thewoodwhisperer Posted January 27, 2012 Report Share Posted January 27, 2012 I didn't want to further derail another thread with this, but I thought it was worth discussing. DWacker alluded to Paypal being problematic for businesses now and going forward. I was hoping you (DWacker) might be able to elaborate on why. I understand why it is dangerous for folks who run half-assed businesses with crappy record-keeping. I also understand the new rules concerning 1099's. But what is the imminent danger for legitimate business who do everything by the book, but just happen to use Paypal services to some extent for online transactions? By the way, this is not a challenge of any sort. I am genuinely curious and you sound like you know quite a bit about the topic. I am sure I'm not the only one here who uses Paypal in a very legitimate way so I think this might be useful for others too. Link to comment Share on other sites More sharing options...
duckkisser Posted January 27, 2012 Report Share Posted January 27, 2012 1099's? let me know what you guys know Link to comment Share on other sites More sharing options...
dwacker Posted January 28, 2012 Report Share Posted January 28, 2012 By the book your good to go. Crossing over from hobby to business and back is dangerous. I guess as long as you are absolutely sure you can survive an audit then your fine. Using pay pal is asking for an audit. Most businesses that are not in credit trouble dont use pay pal the fees are to high. Paypal is a haven for tax evasion. The feds are done ignoring it so if you think the high fees and future audit is worth not just getting a decent merchant service then go for it. The problem is most home based businesses especially crafts cant survive an audit. I just had lunch with my wife and a couple irs auditors. They expect to close more than 1.5 million businesses this year alone and even more in the comming year. Most of the info i get comes right out of the mouth of an auditor. Generally get to chat with one 3 times a week. They loose 8 billion per year in home based business tax evasion. If its worth the risk then go for it. Just make sure you classify properly. Don Link to comment Share on other sites More sharing options...
CessnaPilotBarry Posted January 28, 2012 Report Share Posted January 28, 2012 Me too... Since businesses are required to record all income, regardless of payment method, I'm wondering why PayPal would make any difference. Link to comment Share on other sites More sharing options...
thewoodwhisperer Posted January 28, 2012 Author Report Share Posted January 28, 2012 Thanks for the info Dwacker. I guess this comes down to whether or not you really run your business like a business. I certainly am not looking forward to any audit that might come my way, but I have no fear as my records are clean and we do everything by the book. And while there might be some cheaper solutions out there, I found Paypal's rates to be fairly competitive with the added bonus of simple integration into many software packages. Paypal certainly has its faults but for legitimate merchants, I don't think its all doom and gloom. Link to comment Share on other sites More sharing options...
duckkisser Posted January 28, 2012 Report Share Posted January 28, 2012 i like to trade as much as i sell for cash but that works out since im just starting out so i need every tool and always need lumber. I would like to see them collect a percentage of a router what i would realy like to know is what other option is out there if you sell something online as far as i know paypal is only trustworthy and popular edoller exchange. Link to comment Share on other sites More sharing options...
dwacker Posted January 28, 2012 Report Share Posted January 28, 2012 Me too... Since businesses are required to record all income, regardless of payment method, I'm wondering why PayPal would make any difference. Paypal or not makes no difference. Paypal is just going to get you audited. 99% of paypal based businesses are that way for the purpose of tax evasion. A legit business needs to qualify for a real merchant account. In most states you have to have a license to open business checking or merchant account. I have 6 merchant accounts none have a minimum or monthly fee, so thats really not a valid reason not to have a valid merchant account. With pay pal anyone can get one. The issue is the money cant be tracked. Since they dont deposit into a auditable bank account, the money cant be tracked. It took alot of bad eggs to get to this point but the US has to get out of debt some how. Don Link to comment Share on other sites More sharing options...
dwacker Posted January 28, 2012 Report Share Posted January 28, 2012 i like to trade as much as i sell for cash but that works out since im just starting out so i need every tool and always need lumber. I would like to see them collect a percentage of a router what i would realy like to know is what other option is out there if you sell something online as far as i know paypal is only trustworthy and popular edoller exchange. Duck if your looking for a way just to recieve money the easiest is just an eft. Anyone with a checking account can send money to anyone in the US for free. No fees and goes right to your checking account overnight. But this also goes for businesses. Don Link to comment Share on other sites More sharing options...
