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Pay U.S. taxes?

Switch Blayde ๐Ÿšซ

For those of you who pay U.S. taxes, I saw something on the news that might affect you. A new law was passed this year that requires companies like PayPal to report money transfers with an accumulated total of $600 or more. They issue a 1099-K for income tax reporting.

Then it's up to the person who receives the 1099-K to prove the money was a friend or family transfer and not a business transaction.

But for those like me who get paid from Bookapy via PayPal, that income is taxable. So even though Lazeez doesn't notify the IRS, PayPal now does (when it's $600 or more for the year).

StarFleet Carl ๐Ÿšซ

@Switch Blayde

that income is taxable

Which ALSO means that when you go ahead and file long form with the Schedule C, taxable income can be offset by business expenses. You know, like that keyboard or laptop you bought to write on, or that desk you use.

Remember, the tax code was written to help businesses keep what they make, courtesy of lobbying. (Bribes!) But - and here's the funny part - because it was set up to help big businesses, if you're a smart small business owner (and you are, aren't you?), you get to take those same deductions that big businesses do.

For example, a woman who played in an orchestra was able to deduct her living room and her new sofa as a legitimate home office and business expense, because she needed to be comfortable practicing her cello.

Many years ago, when I was a self-employed contractor, I would typically gross in excess of $150,000 per year. By the time I was done with my Schedule C, I would have reportable taxable income of about $50. Not $500, or $5,000, but $50. You simply have to be smart about it.

Switch Blayde ๐Ÿšซ

@StarFleet Carl

taxable income can be offset by business expenses

If you can convince the IRS it's not a hobby.

StarFleet Carl ๐Ÿšซ

@Switch Blayde

If you can convince the IRS it's not a hobby.

That's the joy of e-filing using tax software. Don't get greedy, just use appropriate numbers when you fill them out. The biggest mistake people make is when they get called in for an audit, they bring everything in with them. NEVER do that, because all of that paperwork could then be used against you. Just show up and when they call you back, it's on THEM to explain why they're auditing you. They're then required to give you written documentation of what they want to see. Then when you go back, ONLY TAKE THAT STUFF.

Two of my best friends from Indiana were IRS Law Enforcement. I learned a LOT from them during our Babylon 5 Wars gaming sessions.

Dominions Son ๐Ÿšซ
Updated:

@Switch Blayde

If you can convince the IRS it's not a hobby.

My parents used to run a small portrait studio, so I know a bit about this. The biggest problem for business vs hobby is if you show a net loss too many consecutive years*. To be a business you actually have to be making money doing it.

Of course, if you incorporate, then that's not an issue, but the business has to file corporate income taxes separately from your personal income taxes and that gets a lot more complicated.

*No, I don't recall the exact cutoff and it's been decades since my parents closed the studio, so it may well have changed since then.

Replies:   Switch Blayde
Switch Blayde ๐Ÿšซ

@Dominions Son

To be a business you actually have to be making money doing it.

The rule of thumb was that you had to make a profit 3 out of 5 years.

My wife is a fused glass artist. She started it as a hobby, but then started selling. When people wanted to buy with credit cards there was a paper trail so she got a business license, collects sales taxes and pays them to the state and city, etc.

So we started writing off everything. We depreciate the kiln, the other expensive equipment, even the cost for building her studio (it was designed as a little garage for a golf cart or a work area). And we write off a percentage of all of our house expenses (electric, water, HOA, insurance, etc.) as well as her supplies (the glass being the most expensive).

She is making a profit every year, but I asked my CPA about the 3 out of 5 year profit thing. The accountant said as long as you're operating it as a business, then it's okay even if you don't make a profit. And my wife sure is operating it as a business.

After all, didn't FedEx lose money their first 10 years? Isn't Twitter losing 4 million dollars a day?

But that's a whole lot different than my writing. It's a hobby I make money on so I pay taxes on that income. Amazon sends me the 1099 with my income. Now, with the new U.S. law, PayPal will also when my yearly income is $600 (for Bookapy sales).

Dinsdale ๐Ÿšซ

@Switch Blayde

Isn't Twitter losing 4 million dollars a day?

