posted on February 10, 2002 10:00:55 AM
I don't think they do, i think they are a rogue company without much regulation.
I don't think any regulators have decided what they are yet, as in bank, or just payment service, or just Credit card processor or whatever. I don't even know if paypal is truly legal in all states.
Once someone defines exactly what category paypal falls into, then we'll know if paypal reports the interest we earn from accounts in paypal.
Oh, and don't get me wrong, I and most of my buyers really enjoy using paypal, I'm not flaming them.....just remembering that they are, well, a unique business.
posted on February 10, 2002 10:18:42 AM
I doubt that they report all their transactions directly to the IRS per se. However, I'm sure the IRS can requisition the transactions for any given person or account and they'd comply. They may not have your SS# but the IRS doesn't really need that to prove an account belongs to you.
posted on February 10, 2002 10:23:52 AM
If you use the PayPal Money Market Fund option they do report your dividends earned. It's the law. I received my 1099-DIV form from PayPal earlier this month. If you made less than $10 they aren't required to send a 1099-DIV form.
Does PayPal report your transaction history to the IRS? No.
posted on February 10, 2002 11:47:25 AM
As the previous poster said, just the interest over $10 is reported to the IRS.
In terms of tax avoidance, many people who sell on line seem to try to get money orders and other instruments that can be cashed with little left for an audit trail.
This is, of course, not particularly effective if you come under the IRS spotlight. As you know, you can get easily your actual closed sales records from ebay and half.com. quite easily. And you can not erase them. In fact half.com likes to post the amount you have sold to date right there on your seller's account page.
I think it is best to make sure your records closely match these repositories of information for your tax records. In fact, tieing everything back to the sales venue makes the tax filings pretty easy.
posted on February 10, 2002 12:28:30 PM
My question is, if you withdrawl your funds
with your debit card(ATM), is there any trace? (kind of like when you cash in a money order)
[ edited by imagecomposer on Feb 10, 2002 12:29 PM ]
posted on February 10, 2002 12:47:40 PM
That would be the same as withdrawing cash from a bank-issued debit card. Of course there would be a trail. Otherwise, PP wouldn't be able to keep track of what your current balance is on your debit card.
posted on February 10, 2002 01:01:42 PMMy question is, if you withdrawl your funds with your debit card(ATM), is there any trace?
If you're goal is to operate a business without any trace of financial activity there are a few things you should do.
1. Don't accept payments via PayPal, BillPoint, PayDirect, merchant account, or any service offering electronic payments.
2. Don't sell on eBay, Yahoo, Amazon, Half.com or any other auction site that keeps records.
3. Accept only cash
4. Make no deposits to any bank in the US.
5. Strive to conduct your business in a dark alley, contacting potential buyers with a "pssst... wanna good deal"
Follow those simple guidelines and you will have managed to operate your business without any traceable records. If you are going to be paranoid about the IRS you should go all the way with it.
posted on February 10, 2002 01:33:53 PM
5. Strive to conduct your business in a dark alley, contacting potential buyers with a "pssst... wanna good deal"
posted on February 10, 2002 04:32:02 PM
Even with all those steps you still won't escape the IRS.
If you are targeted for an audit, the IRS will know more about your income and expences than you do.
One person that got caught hiding income said that the auditor even knew how much he spent on long distance phone service, and estimated what they spent on groceries and were so close it was scary. This was not a rich man, but a middle class family who tried to "hide" some cash income from a side business.
If you get audited, there is no where and no way to hide anything, unless you do not spend any of the cash income and keep it under the matress. But the IRS probably has a way to find matress money too !
posted on February 11, 2002 05:48:43 AM
how can paypal possibly report you to the irs. they report to NO ONE when it comes to customer service and they are not even FDIC insured with YOUR cash.
posted on February 11, 2002 09:25:25 AM
It is not a matter of Paypal "reporting" transactions. However, the interest Paypal pays must be reported. My brokerage isn't a bank either, but they pay interest on cash deposits and report it to the IRS. Any entity paying interest on cash deposits must report. If the IRS sees a big jump on a non retired person of interest income and a reported income that probably wouldn't support that much in cash deposits, its audit time.
It is also not a matter of "reporting" to the IRS if you get audited. Either you provide the records or the IRS will get them. Any purchase or deposit or income that goes through any bona fide business leaves a trail. The use of computers and data bases has just made it much easier for the IRS to get their hands on income and expence records.
Using debit cards or credit cards makes it much easier for the IRS to track your expences. They can find out quite easily if you're spending more than your reported income can support. It may be innocent, but they'll check you out.
If you get audited, there is no hiding much of anything.
posted on February 11, 2002 12:37:30 PM
uaru: Thanks for the info. I was just about to ask that question, since I didn't get a 1099. I only get 2-3 cents per month in interest.
I plan to save it up for a year and buy a gumball at K-Mart.
So what you are saying is that since you gain interest on the money in your Paypal account they must report even if you don't make a single cent in interest?
posted on February 12, 2002 07:36:41 AM
Not everyone makes interest on their Paypal account. I never accepted the debit card etc., and I don't earn interest - but I also sweep my account daily.
If the deposit entity pays interest, it must be reported. Over a certain amount a 1099INT/OID is filed and the payee gets a copy to attach to their return.
Paypal also files a tax return. The IRS will see how much interest Paypal paid out, how many 1099s were issued, and Paypal will have a record available to the IRS of everyone it paid interest to. The interest Paypal pays is also a business expense, and just like any business expense, a copy of the amount and to whom the money was paid is kept.
If you think Paypal records are outside the scope of IRS reporting, think again. In fact, an auditor would love to come upon unreported income records such as Paypal because it would be a slam dunk with a few computer key strokes.
posted on February 12, 2002 08:12:13 AM
Years ago I paid good money to a Tax Lawyer/Consultant for advice...his words of wisdom?
There are 3 areas on your taxes you cannot/should not make a mistake.
1. Name
2. SS
3. Total income earned from all sources
The 3rd one can earn you jail time, all the other stuff on the form is arguable in court and the burden of proof now falls on IRS and not you. If the ruling goes against you, at worst you end up paying additional tax and penalities. If they can show you earned income that was not reported that's called "tax evasion" and that is a criminal offense!
I had a little motel for awhile and a couple of IRS auditors stayed there while in town doing their thing.
I learned a lot from them too.
1. If audited, show up with your records and keep your mouth shut and only answer the questions asked. They said 99% of the time on an audit, they are just fishing. When the person comes in and starts telling them that they had asked Uncle Joe about that XX deduct and had been assured it was OK...this causes them to look at that particular deduct.
2. Keep records. They don't have to be the fancy, a spiral notebook does just fine, but the key is you must have something written down. Then IRS must prove that the info is not correct. If you have no paper records, they can make the numbers up for you using formulas guaranteed not to be to your advantage. Prime example: if you own a B&M with stock, chances are you will use some of the stuff you sell for personal use. If you do that, it becomes income to you. If you write it down when you pull it and you consistantly write down what you pull then IRS will generally accept your numbers (know this from personal experience). If you have nothing written down, they get to make up the number using a very complex formula that tell you a family of XX will use XX of an item in a year!
In summary, declare all your income from all sources and learn how to take advantage of deducts, keep paper records and NEVER explain why you did something until/unless you are asked specifically!