duckkisser Posted January 28, 2012 Report Share Posted January 28, 2012 what if i buy something using paypal will i be audited then or looked over because alot of people on ebay use paypal and it was prity handy to buy stuff with. wouldnt it make more sence to make paypal audit there transactions or at least provide a option that is safe and legal? Link to comment Share on other sites More sharing options...
dwacker Posted January 28, 2012 Report Share Posted January 28, 2012 what if i buy something using paypal will i be audited then or looked over because alot of people on ebay use paypal and it was prity handy to buy stuff with. wouldnt it make more sence to make paypal audit there transactions or at least provide a option that is safe and legal? No. Its safe as long as your not doing anything wrong. Don Link to comment Share on other sites More sharing options...
duckkisser Posted January 28, 2012 Report Share Posted January 28, 2012 think ill stick to trading my things for other peoples goods. traded a nice set of beads that i made on the lathe for a knife the guy made out of a deer antler. feel like i am in the old west with this guy he hunts with a hawk and only hunts in deer skins. but thanks for the info don ill stick it under my hat for if i ever cross over into profesional level. but basicly if im a business with a licence and im making lots of money then i could be in trouble but if i am just making a few bucks on the side selling and buying then no one will notice. Link to comment Share on other sites More sharing options...
MIKWoodworking Posted January 28, 2012 Report Share Posted January 28, 2012 What merchant services do you use without merchant monthly fees? I am interested in that Link to comment Share on other sites More sharing options...
mikepdarr Posted January 28, 2012 Report Share Posted January 28, 2012 No. Its safe as long as your not doing anything wrong. Don That quote just sounds scary. "As long as you're not doing anything wrong." Makes me wanna watch out for the men with dark sunglasses. WTF Link to comment Share on other sites More sharing options...
MIKWoodworking Posted January 28, 2012 Report Share Posted January 28, 2012 Haha, I don't think they sent those guys for this. You are only worth a letter from the government Link to comment Share on other sites More sharing options...
pagel Posted January 28, 2012 Report Share Posted January 28, 2012 dwacker, are you sure about your figure of 1.5 million expected businesses being closed down due to IRS audits? I'm not suggesting that isn't possible; it just doesn't sound correct to me. The Census puts the number of small businesses in the U.S. at around 25 million, most of which are individuals (nonemployer firms), so 1.5 million would represent around 6%. According to IRS stats, however, they conducted around 1.6 million audits in 2009, of which 90% were audits of individual income tax returns. "The IRS Tax Stats informs that, during the calendar year 2008, a total of 198,905,847 tax returns were filed. The examination coverage represented 0,9% of the total amount. In other words, 1,578,444 tax returns were audited in the fiscal year 2009; 90% of these audits concerned individual income tax returns." Source: http://www.numberof....-of-irs-audits/ Link to comment Share on other sites More sharing options...
Chopcat Posted January 28, 2012 Report Share Posted January 28, 2012 it is the accounting of the business and not the transaction methods that is important. if we all assume that someone is going to be checking and keep our books with that in mind these is no issue. using PayPal is no more likely to get you targeted than taking credit cards or indeed cash. look at how many large businesses now have embraced the PayPal system. if you think about it a PayPal transaction is no different to a credit card sale. in fact it is the same because PayPal operates in and out of a credit card or bank account and all transactions are logged that way. that's where the traceability is. all of us would rather use credit cards for transactions but for small users the costs are just too high. for all high value sales I will always require direct bank transfer but PayPal has its place for lower value sales. so i would say providing you are above board with your books there is no downside to using PayPal. in fact a positive upside if you want to grow your business. Link to comment Share on other sites More sharing options...