Twitter is being run as a hobby now.

Amazon ran for years before it started making a profit. I think YouTube never even got to that stage before Google bought them out.

Dominions Son ๐Ÿšซ
Updated:

@Switch Blayde

After all, didn't FedEx lose money their first 10 years? Isn't Twitter losing 4 million dollars a day?

Those are corporations. A corporation pays taxes separately. Corporations aren't relevant to the issue.

The issue is with partnerships and sole proprietor ships for which the taxes are handled on the owners personal income tax returns.

In those cases, if a business claims a loss too often, the IRS can (they don't have to, but they can) declare a non-incorporated business to be a hobby and disallow claiming business expenses on the owners income tax returns.

Replies:   StarFleet Carl  bison9
StarFleet Carl ๐Ÿšซ

@Dominions Son

sole proprietorships for which the taxes are handled on the owners personal income tax returns.

Correct. My wife is the only one with W-2 earnings, though. Mine are all 1099, because I'm a Realtorยฎ. Thank you, standard mileage deduction, plus insurance, and all of those other Section 179 deductions. Plus, I have a side gig with my laser engraving work, too.

bison9 ๐Ÿšซ

@Dominions Son

That might be the situation in the USA, other countries have no problems to declare even the equivalent of Limited companies as hobbies.
(background such companies do use balance sheets and as such can accumulate losses over many years that can be used to balance profits a decade later)

Replies:   Dominions Son  Not_a_ID
Dominions Son ๐Ÿšซ

@bison9

other countries have no problems to declare even the equivalent of Limited companies as hobbies.

Maybe, but the thread is about US taxes so...

Not_a_ID ๐Ÿšซ

@bison9

(background such companies do use balance sheets and as such can accumulate losses over many years that can be used to balance profits a decade later)

Up until a tax code change in 2018, US real-estate businesses in particular could carry over losses for an indefinite time frame, and they weren't the only ones as I recall. Pre-2018 losses are still grandfathered, but anything after then now has a "use by" date after which it can no longer be used.

StarFleet Carl ๐Ÿšซ

@Switch Blayde

So we started writing off everything. We depreciate the kiln, the other expensive equipment, even the cost for building her studio (it was designed as a little garage for a golf cart or a work area). And we write off a percentage of all of our house expenses (electric, water, HOA, insurance, etc.) as well as her supplies (the glass being the most expensive).

She is making a profit every year, but I asked my CPA about the 3 out of 5 year profit thing. The accountant said as long as you're operating it as a business, then it's okay even if you don't make a profit. And my wife sure is operating it as a business.

What is it with wives and fused glass?

We ended up selling the kiln and everything related when we moved from Indiana, but we kept the jewelry she already had made. Thirteen years later, we still have about fifty pendants, a hundred sets of earrings, and forty wine bottle stoppers. We did a LOT of craft shows back in the day. Half our tent was her stuff, half was my woodworking.

Replies:   Switch Blayde
Switch Blayde ๐Ÿšซ

@StarFleet Carl

but we kept the jewelry she already had made.

My wife doesn't make jewelry. She makes sculptures in stands, art that hangs on walls, and bowls and such. And of course coasters.

Replies:   StarFleet Carl
StarFleet Carl ๐Ÿšซ

@Switch Blayde

sculptures in stands, art that hangs on walls, and bowls

That was MY gig, turning bowls and making decorations from wood.

Replies:   Switch Blayde
Switch Blayde ๐Ÿšซ

@StarFleet Carl

That was MY gig, turning bowls and making decorations from wood.

She has different shaped molds to make square bowls, round bowls, small bowls, large bowls. She fuses the glass to make the design and then melts it in a mold.

Some bowls are for show, standing on its side in a stand. Or some are flat on a stand like on a coffee table (not that you need the stand. It's to showcase it). Others are functional and aren't in stands. We have a large one for our fruit. We have a long concave piece on the dining room table like for bread. We have spoon holders (flat things that you rest the dirty cooking spoon on). All kinds of stuff. So it's both decorative art and functional art.

