Leave it to the federal government to make things more complicated than it has to. If you think record keeping for your home based business is a nightmare now, wait until 2011 hits and the new tax laws take effect regarding PayPal, if they pass of course. You’ll be inundated with more paperwork than ever imaginable. This article explains.
In a nutshell, here’s how this disaster works. Starting in 2011, all income that comes through PayPal is going to have a 1099 attached to it IF you earn over $20,000 and have over 200 transactions. PayPal will be required to send a 1099 on your behalf to the IRS. Now, on the surface, this doesn’t seem like such a big deal. The problems, however, are plenty.
For starters, if you’ve been doing your taxes as you should have been doing from the start, and are making any kind of decent money (actually, anything over $600) you should have already been sending a 1099 to the feds to let them know what you’ve been earning and/or paying out to contractors. So now, the feds are going to be receiving a 1099 from the people who have already been sending them PLUS a 1099 from PayPal. That translates into duplicate paperwork.
But it’s not JUST duplicate paperwork. How is the IRS going to know what is a duplicate and what is in actuality a different 1099? How are WE going to let them know this so that they don’t end up thinking that we’re just paying part of our taxes? Oh, but the nightmares don’t end there.
Let’s say you spend more than $600 with any one vendor through PayPal, regardless of whether it’s business related or not. For example, I play a video game online where I could easily spend over $600 a year on game tokens. I’m going to now have to report THAT because of the fact that the payments go through PayPal and THEY are going to report them to the IRS. This is where it becomes messy. Now we’re not just talking business expenses. We’re talking ANY amount of money that goes through PayPal in excess of $600 a year to one vendor. Have fun with that one.
I pity the poor person who takes payments from thousands of people in excess of $600 a year (think the poor guy who owns the Warrior Forum and the WSO section) who is going to be inundated with thousands of 1099s from all the people who spent more than $600 per year. He’s going to need a team of accountants just to sort through that nightmare.
Yeah, leave it to the federal government to totally screw things up beyond belief. Anyway, that’s what you’re in for next year IF this new tax law regarding PayPal goes through.