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Do you have to pay Tax on paypal earnings?

Discussion in 'Making Money' started by Sheen91, Jan 16, 2009.

  1. Sheen91

    Sheen91 Regular Member

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    I am pretty sure you must pay Tax for your earnings, even online.

    How do you pay it?

    When do you pay it?

    If your account is verified, does the income count towards the bank account hooked up to the paypal account?

    Have you had to pay tax?

    What if you earned 10 grand lets say, and you bought a computer on ebay for a grand, can you just say you only earned 9 grand, or will the tax office, know you earned 10 grand?

    Does Paypal have the right to remove money and just give it to the Tax man?


    No idea about TAX and paypal, any info will help.

    Thanks in advance. :D
     
  2. sf6689

    sf6689 Registered Member

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    Not too sure about how things work in the USA.


    But in NZ, you would be classed as a sole trader. As a sole trader you are only taxed on your earining, not your expenses. So say you earn $20K, but then $15K of that was used to reinvest and a further $2K was used to buy a computer to run your business. Then you would only be taxed on the $3K that went to your personal account. Please note though that any amount that becomes your personal spending money can be taxed (so if you decide to leave the business and have $100K in you trading account, then that will be taxed as it is moved to your personal account).

    Also with online based income (the money you have in paypal), it is up to you to declare your income to the goverment unless your company/affiliate does this for you (please note that they have some ways of finding out if your not paying any tax... e.g. W-9 form).

    If you wish to only declare a certian amount of your income then I wish you luck :) (But it can also save you big time).

    One great way around all of this is you can purchase say a phone, car, computer and other such items and declare them as expenses :) (don't get too greedy though as they might catch on).

    Again this is my knowledge of NZ and what quite a few of my friends do, so it may be completley different in the USA :)
     
  3. paper_chase

    paper_chase Regular Member

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    OP, I have been wondering the same thing for awhile now.

    If you transfer your paypal earnings into your bank account then you definitely should pay tax on that amount. However, I was thinking that if you got the Paypal debit card, you could just go to any ATM and withdraw the maximum $400 allowable each day. Is there any way the government can find out about that cash?
     
  4. enrikole

    enrikole BANNED BANNED Premium Member

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    Guys , i would recommend you going to a free business advice place or you have plenty of $$$$ go to a proper one. And explain that you are earning money online. What's the right thing to do. Or , maybe someone you know well, is like a business person and knows some stuff like that, ask him/her if you could buy him lunch and chat about few things. Then ask him/her.

    Or pop into your local council, and ask them or, something like that.

    Just because, if you get advice from , here it was wrong( maybe it wasnt applicable to your location) - you could end up in proper mess. So yeah find someone , you trust and ask them.

    riko
     
  5. jammie

    jammie Jr. VIP Jr. VIP Premium Member

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    uptown is the tax wizard around here, he'll know.

    I'm sure it'd come under income tax that you declare in april (or whenever you do it in the US).

    If you owned a legit business, you could spend that $10k on "business expenses" and not pay any corp tax. but of course, you'd still pay income tax :p

    Tax loopholes can be great, but they can stab you in the back if you get them wrong ...
     
  6. CyberDilemma

    CyberDilemma Regular Member

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    Does this answer your question?



    And this should also give you food for thought.....


     
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  7. jsherloc

    jsherloc Junior Member

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    Hey all, some of you in the U.S. may be interested in this web site as well.

    I asked a similar question on WF and was directed here:

    Hope that helps!
     
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  8. enrikole

    enrikole BANNED BANNED Premium Member

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    Ok i saw you were from OZ , so here is someone else asking simlar question in OZ. you might find it helpful :)
    Code:
     http://answers.yahoo.com/question/index?qid=20080314232818AAxkkcH 
     
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  9. misterajc

    misterajc Registered Member

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    You have to pay tax on all your earnings. If the IRS audits you and thinks you are committing fraud, they may ask for both your PayPal and bank account records. However, you can claim legitimate business expenses. If you use your computer, Internet connection, web hosting, cell phone etc. exclusively for business you can deduct the cost of these from your income. (Actually, the cost of the computer has to be amortized over several years unless you specifically elect to deduct it in the first year - talk to a tax specialist about that.) In practice, the IRS is unlikely to bother about 10K of income through selling shit on egay. A little bending of the rules will not get you into trouble. Just don't get too greedy, and try and write off those $2,000 a night hookers as a business expense. As a buddy of mine who is a tax lawyer says, "Pigs get fat, hogs get slaughtered."

    If you are making more that $100,000 a year via Internet/PayPal, you could try moving your legal residence to the Bahamas, so the first $85K of your income will not be liable to US tax, and there is no Bahamian income tax.
     
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  10. Uptownbulker

    Uptownbulker BANNED BANNED

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    Yep; your PayPal income is taxed as "ordinary income" and not just the profit but the whole amount, unless you itemise or run everything through a corporation.

    With a corporation you can often get your tax liability down to zero.
     
