IRS and Paypal--whats your plan?

Recently I got notice from paypal about the $20000 threshold so what are you guys going to do for this? I still did not send paypal my SSN anything but if I start sell again in a month or so I will have to do it.
The main problem is when you sell for dropshipper then you get the payment more than $20000 but you actually not bank all of them, your profit is $2000 or so. In that case Tax will be more than the earning if you accept more than $20000 in a year. Any help?

do you sell only on ebay? If not, i suggest you to use a merchant account that accept paypal payment (like i do). You wont have anymore problem with paypal....

You know what, I'm seriously curious about this as well, not because I have a similar income method to you, but because there's expenses in a business, and sometimes if you don't get tax breaks by showing your expenditures, then you'll be LOSING money by the amount the government requires you to pay, because you didn't bother to show your expenses to even make that money in the first place...

I don't have a firm grasp on HOW to go about getting the appropriate tax breaks and showing your expenses to even make the money that you've made, but if nobody here helps, I'd advise going to your bank and talking to an accountant, and they can probably help. If nobody here speaks up, then that's definitely what I'll be doing... actually, I'll probably be doing that anyway.

Something you will NEED to do is keep the receipts and proof of expenses, because that's how you'll prove to the IRS you're not making up figures. It doesn't seem they mind too much when it comes to reporting tax breaks work just a few hundred dollars, but when you're busting out $20,000 or so, they're definitely going to want you to prove expenses before they'll give you a break.

One other thing, I don't know for sure, but as long as you keep your receipts of business expenses around, I'd imagine that somebody from HR Block or some similar agency would be able to coach you on what they'd need from you to accurately report your true earnings and expenses to the IRS... but that's just hypothetical.

I hope I helped you out a little.

Thanks for the replies so far. For merchant account, I am not sure as I am not a permanent resident in US. Still I am interested to do it but need lot of information and advice for this. Any good place or website to get it?
For the other answer, yes even I received payment more than $20000, but its passed on to the dropshipper so my earnings are only pa small part of it but paypal wont see the money sent or shifted to the dropshipper, they will report the whole payment received---its too bad!

I have not done any drop shipping, but you would most likely deduct the amount that goes to the drop shipper as "cost of goods sold" on schedule C. I would double check that with an accountant.

cosanostra said:

do you sell only on ebay? If not, i suggest you to use a merchant account that accept paypal payment (like i do). You wont have anymore problem with paypal....

Click to expand...

who do you use?

F the irs... My merchant doesnt report to the irs. Why pay all kinds of money to support wars again lybia, mass immigration, welfare, iraq, etc. etc. etc.

So if i use merchant account, they may not report to IRS? Its better ad I must have to do this in future. Need to research for a good merchant account.

Good thing I am not a USA resident. Anyway, that $20K level to me is still far fetched.

They report it, that is all. Banks have to report any transaction over 10k. All they are doing is letting the IRS know that transaction has been made and if you do not pay the taxes then they will come after you. If most of the money will go towards the cost of the item you have nothing to worry about but you do need to set it up as a legit business to do this. You can not take these kinds of deductions as an individual.

for those wondering what a good merchant account that accepts paypal and will be used for ebay, try CCNow

as for reporting to the IRS, I dont need to worry since my PayPal is stealthed but for people like you guys, I guess H&R block will be your best bet.

deduct your expenses, then you are only paying taxes on the profit ($2000) in your example

that's how all businesses work