, FICA, and medicare taxes out of individuals who don't have an employer withholding those taxes from their paychecks).

The threshold amount for reporting self-employment income for self-employment tax purposes (as opposed to income tax) is $400 of net earned self-employment income (in essence, your profit after deducting relevant expenses incurred in the course of your self-employment).

Hope that helps.

D.J. Coffman
12-29-2006, 11:44 AM
Plain and simple-- ANY income is income, so claim it.

What I've done with Paypal is, I print out my entire history each month (they now have monthly statements) -- then I have it all on file if i ever get audited, etc.... I take ALLLLLL of that to my public accountant/tax lady and she figures it all out for us.

The paypal fees? TAX WRITE OFFs! -- In a way, it almost equals the amount of tax you'd be applying anyway, and you generally get it all back if you do your taxes right.

I suggest going to an accountant and paying the small fee to have them file for you, they usually know all sorts of things that a computer program won't tell you or you may not have thought of to write off.

Sequential76
12-29-2006, 06:35 PM
Great topic. I'm tackleing this stuff myself.
Now I need to hunt down all my reciepts. I bought a hefty oversize HP printer this year that took a huge chunk fro me. Paypal seems pretty easy.
I've been chargeing clients for the Paypals charges as part of the bill.

Justice41
12-30-2006, 01:17 AM
Make those last minute purchases for the home office kiddies, the year ends soon and so does the tax benefit. We'll be getting a nice chunk this year as we have a baby. I'll be deducting his food and diapers as a business expense.

WCG Comics
12-30-2006, 04:23 AM
As a responsible citizen, it's important that you report any and all income. :) Any ethical tax attorney/preparer would advise that.

If you're worried about a "threshold" minimum amount, just let the tax forms figure that out--if you are not making enough to be taxed on, the forms are designed to sort that out for you.

But as others have advised in this thread, it's only fair that if you report all income you are entitled to take all applicable deductions as well for expenses related to your work. If you made as little as you say, it's likely this will result either in a deduction of the total amount of tax due or, better yet, a tax reimbursement back to you.

I always have prepared my own taxes, and for about the last decade this has included filing a Schedule C form for my work as a cartoonist and self-publisher (thank goodness for programs like TaxCut for simplifying the process somewhat!).

There are a lot of resources for doing this, including books for self-employers and even standard tax preparation guides. It's always a good idea to invest in one of these (and you can deduct it), and it will give you the basics that will help you into the future.