We have someone who makes the stands custom for each piece. And some of her wall art is mounted on aluminum, offset from the back so it's 3-D. He makes the metal parts for that too.

mrherewriting ๐Ÿšซ
Updated:

@StarFleet Carl

Many years ago, when I was a self-employed contractor, I would typically gross in excess of $150,000 per year. By the time I was done with my Schedule C, I would have reportable taxable income of about $50. Not $500, or $5,000, but $50. You simply have to be smart about it.

Have we done time together?

Replies:   StarFleet Carl
StarFleet Carl ๐Ÿšซ

@mrherewriting

Have we done time together?

I have never been convicted of any crime. No witnesses. :)

Actually, I've only had one speeding ticket over the years, and that's it, too.

Replies:   joyR
joyR ๐Ÿšซ

@StarFleet Carl

I have never been convicted of any crime. No witnesses. :)

Actually, I've only had one speeding ticket over the years, and that's it, too.

You avoided admitting that the reason for speeding was to go buy a shovel, quickly!!!!

:)

Replies:   StarFleet Carl
StarFleet Carl ๐Ÿšซ

@joyR

go buy a shovel, quickly

Quicklime. That takes care of the odor and decay so cadaver dogs can't find it if you've gone deep enough. Then you make sure you put some 6 mil plastic down on TOP of things, but don't wrap the whole thing in it, so all the little critters can come up underneath the plastic and feast to their hearts content.

Or so I've "heard" ...

Replies:   mrherewriting
mrherewriting ๐Ÿšซ

@StarFleet Carl

You avoided admitting that the reason for speeding was to go buy a shovel, quickly!!!!

Quicklime. That takes care of the odor and decay so cadaver dogs can't find it if you've gone deep enough.

Shovel? Quicklime? Burying techniques? You mean, you goes just to don't eat...never mind.

Replies:   ralord82276
ralord82276 ๐Ÿšซ

@mrherewriting

Sometimes, reading these forum posts, I become totally amazed at how far from the original topic the comments get. The rest of the time I am convinced that the entire goal of these forum posts are to see just how far off-topic a tangent can go...although I am still unsure of who is the current record holder. Hmmm....

Replies:   Radagast  mrherewriting
Radagast ๐Ÿšซ

@ralord82276

just how far off-topic a tangent can go

You would have to ask Gina Marie Wylie if you want an answer to that.

mrherewriting ๐Ÿšซ

@ralord82276

Sometimes, reading these forum posts, I become totally amazed at how far from the original topic the comments get.

Once the initial question is answered, people have to talk about something.

(I've never been jail/prison, but saying that would have ruined my joke.)

Or have I....

Replies:   StarFleet Carl
StarFleet Carl ๐Ÿšซ

@mrherewriting

(I've never been jail/prison, but saying that would have ruined my joke.)

Or have I....

Here's a true statement from me.

I have spent some time in death row the US Federal Penitentiary in Terre Haute, Indiana - the same place that put Timothy McVeigh to death for the Oklahoma City Bombings. (That's the maximum security facility - not the Honor Farm next door.)

.

.

.

Granted, I was doing my Corrections Internship for my Criminology degree, but I tell you what, when I drop that little comment into conversations, things can get REALLY quiet.

mrherewriting ๐Ÿšซ

@StarFleet Carl

I'd have too many questions to be quiet:

How many prisoners were there?
Their last meals?
Who went out crying?
Who went out with stoic acceptance?
Any last minute confessions (about anything)?
Who'd you feel sorry for?
Did you meet any of their family members and what mental state were they in?
What commonalities did the people sentence to death have (other than being sentenced to death)?

I'm sure I'd have more, but you get the picture.

awnlee jawking ๐Ÿšซ

@StarFleet Carl

I was doing my Corrections Internship for my Criminology degree

Prisons are like universities of crime so it's the best place for you to get a degree in how to be a criminal ;-)

AJ

Replies:   StarFleet Carl
StarFleet Carl ๐Ÿšซ

@awnlee jawking

Prisons are like universities of crime so it's the best place for you to get a degree in how to be a criminal

That's for damned sure. They also tend to give normal people a slap of reality check. My junior year of college, we got a new professor who was from the People's Democratic Republic of Massachusetts. Totally against the death penalty, totally against prisons, completely pro-rehabilitation and felt that community corrections was the way to go. And she was going to prove it by doing research for her beliefs at that prison.

