Jacquelyn Lynn - Online Consumer Advice and Commentary

Jacquelyn Lynn is a business writer whose dynamic books and insightful articles have been helping business owners and managers work smarter and more profitably for more than two decades. She is the author of Entrepreneur’s Almanac, Online Shopper’s Survival Guide and co-author of Make Big Profits on eBay, as well as a regular contributor to Entrepreneur magazine. For more information and for the link to her business blog, visit www.jacquelynlynn.com.

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Location: Central Florida

Thursday, June 01, 2006

Are You Using PayPal to Avoid Paying Tax?

Last year, PayPal users moved $27.5 billion through that system. The company, owned by eBay, now has 100 million account holders worldwide.

Apparently, some of those account holders believe they can avoid paying federal income tax on income received through PayPal. This is wrong. If you are receiving funds through PayPal that should be reported as taxable income, you should report it and pay the appropriate tax.

On April 16, 2006, the IRS requested records on all PayPal transactions from 1999 to 2004. Will they get that information? I don’t know for sure, but I’m betting they will.

Remember, failing to report income is considered tax avoidance and/or tax evasion. It’s a crime and you can go to jail for it—just ask “Survivor” winner Richard Hatch, who was recently sentenced to 51 months in prison for tax evasion.

There are plenty of ways to reduce your tax liability that are legal and ethical. Consult with a qualified tax advisor to see what strategies will work for you. And make sure you report any income you receive through PayPal on your tax returns.

Jacquelyn Lynn


Blogger targabill said...

So, If I sell some old junk from my basement on ebay and receive the money through Paypal that is considered income and I have to pay tax on it.

1:24 PM  
Blogger Jacquelyn Lynn said...

Not if it's old junk from your basement. In that case, the IRS considers it an occasional sale (much like a garage sale) and it's not subject to income tax. But if you're buying stuff from someone else and selling it on eBay, your profits are income and therefore taxable. Remember that you can deduct the cost of goods as a business expense.


2:07 PM  

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