What do I do about taxes and paypal?

Question

I work online for a company based in the UK that pays me via paypal - I do not sell or anything through EBAY or auctions. So far this year, money has been tight... and I haven't stashed anything for taxes at the end of the year.

I guess I would be listed as a private contractor and would be responsible for paying my own taxes... as well my company is out of the US and no one reports my income.

I support a family of 3 and make about 45 K a year.

How much should I be saving and what do I do at the end of the year to report? For now, I live in NV which doesn't have a state tax, but in Sept - I will move to Utah.
Is there a program I should use to keep track of everything?
Also, can all those stupid paypal fees be used as an expense?

Thanks :)

Answer 1

First of all, the IRS will help!!! Yes. That is your tax dollar goes. You better use Uncle Sam to help you. And they want you to do the accounting correctly. So they can collect taxes from you.

http://www.irs.gov/businesses/small/article/0,,id=99202,00.html

A. Are you keeping the record the way that the IRS want?

Starting a Business and Keeping Records
http://www.irs.gov/pub/irs-pdf/p583.pdf...

What record do I keep?
http://www.irs.gov/businesses/small/article/0,,id=98575,00.html

Bookkeeping (book-keeping or book keeping) is the recording of all financial transactions undertaken by an individual or organization. The organization may be a business, a charitable organization or even a local sports club. Bookkeeping is "keeping records of what is bought, sold, owed, and owned; what money comes in, what goes out, and what is left." A financial transaction is any event that involves money.

http://en.wikipedia.org/wiki/bookkeeping...

You need to have a professional bookkeeper. If you want to do it on your own, here are the two biggest ones:

http://quickbooks.intuit.com/index.jhtml...
http://www.peachtree.com/

B. Who is doing the payroll (form 940)? Are you running the payroll taxes yourself as well? Are you using EFTPS? Who is doing payroll for your state taxes?

https://www.eftps.com/eftps/

Peachtree and Quickbooks can manage these issues.

Employers who outsource some or all of their payroll responsibilities should consider the following:

The employer is ultimately responsible for the deposit and payment of federal tax liabilities. Even though the third-party is making the deposits, the employer is the responsible party. If the third-party fails to make the federal tax payments, the IRS may assess penalties and interest on the employer’s account. The employer is liable for all taxes, penalties and interest due. The employer may also be held personally liable for certain unpaid federal taxes.

If there are any issues with an account, the IRS will contact the employer. IRS correspondence is sent to the address of record so it is strongly suggested that the address not be changed to that of the payroll service provider as it may significantly limit the employer’s ability to be timely informed of tax matters involving their business.


C. Are you thinking about the Caterial Plan (All-You-Can-Eat for your PRE-TAX money: Medical/Dental Insurance, 401(k), Term Life, Childcare, etc.)? Do you need a financial advisor or an insurance agent for that?

D. Did you start your company as a sole proprietor (schedule C), a partnership (form 1065), a S-Corp (1120S), C-corporation(1120), or LLC? Do you know the differences between them?

Here is a good SBA web site for the differences between them:

http://www.sba.gov/smallbusinessplanner/start/chooseastructure/index.html

I always recommand at least have a tax professional to do your tax return the first time. Here are the two softwares that you may consider if you are doing the taxes on your own:

Taxcut Home & Business
http://store.taxcut.com/dr/v2/ec_Main.Entry17c?SID=1478&SP=10023&CID=0&PID=924559&PN=1&V1=924559&CUR=840&DSP=&PGRP=0&ABCODE=&CACHE_ID=0
Turbotax Home & Business
https://turbotaxweb.turbotaxonline.intuit.com/open/registration/Start.htm?productid=32&customerSource=3468337910
E. Do you have an EIN (Tax Identification Number-TIN)? Or are you giving everyone your social security number as your TIN?
*That would include filing the tax return.

Do You Need an EIN?
http://www.irs.gov/businesses/small/article/0,,id=97872,00.html

How to Apply for an EIN?
http://www.irs.gov/businesses/small/article/0,,id=97860,00.html

Answer 2

Keep good records of your income and expenses - and yes, the paypal fees can definitely be deducted as expenses since that's how you get paid. Part of your internet bill can also be deducted - estimate what % of your internet use is for work.

You'll show your income and expenses on a schedule C, or more likely a C-EZ. Then your net income from that will go onto a schedule SE to calculate your self-employment tax (social security and medicare). Then the numbers from the bottom of both schedules will transfer to a form 1040 to figure your income tax and total tax.

If you put aside 30% you should have enough to pay your taxes. You need to file quarterly estimated returns on form 1040ES to avoid penalties for underwithholding, and pay quarterly what you think you'll owe on your income from that quarter.

After you move to Utah, you'll also have to file a state return. This year it will be as a part year resident, and only the income earned after the move will count.

Answer 3

All expenses including Paypal fees, pens , pencils , telephones ,
internet service and your computer are deductible .

Every time you drive to Office Max for a new note book or pen you can write off the auto expense .

If you made 30k from 1/1/2007 - 8/31/2007 and 15k from 9/1-12/31 the 30k goes to the NV side for tax purposes and the 15k to UT .

We just went through the same situation when we moved from CA to TX .

Fortunately, there are no state taxes in TX or NV so that saves both money and the hassle of filing two state tax returns .

Answer 4

Why are you getting this money? If you are selling items for example, it becomes income to you when the buyer sends the money - it doesn't matter whether you leave it in your paypal account or take it out. No you can't just report it next year