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Old 05-24-2011, 09:48 PM
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Taxes and PayPal Student account

Well, wasn't quite sure where to put this, but this seems to be a good spot. In the last few months i have slowly started a online store, selling stuff for the hobby i'm involved in (RC Rock Crawling). Anyways i'm 16 and i have been using my PayPal Student account to receive payments. Now when i first started selling it wasn't much just alittle extra to pay for my hobby, but its been growing quite fast, to the point where i've probably already went past the paypal transaction limit when they report transactions to the irs. So i got to thinking more about what i need to set aside for taxes, which then led to who has to pay them?

I don't think paypal has any info about me, other than a bank account, is linked to my paypal. So without my ss # does paypal report the transactions through my parents account? Can i report the income through me? Or does it have to be through them?

Also my net income (money made - all bushiness expenses (inventory, shipping, supplies etc)) how much of it should i expect to set aside for taxes (total percentage of all the misc taxes)

Oh i live in colorado, if that helps.

Thanks for any help



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Old 05-25-2011, 02:56 AM
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“Now when i first started selling it wasn't much just alittle extra to pay for my hobby, but its been growing quite fast, to the point where i've probably already went past the paypal transaction limit when they report transactions to the irs.”-->I guess you are a dependent of your parents, then as a dependent, you need to file your federal return and state return as long as your gross income is either; your unearned income is over $950 or your earned income is over $5,700, OR your gross income is more than the larger of $950( unearned income) or earned income $5,700( I mean $5,400+$300). So as your income is over $5,700; $17,000> $5,700, you need to file your return as single.You must include on your tax return hobby income. Tax deductions for expenses related to hobby income are limited to the amount of hobby income you report on your tax return, and can be taken as tax deductions only if you itemize your tax deductions on Form 1040, Schedule A. The tax deductions are subject to the 2% AGI floor.
“ So i got to thinking more about what i need to set aside for taxes, which then led to who has to pay them?I don't think paypal has any info about me, other than a bank account, is linked to my paypal. “-->Don’t assume that just because you do not get a 1099 in the mail you do not have to report the income – the IRS requires that individuals report all income received, regardless of the amount. If your businessis NOT a hobby and also If you earn more than $400 in a year, you will need to file Sch C or Sch SE and pay self-employment tax . If you earn less than $400 in a year with your internet business, then you have to report the income but are not required to pay self-employment tax on it. Many home based business owners ,like yourself,use Paypal to process credit cards and receive payments from their customers. In the past, Paypal did not have to report the amount of money each account holder received from their Paypal account. So, some Internet Marketers in the past have used PayPal to collect payments in order to avoid reporting all of their income, in turn saving them money when it comes time to report their quarterly earnings. Starting in the tax year 2011, however, Paypal will be required to submit a 1099-K to the IRS which shows how much money each account holder received in their Paypal account. This does only apply to those who receive $20,000 or more in gross sales volume AND 200 payments or more, but if you don’t fall into that category you still need to report it all!
“So without my ss # does paypal report the transactions through my parents account?” ---->I don’t think so; PayPal reports the transactions through your bank account as you have your bank account.
“Can i report the income through me? Or does it have to be through them?”--->As long as you have taxable income, as said above, you need to file your return; your parents may NOT elect to include your income in their income since your income is earned income, NOT portfolio income, i.e, interest or dividends.
“Also my net income (money made - all bushiness expenses (inventory, shipping, supplies etc)) how much of it should i expect to set aside for taxes (total percentage of all the misc taxes)”--->It depends on your income;I can’t figure it our due to lack of your personal financial information. You can have a hobby that you make money with, that does not need to be deemed a business. To be a hobby, it has to be a not-for-profit activity. This means you do not engage in the activity to make a profit. You do it for enjoyment (and you happen to make some money from it). If your online business is a hobby, as you said, then you need to report your hobby income on Line 21 of Form 1040 as "hobby income." You will not be subject to self-employment tax on this income. A hobby is not self-employment, and no Schedule C or Schedule SE is used on your return.



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Old 05-25-2011, 05:27 PM
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"-->I guess you are a dependent of your parents, then as a dependent, you need to file your federal return and state return as long as your gross income is either; your unearned income is over $950 or your earned income is over $5,700, OR your gross income is more than the larger of $950( unearned income) or earned income $5,700( I mean $5,400+$300). So as your income is over $5,700; $17,000> $5,700, you need to file your return as single.You must include on your tax return hobby income. Tax deductions for expenses related to hobby income are limited to the amount of hobby income you report on your tax return, and can be taken as tax deductions only if you itemize your tax deductions on Form 1040, Schedule A. The tax deductions are subject to the 2% AGI floor."

I well i haven't made more than 5700, yet...not sure where you got 17k.


"-->Don’t assume that just because you do not get a 1099 in the mail you do not have to report the income – the IRS requires that individuals report all income received, regardless of the amount. If your businessis NOT a hobby and also If you earn more than $400 in a year, you will need to file Sch C or Sch SE and pay self-employment tax . If you earn less than $400 in a year with your internet business, then you have to report the income but are not required to pay self-employment tax on it. Many home based business owners ,like yourself,use Paypal to process credit cards and receive payments from their customers. In the past, Paypal did not have to report the amount of money each account holder received from their Paypal account. So, some Internet Marketers in the past have used PayPal to collect payments in order to avoid reporting all of their income, in turn saving them money when it comes time to report their quarterly earnings. Starting in the tax year 2011, however, Paypal will be required to submit a 1099-K to the IRS which shows how much money each account holder received in their Paypal account. This does only apply to those who receive $20,000 or more in gross sales volume AND 200 payments or more, but if you don’t fall into that category you still need to report it all!"