CessnaPilotBarry Posted January 28, 2012 Report Share Posted January 28, 2012 99% of paypal based businesses are that way for the purpose of tax evasion. Please cite your source. That sounds Bravo Sierra to me, but I'll listen and read.... Link to comment Share on other sites More sharing options...
CessnaPilotBarry Posted January 28, 2012 Report Share Posted January 28, 2012 The issue is the money cant be tracked. Since they dont deposit into a auditable bank account, the money cant be tracked. Have you ever had a PayPal account? Mine transfers electronically to my bank account bank acount. It's an EFT, just like my paycheck, electro-check, or process from a merchant account. On my end, there are clearly marked deposits from PayPal. The issue was that PayPay wasn't providing the same sort of information as a credit card clearing house to the government as to where the money was going. The money is clearly trackable, once the government obtains the payee information from PayPal. So again, even if PayPal is your only accepted method of payment, if you're properly accounting, you're good to go. This is no different than an all, or mostly cash business, and getting 1099's from folks who paid you lots of cash. The 1099 from PayPal will show a total amount, and if audited, you need to account for the transactions that add up to the 1099. This is not only easy, but most likely already done in a decently set up and properly used Quickbooks installation. 1 Link to comment Share on other sites More sharing options...
CessnaPilotBarry Posted January 28, 2012 Report Share Posted January 28, 2012 Accounting is accounting. If you have proper record keeping, using PayPal shouldn't matter. Making it easy for your customer to pay you is always a good thing. Thinking that you flying-below-the-radar by using PayPal is not a good thing. In my reading, it was apparent to me that a portion of the effort revolved around anti-terrorism / anti-racketeering enforcement. Similar to the $10,000 cash transaction reporting rules enacted many years ago. Link to comment Share on other sites More sharing options...
HoboMonk Posted January 28, 2012 Report Share Posted January 28, 2012 In my reading, it was apparent to me that a portion of the effort revolved around anti-terrorism / anti-racketeering enforcement. Similar to the $10,000 cash transaction reporting rules enacted many years ago. I too use PayPal without problems and I report all of my income, as do most of the professional artisans that I know. As I previously mentioned, the IRS DOES allow for "hobby businesses" that don't intend to make a profit. Any good tax professional can offer advice on how to do this, the rules that need to be followed and the reporting requirements. It is very simple and easy to do. BTW, The current threshold for 1099K reporting requirements for credit card intermediates is set at: $20,000 AND 200 or more transactions. IMNSHO, this thread is WAY outside the bounds of reality. ..again I am "enrolled to practice before the IRS." 1 Link to comment Share on other sites More sharing options...
duckkisser Posted January 28, 2012 Report Share Posted January 28, 2012 is that 20k in a year or in a single busness tranaction? same with the 200 transactions is that in a year or in a lifetime of the busness/hobby? Link to comment Share on other sites More sharing options...
HoboMonk Posted January 28, 2012 Report Share Posted January 28, 2012 is that 20k in a year or in a single busness tranaction? same with the 200 transactions is that in a year or in a lifetime of the busness/hobby? Consult with your tax professional. The 1099K requirements will change again for Tax Year 2012. 1 Link to comment Share on other sites More sharing options...
MIKWoodworking Posted January 28, 2012 Report Share Posted January 28, 2012 Thanks HoboMonk for the info, that helps Link to comment Share on other sites More sharing options...
dwacker Posted January 30, 2012 Report Share Posted January 30, 2012 I'll just let go, folks can watch it unfold as time goes on. How it affects you, will be what it will be. My wife just hired 3 new full fime tax lawers due to the flood of new tax clients, 1099k has only been shipping for two weeks it only going to get busier as time goes on. For tax lawyers its a windfall, nuff said Don Link to comment Share on other sites More sharing options...
HoboMonk Posted January 30, 2012 Report Share Posted January 30, 2012 Here's what PayPal says about IRC6050. Again, I am "enrolled to practice before the IRS" and I have participated in Professional Continuing Education of this tax topic. The sky is NOT falling and I think I'll go cut some wood. 1 Link to comment Share on other sites More sharing options...
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