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The Tax Man Cometh - Thank You Paypal!

Discussion in 'Business & Tax Advice' started by charliebones, Feb 26, 2013.

  1. charliebones

    charliebones Regular Member

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    I've always been a fan of Paypal and I know a lot of people on here are not but I've been fortunate enough not to have any major problems with them. I have a premier account, I have their debit card for which I get 1% cash back and I'm on their lowest tier at 1.9% + $0.30 for transactions. I pay most of my outbound costs with my debit card so the aggregate I am actually paying for using their service is just over 1% - not bad. However, with the new government rules for online businesses, I got a bright, shiny 1099K form from Paypal showing my gross payments received through their service. I know they are just complying with federal law but now I'm having second thoughts about using Paypal as my preferred electronic payment method. Paypal does have the best setup I've seen so far for recurring / subscription based payments but now I'm wondering if it's time to rethink how we do things. I'm all about paying my fair share in taxes but I also don't want to pay any more than I have to. Does anyone have a better setup for recurring / subscriptions that isn't expensive?
     
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  2. Panther28

    Panther28 Elite Member

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    If you aren't already putting every single expense through your business, from your internet connection, to your daily business lunch, and clothing for business, then you should be.

    Your goal should be to be due a tax REFUND every year. Which you can legitimately arrange.
     
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  3. 2011nfl

    2011nfl Supreme Member

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    Its all about write offs :D
     
  4. LikeAGoodSir

    LikeAGoodSir Newbie

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    All I have to say is I will never ever use Paypal again in my life. Unless I can use it to pay with my CC without an account.
     
  5. tax_guy

    tax_guy Newbie

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    OP, have you thought about incorporating? you will be eligible for many more deductions if you incorporate...but the paperwork can be confusing. there's really no way to "Get around it", but you can minimize your tax by lowering your income.

    An advantage of incorporating is that you don't have to "claim" all the money as wages...the rest could be distributions. For example, if you made 100K last yr, the IRS says you must give yourself a "Reasonable salary". This really depends on the work, but ask yourself, "How much would i pay someone else to do my job?". Maybe its 40K/yr. In that case, you'll claim 40K and pay the "regular" wage tax on that, and take the other 60K as distributions and pay a preferred rate on it.

    Let me know if you need any help, shoot me a pm or skype
     
  6. charliebones

    charliebones Regular Member

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    Thanks for all the replies! Yes, I am incorporated and have been for years, I am setup as a subchapter "s" corp. I do write off as much as I possibly can but after a while, it get's a bit tricky. I do pay myself a "salary" and the rest is distributions but it's getting harder to move money around when transactions are being reported. Anybody with an alternative to Paypal for subscription or recurring payments?
     
  7. b1step-ahead

    b1step-ahead Power Member

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    From what I know paypal is technically a credit card. The irs could not go after people using paypal. (not a 100% sure) Recently, they changed the rules to transactions over 20k per year get reported. I pretty much write off what I can when I can. I'm personally moving away from paypal as much as possible, just cause the fees add up over time, and some clients have issues with paypal.
     
  8. ryanmercer

    ryanmercer Regular Member

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    You don't want to pay taxes on money you earned. boo hoo.
     
  9. dreamqueen

    dreamqueen Newbie

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    If you don't want to pay taxes, then I suggest you stop making money...jk!

    On a serious tip, you need to be keeping track of every dime you spend to stay in business. If it's an expense, it's a write-off. And, a big one that you get from Paypal is all those damn fees they charge you. It's fine that the IRS knows how much money you took into your Paypal account, and it shouldn't bother you at all. Your remedy to all those taxes is to reduce your taxable income, and that is where those fees you were charged and payments you made come into play.

    I'm pretty sure you can printout an entire year's worth of transactions, and you should be able to sort them, too. When you look at the difference between what came in and what went out, hopefully your tax picture will start looking better. If not, then I suggest you get an accountant to help you with your taxes because that means you might not be so good at making the most out of the money you make.
     
  10. bryanon

    bryanon Executive VIP Premium Member

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    8 replies and yet no-one has actually answered OP's question. Amazing.

    To all of the "just pay your taxes" people - based on experience, I'm assuming you're either salaried employees or entrepreneurs making a few grand a month at the very most. Let's have another chat once you've had your first $500k year and I can almost guarantee that your views will be quite different.

    To those mentioning tax write offs - as OP mentioned, he has obviously this part covered and doesn't need further advice on that.

    And finally, to actually answer OP's question - the only decent alternative I have found and used is a combination of 2CheckOut / Payoneer. While the costs are rather high (3.5% - 5.5% depending on the volume that you're pushing) and it's not suitable for all types of business, the fact that you can get the cash transferred to a (nearly) anonymous debit card can be quite an advantage. Mind you though, this only works for small (<$15k a month) operations as anything above that you will have issues moving the money off from the Payoneer card cost effectively.

    I'm sure there are others who can suggest some other/better alternatives, though (and I'd be interested in the same). Just need to bear with the fluff and look for the golden needle in the haystack :)
     
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  11. charliebones

    charliebones Regular Member

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    Well it's been over 2 years since I posted this thread and I'm glad to see a lot of the good guys are still here. Seeing that it's once again tax time in the U.S., I thought I would update this thread, even though I am a bit late for the corporate tax people (March 16). Paypal is required by the IRS to report sales over $20K per year by issuing a 1099K which you then have to report. As I stated in my initial thread, Paypal has the best setup for subscription based payments but if you don't mind manually entering in a subscription payment each month, you can use the Square devices and setup multiple accounts. then setup reminders and hit the credit cards through the Square system on a predetermined date. The rate is actually lower than Paypal and it's in your bank accounts within 24-48 hours rather than in Paypal limbo. I'm not sure about other countries but it works great in the U.S. Hope that helps anyone looking to avoid the 1099K.
     
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  12. BassTrackerBoats

    BassTrackerBoats Moderator Staff Member Moderator Jr. VIP

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    Kudos for you following up 2 years after the initial post!

    I believe it is 20K AND 200 transactions for PP to be required to report.

    Stripe may also work in the same manner as Square... I have a couple of Stripe accounts and they are as fast and the rate is better as well.
     
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  13. ttmschine

    ttmschine Regular Member

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    Have you found any issues with conversion rates when you move away from paypal?

    I had a site I'd decided to use Google Wallet on when it was kicking around and sales were sluggish, plus there were some other issues.

    When I moved to Paypal on that site the sales almost tripled.

    I think people trust the Paypal brand (well lay-people do anyway)
     
  14. David Cameron

    David Cameron Junior Member

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    You mentioned linking it up to an anon bank account. Do you recommend any? I'm hoping to get one with an ATM card that can be used Worldwide.
     
  15. johnc1

    johnc1 Junior Member

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    I use a payment processor that doesn't do 1099K. However, how do you avoid taxes on it? Mine sends payment to my bank account, which in case of audit, I'm screwed. I'm looking into anonymous bank. Is that what your currently doing?
     
  16. charliebones

    charliebones Regular Member

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    @tt - No I haven't noticed any loss of conversions because most of my customers are main street (offline) businesses. In some cases, the sale was actually easier because it was a regular credit card transaction versus Paypal. As BTB mentioned, there are also alternatives to Square.

    @johnc1 - Yes payments are sent to your bank account but if you have multiple square accounts and multiple bank accounts, you can keep the numbers where you need them. I can't get into too much detail as to how to keep these transactions hidden in the case of an audit but if you do a bit of research, it's not that difficult. In addition, you need to remember that you only pay taxes on profits when you are a corporation so the key thing to remember is cost vs. sell. I hope this helps.