I planned on filing the income, except now since paypal is reporting it i'm unsure who its reporting is obtaining that money, since my account is actually just a sub account of my moms paypal account (I have a student account)


"---->I don’t think so; PayPal reports the transactions through your bank account as you have your bank account."

Well now in a paypal student account, so i can't deposit money into my bank, just withdraw it from my bank. Not sure if that matters. Also my bank account is a student account linked to my dads bank account, but my paypal student account is linked to my moms paypal account. They are divorced, will this create any problems?

"--->It depends on your income;I can’t figure it our due to lack of your personal financial information. You can have a hobby that you make money with, that does not need to be deemed a business. To be a hobby, it has to be a not-for-profit activity. This means you do not engage in the activity to make a profit. You do it for enjoyment (and you happen to make some money from it). If your online business is a hobby, as you said, then you need to report your hobby income on Line 21 of Form 1040 as "hobby income." You will not be subject to self-employment tax on this income. A hobby is not self-employment, and no Schedule C or Schedule SE is used on your return."

All the money i make from this goes back into the stuff i sell, for more stocked inventory, R&D (the hobby part, make new stuff), vehicle expenses (gas to drive back and forth to high school, and driving to practice spots for the hobby...also insurance and such), and the rest of it goes back into my RC car, parts, upgrades, etc. about 50% of what i make pays to put gas in my truck.

I also am going to have a part time job this summer (at the hobby shop). Which i may make a few grand doing that as well.

I'm interested though that the "hobby income" i've made doesn't get self employed tax...i'll have to look into this.

My biggest question is, which was mostly answered. Who is reported for income through a paypal student account. The main "parent account" or will the student "child" get taxed on this. We asked our account, but she didn't know so i've been searching the internet, i'll probably have to contact paypal though...


Thanks for any help



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Old 05-25-2011, 06:21 PM
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“I well i haven't made more than 5700, yet...not sure where you got 17k. “--> Sorry for the wrong amount $17,000. I myself misunderstood your gross earnings. So, I still assume that you are a dependent of your parent, then as said previously, you do not need to file your return as long as your gross income is either your unearned income is over $950 or your earned income is over $5,700, OR your gross income is more than the larger of $950( unearned income) or earned income $5,700( I mean $5,400+$300). So as your income, your HOBBY INCOME NOT self-employment business income, is less than $5,700, as you said, you do not need to file your return UNLESS you can claim tax refund from your previous return(if you are subject to your refund). If you are not a dependent of your parent, you still do not need to file your return as your gross income is less than $(9,350;$5,700+$3,650 for 2010 UNLESS you have NET earnings from your self-employment of at least $400 or UNLESS you can claim tax refund from your previous return as sad above.
“Well now in a paypal student account, so i can't deposit money into my bank, just withdraw it from my bank. Not sure if that matters. Also my bank account is a student account linked to my dads bank account, but my paypal student account is linked to my moms paypal account. They are divorced, will this create any problems?”-->I guess what the IRS wants to know is your income that is taxed.
“All the money i make from this goes back into the stuff i sell, for more stocked inventory, R&D (the hobby part, make new stuff), vehicle expenses (gas to drive back and forth to high school, and driving to practice spots for the hobby...also insurance and such), and the rest of it goes back into my RC car, parts, upgrades, etc. about 50% of what i make pays to put gas in my truck.I also am going to have a part time job this summer (at the hobby shop). Which i may make a few grand doing that as well.”-->As said previously, you can deduct your hobby expenses against up to your hobby income; there are three categories of deductions you can take for hobby expenses. One is any personal expenses related to the hobby, like real estate taxes, insurance or utilities. They can be deducted in full on your Schedule A, under the appropriate section for each on the form. The second category is deductions. Examples include advertising, insurance, and utility costs associated with the hobby. The third category is deductions that decrease the basis of property, I mean depreciation if you have depreciable assets. You can only take this third category to the extent the income from the hobby exceeds the expenses in Categories 1 and 2.Second category and third categories go on Schedule A under Miscellaneous Expenses, and so are only deducted to the extent that they are above 2 percent of your adjusted gross income.
“I'm interested though that the "hobby income" i've made doesn't get self employed tax...i'll have to look into this.” Correct; hobby income is NOT subject to SE taxes, 13.3% for 2011, and you do not need to file Sch C Sch SE, or you do not need to pay quarterly estimated taxes on your hobby income.
Please visit the IRS Websites here; Estimated Taxes
Self-Employment Tax (Social Security and Medicare Taxes)
“My biggest question is, which was mostly answered. Who is reported for income through a paypal student account. The main "parent account" or will the student "child" get taxed on this. We asked our account, but she didn't know so i've been searching the internet, i'll probably have to contact paypal though.”--->As long as the income is earned by the student and UNLESS the parents can’t elect to include a child's income in their income (because the child’s income is earned income NOT portfolio income), the child needs to be taxed on the income earned by the child.



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Old 05-25-2011, 06:35 PM
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Alright thanks for your help, i'll do a little more research on hobby income and what needs to happen...



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