  11. aardanyul

    aardanyul BANNED BANNED

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    it depends on how you got that money. if you were like writing for ac you wouldnt have to pay till over 600$ for example.
     
  12. Uptownbulker

    Uptownbulker BANNED BANNED

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    Not true.

    The income is still taxable, they just don't have to send you a 1099 until they have paid you over $600.
     
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  13. CyberDilemma

    CyberDilemma Regular Member

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    Remember, if you are audited by the IRS, one of the first things they will ask for is a copy of all your bank statements and you will need to explain a reason for all the deposits. So, if you plan on not properly reporting any income, avoid the paper trail. Unreported income is better left for "cash only" discretionary expenditures such as food, gas, clothing, entertainment, vices, etc..

    Another trick they will employ is to ask you to list what all your monthly living expenditures are. If that number exceeds your reported income less deductions, then you have some explaining to do.
     
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  14. davidson

    davidson Registered Member

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    It's important not to confuse the source of the income (PayPal, AC, eBay, etc.) with the requirement to report the income and pay taxes. Generally speaking, your income from self-employment (and much of the online activities represented on BHW) is taxable as income on which taxes must be paid. Uptown is correct ... the $600 amount is the threshold at which a company must report payments. Even if you earn less than $600 from AC, you must still pay taxes on it.

    There is some income that is not taxable, so you are best advised to see a tax professional to find out what qualifies if you are unsure.

    Don't spend your time trying to avoid paying taxes. Instead, figure out how to maximize your legal deductions, keep extremely accurate business records, and seek out professional advice when you are unsure. Doing anything less will get you into hot water with the IRS.

    By the way, Uptown, you are correct about the income from business activities being taxable. However, you can deduct legitimate business expenses. While I appreciate your desire to promote your own business interests (i.e., by encouraging people to form a corporation), it should be noted that you CAN and SHOULD deduct these expenses even if you are a sole proprietor. The schedule C is appropriate for many of the people with small amounts of income. The benefits of a corporation are well documented, but that is not always the best solution for everyone. It often results in more unnecessary paperwork. My point to readers here is that you can still deduct your qualified expenses and pay tax on the net income (or profits, to use your words.)

    (By the way, I am a California Registered Tax Preparer. The advice above is a general comment about tax liability and not meant to apply to a specific individual or a specific tax situation. I cannot provide accurate advice without knowing all of the facts of a particular situation, which is why I always recommend that you seek the advice of a professional who knows the law and can evaluate your particular situation.)
     
    Last edited: Jan 16, 2009
  15. nam6641

    nam6641 Supreme Member

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    So if I understand you correctly, if you have a personal Paypal account you are going to be taxed on your gross receipts collected in paypal unless you list out every single things for the IRS tit for tat? Welp, this is going to be quite a hassle.
     
  16. davidson

    davidson Registered Member

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    Yes and no. Your income from business activities are taxable. Whether you choose to report them to the IRS is a decision you will have to make. (I encourage you to report ALL your taxable income.)

    Alongside your income, you can list (by broad categories) your qualified deductions. For example, you can list marketing expenses of $200. You don't need to show $45 to Google, $15 for business cards, $95 for web hosting, etc. unless the IRS asks you to explain your expenses (in an audit). The goal is to reduce your income as much as possible using these legitimate expenses. The more you reduce your income the less tax you will pay.

    By the way, using a program like QuickBooks (if set up correctly) will help you with your taxes. When you enter an expense, you can code it to the appropriate line on your income tax form. When it comes to tax time, it will print out your expenses by category. Much easier than trying to figure out PayPal's history export.
     
  17. CyberDilemma

    CyberDilemma Regular Member

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    Not reporting income is called "tax evasion" which will lead you to the slammer if you are caught. When they are going after mafioso and drug dealers, the tax evasion charges almost always prove to be easier to land a conviction than the charges stemming from their criminal activities.

    If, on the other hand, you decide to take a liberal interpretation of what your ordinary and necessary business expenses are, this is called "tax avoidance", which usually only results in penalties and interest owed the tax authorities (no criminal charges) if such deductions are disallowed.
     
  18. xhpdx

    xhpdx Regular Member

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    if you can use part of your income for "corporate expenses", then you should be able to pay less taxes
     
  19. nam6641

    nam6641 Supreme Member

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    There is some good info in this post!

    Question... if you buy an EPN account (as an example) which already has a SSN# filled in (presumably fake, generated off that generator site)... any ideas what happens here? You're going to get the EPN Commissions either via bank account or Paypal, but it won't be reported under your SSN#.

    So, if I report the income is that sufficient, or would I get in trouble since a different SSN# is listed under the account?
     
  20. jonnyquest

    jonnyquest Regular Member

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    The fact that it looks like you are an Aussie ... don't listen to us idiots in the US don't think the IRS can reach to the island ... but they sure can freeze a bank account or other accounts in the states if they want .. see a tax pro in the land down under ....:)
     
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