Several Pressing Tax Questions..

Hello

I have several pressing tax questions.

Suppose I made $20,000 via PayPal and I DID NOT submit my SSN to PayPal. I also spent $20,000 on business expenditure BUT I am not incoperated

1) will PayPal report that income to the IRS without my SSN?

2) can I deduct the $20k of business expense if I am not incoperated ? (If not I will have to pay more taxes than profit I make)

3) if PayPal doesn't release my $$ (i.e, my PayPal acc is locked for 180 dad) before April 15th do I need to file taxes this year or next year?

Thanks

You should really hit up a CPA. Best thing that happened to me once I started making good money lol

1) In my years of dealing with paypal, they will do whatever they can to protect themselves. So, if they are supposed to report you, then they more than likely will. I run a 100% legit business and use them, so I simply pay the taxes.

2) Do you have a tax id? EIN? Granted, you can just use your social as an EIN depending on how you set up your business, but then that begs the question, did you actually set up a business? Most states require two things to set up a business. A sale/resale license and a registered business name attached to your EIN.

3) As far as your paypal account being locked....well, why is it locked for 180 days? Paypal must have locked it for a reason. I am not saying that they were right or wrong in doing so, however, if they were wrong, then fight them on it (legal channels) and get your money. If they were right, or you cannot prove that what you sold was legit, then hope that you get you money, disassociate yourself with that account completely and do not worry about taxes. How can you pay taxes on an illegitimate business? You can't. And if it isn't legit, then next time, keep it under $20,000. (I am not advocating illegitimate business, however, as my mother always said. If your gonna do it son, do it right...and never get caught) If it is legit,,,then seriously, set up a business already.

In answer to your questions:

1. $20k is a non-trivial sum of money to make in one year in the United States. The standard deduction in the United States for an individual is around $9k. So you absent any other factors that influenced your gross income, you will have a tax liability. Paypal can do math too. It is unlikely you will have your paypal account unlocked until you provide them with some way to tag you with this income, SSN or EIN.

2. You do not need a business entity like an LLC to deduct legitimate business expenses. You can operate a business using your SSN and report your income on Schedule C to the Federal 1040 form. If you are going to report that you have no income because it was all consumed by your expenses, you better have receipts that support that. You can't just simply charge anything you think you need to your business to reduce your income, it has to be reasonably related to the production of income. So if you host your own websites, hosting expenses would be legitimate business expenses. If you've leased a new Mercedes S-class, you are going to have do some work to connect that to your business.

3. The IRS says you earn income when you receive it. If you had a balance in your account before you paypal placed a hold on your account, you earned it and would owe income tax on it. If there is some cloud over the income you have with paypal; I.e., paypal might not pay you or refund people who paid you, you haven't really earned the money because you don't have control over it. You would earn it when you have the right to use the funds as you see fit.

The above is not legal advice. You should talk to a CPA or a tax attorney. An hour of time might set you back $300, but it will enable you to plan and act with certainty. In other words, an investment in yourself well worth the money.