Please help...............

[2015.goubl]

So paypal notified the IRS that I made a little over 22k in 2017. They are saying I owe 9k in taxes. However that shouldn't be the case correct. First off, the ebay fees and paypal fees should be deducted from that 22k correct? However, my main concern is the shipping costs. I don't have any receipts from the shipping costs from that year but can't I figure that out on my own. I could look at all the transactions from that year and figure out the shipping company I used (fedex, ups, usps, etc.), the weight/size of the item, and the buyer location. Would that be sufficient enough or will they not accept that?

[gracieallen01]

One thing you might do is call the IRS and talk to them. 

They have been known to been reasonable and take into account reasonable documentation of expenses and such.  You would need to collect as much documentation and download/print out reports, etc., but, before you go off the deep end, give them a call.  If you speak reasonably to them, they may well be inclined to go above and beyond to help you.

[golfingaddict]

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@a_c_green wrote:

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@nocoolnamejane wrote:

Unfortunately that’s the downside to not keeping up with your accounting 😞

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That's true, and I am definitely no expert at that either, but still... 9K in taxes on 22K in income? That seems a bit... steep?

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Possibly  a combination of the tax owed, late fees, penalties.  

[nocoolnamejane]

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@a_c_green wrote:

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@nocoolnamejane wrote:

Unfortunately that’s the downside to not keeping up with your accounting 😞

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That's true, and I am definitely no expert at that either, but still... 9K in taxes on 22K in income? That seems a bit... steep?

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Here in Canada, if no declaration is filed at all, taxes are based on the whole amount with no considerations for possible expenses to be deducted and a huge fine is slapped on top AND late fees and interests are sprinkled on for good measure.

So yes, a good fiscal attorney would be a great investment because from what I’ve seen with revenue services is that they are good at making deals if you show good faith, get your stuff in order and try and fix the situation. (Not an expert but I am an accounting technician.)

[nocoolnamejane]

And I will quietly take myself to the slow typist corner now ☺️

[Anonymous]

I assume you did not report any of that $22K on your tax filing.   If you did not you need a good accountant if not an attorney.    As part of my taxes - I file a Schedule C Business Income form for my online sales which shows gross sales less expenses, and I pay taxes on the profit.  

If you paid for shipping from your paypal account - you can access that information at the end of the year.  I'm not sure if more than the prior year is available.  

[fern*wood]

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@2015.goubl wrote:

thanks for the info, doesn't paypal only report over 20k in sales to the IRS? I could of swore that I read that somewhere and I thought I was monitoring that back then but apparently not. For 2018 I didn't sell over 20k worth of stuff so I should be ok correct?

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No, sorry,  that doesn't mean you aren't supposed to report your income and deductions if they are less than twenty thousand.    If you worked at Home Depot and made $18,000. a year, do you think you wouldn't be required to report & have paid income taxes on this amount?  

I'd like the poster that argued on this board with all of us that it isn't necessary to report ebay sales to the IRS to read this thread.

[anhers_58]

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@2015.goubl wrote:

thanks for the info, doesn't paypal only report over 20k in sales to the IRS? I could of swore that I read that somewhere and I thought I was monitoring that back then but apparently not. For 2018 I didn't sell over 20k worth of stuff so I should be ok correct?

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Expect to be audited going back at least three years, and you're legally responsible to file taxes on ANY income.

[buyselljack2016]

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@2015.goubl wrote:

thanks for the info, doesn't paypal only report over 20k in sales to the IRS? I could of swore that I read that somewhere and I thought I was monitoring that back then but apparently not. For 2018 I didn't sell over 20k worth of stuff so I should be ok correct?

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Oh so not correct.

The 20K is the point of sending the 1099.

$19,999.99 has the same reporting requirements as $20K

There is also the "once on the radar" factor to contend with.

Some states now require 1099's to be sent with as little as $600. Others may follow, so states that compare federal return with state may be sending some letters out as well.

[uswapl]

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@2015.goubl wrote:

thanks for the info, doesn't paypal only report over 20k in sales to the IRS? I could of swore that I read that somewhere and I thought I was monitoring that back then but apparently not. For 2018 I didn't sell over 20k worth of stuff so I should be ok correct?

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No, you are not ok.

It is called tax evasion and it is against the law.  

You have to report all of your income and you are entitled to deduct all of your expenses.  Paypal sends a report to the IRS if it is over a certain amount but that does not mean you don't have to report the income if it doesn't reach that amount.

