Confused about Income Taxes & Paypal or Etsy's 1099?

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Go To Great Panes, Kathryn Maloney ©2012
(This post is copyrighted–you do not have permission to repost this content elsewhere but you are welcome to link to it if you’d like to share the information.)

I’ve seen lots of posts with confusion about the new info requirements Paypal is sending to some sellers, and also about Etsy requesting tax id numbers or social security numbers from sellers who take Etsy’s Direct Checkout.

In 2011 the IRS put new rules in place for companies that process credit cards, and now they need the information to send a 1099 to certain sellers. Both companies are asking for info long before they need it–I assume it’s so that there’s no risk of you losing the ability to take payments when you reach the threshold where they’ll have to report your income.

Here’s the scoop:

  • The 1099 Paypal (or Etsy) is sending out is only fulfilling their obligation under a new law, it has nothing to do with whether or not you are required to file income taxes.
  • Paypal (or Etsy) will only be sending a 1099 to people who bring in at least $20,000 AND have 200 or more transactions through PP (or Etsy’s Direct Checkout credit card processing service).
  • Regardless as to whether or not Paypal (or Etsy) sends a seller this form, the seller must report income for their business if they meet the IRS’s requirements for filing a return.

Do you meet the requirements? Generally speaking, if you have to file income tax for any reason (day job, filing jointly w/ spouse, etc) you must report all your income on your taxes.

If you had net earnings from self-employment of at least $400, you will most likely need to file whether or not you have other income or reasons to file.

Your best bet is to get info about whether or not you need to file directly from the IRS–this post should help:

Do I Need to File a Tax Return?

And if you do need to file, this post will help with getting & adding up your income/expense info from Paypal:

Download Your Paypal History

This one will help when you are filling out the Schedule C to report your small business income:

US Sellers: Help for Filing Income Taxes for Your Small Business

Turbo Tax: Many folks ask about whether or not they need to get the Home & Business version of TurboTax. I haven’t tried that version myself, but I do know that with Turbo Tax Deluxe, you can mark that you have income from self employment to start the interview for the Schedule C, or use the ‘add a form’ feature and add the Schedule C to your taxes.

The interview process in the TurboTax Deluxe does cover the Schedule C, but their website implies that the home & business version has more help for filling out the Schedule C.

Income tax is totally separate from sales tax requirements for your business. See here for help with sales tax & business registration:

Sales Tax & Business Registration
(links to official state websites)

Even if you just sell online and/or just as a hobby, most states require sales tax registration.


Go To Great Panes, Kathryn Maloney ©2012
(This post is copyrighted–you do not have permission to repost this content elsewhere but you are welcome to link to it if you’d like to share the information.)

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