Filing Your PayPal Taxes the Right Way: A Guide
It’s that time of the year again. Tax season is here and you know what that means. You must have all your finances and records in order so you can file your taxes.
There’s some bad news. Did you know there was a recent change to the tax code? Yes, the change is all part of the American Rescue Plan Act.
If you use the mobile payment app, PayPal, you must report commercial transactions to the IRS. This tax code applies if there’s a total of $600 commercial transactions per year.
You must file PayPal taxes if this is the case. PayPal will report transactions over $600 to the IRS, but you must still know how this works. Read on to learn how to file PayPal taxes.
The Change to the Tax Code
If you’re new to PayPal or didn’t hear the news, now is the time to learn about it. Let’s talk about the change to the tax code.
Before the change went into effect, there was a different tax code. PayPal had to report to the IRS when a user had over 200 commercial transactions per year. These had to exceed $20,000 in total value.
There was some room to maneuver with the previous tax code. PayPal still had to report transactions to the IRS. You were still responsible for filing taxes.
Now, one can say that things are stricter. If you use PayPal a lot for business, the $600 mark can come up fast. It’s important you remain on top of your PayPal transactions.
How Does the Change Affect You
You might be asking, “Does this change to the tax code affect me?” Let’s talk about that.
Here’s the most important question. Do you use PayPal to do business? Do you use it to complete charges on commercial goods or services?
If you have a website and take PayPal as a payment method this tax code applies to you. It also applies to you if you have a brick and mortar retail store. It even applies to freelance workers who charge for a service through PayPal.
This tax code doesn’t apply to personal charges to friends and family. If you plan on using PayPal to split a dinner bill with friends, there isn’t a need to panic. The same goes if you are giving money to a friend as a birthday gift.
PayPal will track all your transactions. It will check when your payment volume exceeds the new levels. You must also keep track of every PayPal transaction you make.
Make Sure PayPal Has Your Personal Information
PayPal must have certain personal information on file. PayPal may ask you to provide a tax ID number. You may need to give PayPal your SSN or EIN if you have yet to do so.
If you operate as a business legal entity, you must use an EIN. This includes a corporation or partnership. You must provide your company name.
If you operate as a sole proprietor, you must use an EIN. Don’t include a business name. In this case, you must include your own name.
If you’re an individual seller, you must provide your SSN. PayPal will use it for Form 1099 reporting.
PayPal Transactions PayPal Tax
You must get a 1099 Form for PayPal. You can wait for it to come via mail or you can find it in your PayPal account. Don’t assume that if you don’t get a form, you don’t have to pay taxes.
You’ll have to file Form 1099-Nonemployee Compensation. This applies if you have a total of $600 commercial transactions per year. This form replaces Form 1099-MISC.
It’s important you get this right. Filing the wrong form is a big mistake. It can lead to filing delays.
If you don’t file your taxes on time, you may have to face a penalty. That’s less money in your pocket. Filing issues can also lead to an IRS audit.
If you’re a business owner, you want to make sure you get this right. Once you have your tax forms in your hand, you must look over them. Take your time to do so.
Seek Professional Help
Filing taxes can be tricky. With the changes, it might be harder to file taxes now if you use PayPal to make sales. As a business owner, you should consider seeking professional help.
Dealing PayPal IRS transactions are a piece of cake if you hire a corporate tax return service. Don’t break your head trying to do your business taxes on your own. Let the pros take care of this.
Before you submit your tax returns, you can have a pro look over them. This is a great way to avoid double reporting. For some businesses, this issue is a major concern.
Don’t let an error affect your business. You don’t want to land in hot water with the IRS. Having to deal with the IRS can cause a major headache.
File Your PayPal Taxes the Right Way
Let’s be honest! No one likes it when tax season rolls around. Now there are changes that can make filing taxes harder if you use PayPal.
You must know how to file your PayPal taxes. You must report commercial transactions totaling more than $600 per year to the IRS. Make sure to use this guide to help you learn how to file them.
Do you need help filing your PayPal taxes? Contact us now to learn more about our services.