When you talk to a tax attorney or accountant, ask them about clearing up all the other years that you did not claim your income. 

You really need to contact a professional.

Good luck.

[lacemaker3]

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@2015.goubl wrote:

thanks for the info, doesn't paypal only report over 20k in sales to the IRS? I could of swore that I read that somewhere and I thought I was monitoring that back then but apparently not. For 2018 I didn't sell over 20k worth of stuff so I should be ok correct?

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First off, your original question was because the IRS says you owe taxes on $22k of income received through PayPal from 2017, correct? If so, then presumably you are being audited because you didn't report the income on your tax return.

If you have already received a letter from the IRS, then you need to get a tax lawyer who can help you with this. You need to have someone who knows the rules and can help you to get the assessment reduced by taking into account your reasonable business expenses. They will know what kind of documentation or proof will be accepted. If you don't have receipts, then they can argue to try to get reasonable estimates accepted.

Now that you are being audited, you can expect that the IRS will be aware that you have other sources of income.  You have to report all of your income, whether you exceed the 1099 threshold or not, so you won't be able to get away with not reporting it anymore. Yes, they may look closely at your 2018 return, and your return for this year, and they may decide to look at previous years as well. Whether you exceeded the $20k 1099 threshold or not.

For 2017, you know what your income was through PayPal (from the 1099). You will probably have to file an amended return providing the correct and accurate information. You will need to report the income as business income, and then you can also deduct reasonable business expenses. Start by writing down estimated amounts, and find any documentation you can to back them up. 

You will need to pull together all the info you can find on:

• ebay and paypal fees
• shipping costs
• packaging supplies
• cost of goods sold: how much did you pay for the items you sold
• storage fees, if you had any

All of those expenses can be deducted from the income, before you calculate how much income tax you owe on it. There maybe some penalties because you didn't report the income and pay the tax by the deadline, but calculating your expenses will help.

[csbbct]

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@2015.goubl wrote:

thanks for the info, doesn't paypal only report over 20k in sales to the IRS? I could of swore that I read that somewhere and I thought I was monitoring that back then but apparently not. For 2018 I didn't sell over 20k worth of stuff so I should be ok correct?

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If you receive $20,000 or more in payments, Paypal is required to report it to the IRS.  But, if you are making a profit on sales you are supposed to report it on your income tax return regardless of the amount of money - even if it's only $500.  Paypal won't be reporting it to IRS, but it is money that is supposed to be reported.  It was easy for IRS to catch this when Paypal reported it in 2017 and you didn't include it on your return, but everyone is supposed to report sales minus cost of goods minus expenses (Schedule C) whether they receive a 1099k or not.  Keep all your receipts going forward and try to recover your receipts for 2018 and 2019 also. 

[chapeau-noir]

You don't need a lawyer, you need a good tax accountant who specialises in small business.  They don't even need to be a CPA, they need to be a bookkeeper with specialist tax knowledge.  IF there is some kind of problems with actual tax law, they can refer you to a tax attorney, but what you've got is a basic problem of needing to get this year's taxes done, and then filing for previous years.  In my previous business I used a small local firm who specialised in taxes - they knew EVERYTHING about current tax law.

Don't wait until the last minute to do it, and don't worry, just start assembling as many receipts as you can, dry lab the shipping costs and get some good recommendations. This is all solvable and you won't be owing $9k on $22k receipts. 

[chapeau-noir]

Also, the tax accountant will probably give you a list of receipts that they need if you don't have them (try to be as organised as you can when you first come in - don't do what I did when I was a kid running my first business and show up with a shoe box full of receipts ::headslap::) .  This will be one of your biggest helps to clearing up this situation, and going forward so that 2020 taxes won't be such a heartache.

[fern*wood]

Do you have a state income tax?

[silverpinups]

"thanks for the info, doesn't paypal only report over 20k in sales to the IRS? I could of swore that I read that somewhere and I thought I was monitoring that back then but apparently not. For 2018 I didn't sell over 20k worth of stuff so I should be ok correct?"

Your on the IRS's radar now, but I don't know how far back they can go since I'm in Canada. Revenue Canada can go back 7-10 years if they need too. The best thing you can do is get a experienced Accountant that's familiar with eCommerce. You can also print off all your PayPal Monthly Financial Reports and Monthly Sales Reports (that's if you have a PayPal business account). PayPal will also have all your item purchases and item sales if you purchased items on eBay for resale.

Good Luck, because you are going to have alot of accounting work ahead of you!