I am curious if someone receive money though Paypal is it considered as a taxable income?
Is there anyway government can trace under the assumption that you don't transfer to your bank account?
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I am curious if someone receive money though Paypal is it considered as a taxable income?
Is there anyway government can trace under the assumption that you don't transfer to your bank account?
I don't know if it's tax, but if you receive money from them, you have to pay a percentage to them (paypal I believe) or something along those lines.
Unlike I-Bill or CCBill or other web based financial services, PayPal does not assume that the money transfer they're performing is on behalf of a business. Therefore, unlike the other web based financial services, PayPal does not generate 1099-misc reports to the IRS for the money they transfer.
Since a 1099-misc report is not generated, the IRS computers are not automatically informed that you have received money through PayPal. However, if the IRS or FBI or state tax officials or virtually any government agency had a reason of their own to be interested in your finances, PayPal records of the transfer could easily be requested under the authority of the Patriot Act.
After last week's congressional amendment to the Patriot Act was passed, it is now not even necessary that the FBI obtain a warrant for this purpose. All that is now required is a suspicion that money laundering is taking place.
Additionally, PayPal has enacted a new policy on behalf of their new owners (E-Bay) that their service can no longer be used for transfer of money on behalf of adult businesses of any sort. So far they have not done much internal checking as to which PayPal accounts are actually involved in adult businesses. I still use my PayPal account occasionally to sell video tapes to guys whose credit card accounts have run into problems with I-Bill (my normal processing service), but I deliberately keep these PayPal transfers at a 'low profile' level of less than $1000 total in the same month to avoid drawing attention.
As far as money transferred via PayPal being considered as taxable income or not, the same tax laws apply as if you had received the money by any other means. If your uncle sends you $100 as a birthday present via PayPal it is considered a gift and not taxable. If a customer sends me $30 via PayPal to purchase a video tape it IS considered taxable income.
The only difference between PayPal and the other web based financial services is that with PayPal the only report of the $30 tape sale will be made by me on my own tax return, where with I-Bill or others the IRS would be sent a 1099-misc informing their computers in advance that I had received the $30 so that the IRS computers will cross-check that I reported the same $30 tape sale on my own tax return.