By the start of my senior year, she'd completely shit-canned all of her beliefs, and was ready to pull the switch or inject the poison into some of those guys herself.

garymrssn ๐Ÿšซ
Updated:

@Switch Blayde

Thank you for the notice. To be fore-warned is to be fore-armed.

Gary

Replies:   richardshagrin
richardshagrin ๐Ÿšซ

@garymrssn

You probably have two forearms even if you don't get four warnings.

Dominions Son ๐Ÿšซ

@richardshagrin

You probably have two forearms

Wouldn't that give you eight arms?

awnlee jawking ๐Ÿšซ

@richardshagrin

You probably have two forearms even if you don't get four warnings.

But would you have firearms if you got fire warnings?

AJ

happytechguy15 ๐Ÿšซ

@Switch Blayde

I'm hearing that $600 applies to venmo and every payment or transfer service. (I've heard of venmo but I haven't spent the energy to figure any of it out. So no tax worries there!)

Replies:   Switch Blayde
Switch Blayde ๐Ÿšซ

@happytechguy15

I'm hearing that $600 applies to venmo and every payment or transfer service.

Yes, that's the new law. I specified PayPal because Bookapy pays with it.

Switch Blayde ๐Ÿšซ

@Switch Blayde

I just saw on the news that the IRS is putting this off for one year.

I don't know what that means. Does it mean they told the paying companies not to issue the 1099? If not, and you get a 1099, how can you not declare it as income?

Don't you just love the U.S. tax system?

Replies:   Dominions Son
Dominions Son ๐Ÿšซ

@Switch Blayde

If not, and you get a 1099, how can you not declare it as income?

AFIK, you were technically required to declare the income even before the 1099 requirement.

Michael Loucks ๐Ÿšซ

@Dominions Son

AFIK, you were technically required to declare the income even before the 1099 requirement.

You have to report all personal income, from whatever source derived, no matter whether anyone reports it to the IRS. The one exception is if your total income does not exceed the statutory minimum for filing a return.

Switch Blayde ๐Ÿšซ

@Dominions Son

you were technically required to declare the income even before the 1099 requirement.

True.

Btw, my accountant told me that the IRS said those companies won't be sending out 1099s for 2022.

awnlee jawking ๐Ÿšซ

@Switch Blayde

Unashamedly tacking a non-SOL side question onto a sort of relevant thread, for how long must US tax information be retained? (In the UK I believe it's six years). I've just rediscovered a box of crap from when I worked for a US firm, including some tax information.

AJ

Dominions Son ๐Ÿšซ

@awnlee jawking

https://www.irs.gov/businesses/small-businesses-self-employed/how-long-should-i-keep-records

Period of Limitations that apply to income tax returns

1. Keep records for 3 years if situations (4), (5), and (6) below do not apply to you.
2. Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return.
3. Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
4. Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.
5. Keep records indefinitely if you do not file a return.
6. Keep records indefinitely if you file a fraudulent return.
7. Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.

Replies:   Keet  awnlee jawking
Keet ๐Ÿšซ

@Dominions Son

6. Keep records indefinitely if you file a fraudulent return.

Uhm, yeah, keep the evidence, typical bureaucratic point :D

Dominions Son ๐Ÿšซ

@Keet

Uhm, yeah, keep the evidence, typical bureaucratic point :D

I noticed that. It's basically 3 years, unless you are claiming a loss for worthless securities or are cheating on your taxes.

4 and 6 are both basically about cheating on your taxes.

4 Not reporting income. 6 other tax fraud.

5. There are a few legitimate reasons for not filing, but then if you are not filing for legitimate reasons, you probably don't have a lot of records to keep.

Replies:   StarFleet Carl
StarFleet Carl ๐Ÿšซ

@Dominions Son

cheating on your taxes

Cheating is such a harsh word.

I prefer accidentally erroneous.

