Tax Laws

[Gary Lauer]

I just made a sale using PayPal and received this notice.

Tax Holds | Backup withholding | PayPal US IRS (Internal Revenue Service)​

What is Backup Withholding?​

When you’re paid for goods and services, the US Internal Revenue Service (IRS) considers this reportable income.
Once you receive $600 in payments for goods and services within a calendar year, tax laws require us to withhold 24% of such payments when you have not confirmed your taxpayer status by either providing your US tax ID or completing a Certificate of Foreign Status. This 24% is sent to the IRS as backup withholding for any potential income tax due on those payments.
You can learn more about this tax law on the IRS website

This is terable for selling. Gary

 

[Rich Jones]

Did they give you the opportunity to certify your taxpayer status? I don’t agree with this BS at all but I think if you certify your SSN with PayPal, then this won’t occur. Doesn’t mean they won’t send you a friendly 1099 at the end of the year for amounts greater than 600.00.

We all know what we pay for this stuff we later sell, but now you are going to have to prove it more than likely. So, keep your receipts like you would when you make improvements to your house or when you buy stock and later sell. If you buy for 2000.00 and sell for 1300.00, then you have a loss and that’s not taxable. This is how I think this is going to work. So keep all receipts, as big as a PITA as it is.

 

[LohringMiller]

I sold Leecraft tunnels a long time ago. This was before PayPal was popular, but we took credit cards through my office. One year we built and sold almost 60 boats at $300 each. I tried to deduct expenses and file a regular tax return. My accountant laughed and said pocket the money and treat the whole thing as your hobby.

Lohring Miller

 

[Don Ferrette]

I sold Leecraft tunnels a long time ago. This was before PayPal was popular, but we took credit cards through my office. One year we built and sold almost 60 boats at $300 each. I tried to deduct expenses and file a regular tax return. My accountant laughed and said pocket the money and treat the whole thing as your hobby.

Lohring Miller

Yup and at one time "hobby expenses" were deductible. Now they want it all. Currently Paypal as friends/family is excluded from the $600 limit but I'm betting it's only a matter of time before that changes as well. The only thing left is paying with cash which is just one of the reasons you do not want to go to a cashless system.........

 

[Gary Parker]

I live in Australia and obviously our tax laws are different to yours but this "hobby" income notion struck a chord with me.
About 30 years ago I had a "real" full time job and as a long time weekend golfer my interest in the game led me to caddy on weekends for our Golf Club pennant competitions which eventually morphed into caddying in some prestigous amateur events and then occasionally some smaller local professional tournaments. After a while I started to schedule my annual vacation time to coincide with our larger professional tournaments and I would travel around Australia at my own expense working pro tournaments for weeks on end - just for fun ! I was getting paid a little by the "minor league" players I worked for but it was nowhere near covering my travel, meal and accommodation costs which was of no concern to me because I was essentially on holiday.
However as I got better (and my players got better) I started to earn more as a "holiday" caddy and, always aware that my existing salary and various investments might someday attract the attention of the Australian Tax Office, I sought a "private tax ruling" to check whether I should declare my "hobby" income as a caddy.
After laying out my reasons for caddying and a sample of my expenditure and receipts in a long detailed letter to the ATO the official ruling promptly came back that I should immediately file for an Australian Business Number as a professional caddy and then dutifully declare all of my caddy income and claim all legitimate business expenses in my overall yearly tax return.
For the next several years I had some of the best vacations ever with my (now very much upgraded) caddy travel, meals and accommodation costs mostly being a substantial net deduction from my overall yearly income because I was such a poor businessman that I continued to caddy as a hobby for fun and not as a business !