Of course, since I'm not a W-2 employee, but a 1099 independent contractor with appropriate expenses - especially courtesy of Covid - it's just sort of a damned shame that normally what my wife has withheld from HER W-2 income comes really damned close to what we owe every year. Plus or minus $100 every year on Federal is the goal.

Replies:   Dominions Son
Dominions Son ๐Ÿšซ

@StarFleet Carl

I prefer accidentally erroneous.

And if it was accidental, you would have no idea that you fell into one of the longer record keeping categories.

Michael Loucks ๐Ÿšซ

@Keet

Uhm, yeah, keep the evidence, typical bureaucratic point :D

It also lets them tack on statutory fines and penalties for failing to keep the records when they can't prove amounts.

Replies:   Dominions Son
Dominions Son ๐Ÿšซ

@Michael Loucks

It also lets them tack on statutory fines and penalties for failing to keep the records

As I understand it, no it doesn't.

Those numbers are based on statutes of limitations that apply to tax adjustments.

From the link I posted up thread:

The length of time you should keep a document depends on the action, expense, or event which the document records. Generally, you must keep your records that support an item of income, deduction or credit shown on your tax return until the period of limitations for that tax return runs out.

The period of limitations is the period of time in which you can amend your tax return to claim a credit or refund, or the IRS can assess additional tax. The information below reflects the periods of limitations that apply to income tax returns. Unless otherwise stated, the years refer to the period after the return was filed. Returns filed before the due date are treated as filed on the due date.

If they audit you and assess additional tax and you don't have the documentation to contest it, your choices are limited to pay up or go to jail.

Replies:   DBActive
DBActive ๐Ÿšซ

@Dominions Son

Back a couple of decades ago one of my clients was called in for an audit of his business for several years. We had a major flood in the area and he called the accountant who was handling the audits for him. He asked the accountant what he should do because his records were in the office basement and it was flooding. The accountant's reply was "Are you sure that ALL the records are in the basement?"
It turned out that every financial record was "unavoidably destroyed" and the audits were abandoned.

awnlee jawking ๐Ÿšซ

@Dominions Son

Thank you.

AJ

Switch Blayde ๐Ÿšซ

@awnlee jawking

how long must US tax information be retained?

I keep them 7 years.

Switch Blayde ๐Ÿšซ

@Switch Blayde

Just received an email from PayPal asking for my social security number. It says:

The IRS requires us to send you a 1099-K when you receive $600 or more for goods and services each year.

What happens if we don't have your tax ID.

When you reach $600, your payments will go on hold. If we still don't have your tax ID after 60 days, we'll start sending 24% of your payments to the IRS for backup withholding.

It's interesting I got the email right after the one that notified me I have money waiting.

Replies:   DBActive
DBActive ๐Ÿšซ

@Switch Blayde

I hope there really was money there. That was a major phishing scam last year.

Replies:   Switch Blayde
Switch Blayde ๐Ÿšซ

@DBActive

I hope there really was money there. That was a major phishing scam last year.

Since it came from World Literature Company and the amount matched what the stats on Bookapy said, I felt safe.

irvmull ๐Ÿšซ

@Switch Blayde

Here's an interesting thing I learned today:

If I loan a good friend $1,000 and charge him no interest, the IRS claims that I have to pay taxes on the income I would have received had I charged interest at the rate they set.

Replies:   Dominions Son  DBActive
Dominions Son ๐Ÿšซ

@irvmull

If you think that's bad, you should look into what they do to people who get bit by the Alternative Minimum Tax.

DBActive ๐Ÿšซ

@irvmull

an interesting thing I learned today:

If I loan a good friend $1,000 and charge him no interest, the IRS claims that I have to pay taxes on the income I would have received had I charged interest at the rate they set.

Actually, it has to be a loan of $10,000 or more before imputed interest applies.

Replies:   Not_a_ID
Not_a_ID ๐Ÿšซ

@DBActive

Actually, it has to be a loan of $10,000 or more before imputed interest applies.

Makes sense, as anything under $10,000 can be claimed as a "gift" and thus not subject to taxation as I recall.

A no interest loan would certainly qualify under that criteria.

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