Tax Issues with Online Earnings!!

I think the general rule of thumb is $200.00 a month. So if your "earnings" add up to about $200.00, then you need to report yourself as "self-employed" or something along those lines. If he makes a lot online - then yes, he needs to claim those. I'm not much of a tax person - but I just read the $200 claim on one of those "online jobs." Yeahhhh - I tried the ACME Search thing, and it didn't pan out for me. Anyways, yeap. I hope your friend will be ok!

I've only ever transferred my money from paypal to my bank account once so I don't think I'd have this problem. Now I just keep it in my paypal account and use it to but things online. I think should not charge tax for earnings online since they not as substantial as such things as regular income though.

This is a wonderful discussion. I am a CPA and know first-hand that many people do not understand the implications of not reporting income/expenses to the IRS. The NUMBER ONE misconception is that if you don't receive a 1099 for the money you received, you don't have to report it. Here's the deal - ANY money you earn is taxable income. If you are paid more than $600 from any one source, they are required to report it to the IRS. If you make more than $1 from any source, you are required to report it to the IRS. Just because someone isn't required to report what they paid you doesn't mean you don't have to report it as earnings. Your friend is finding this out the hard way. It's two different situations. Here's an example... Say you're a house painter and you only charge people $595. No one has to issue you a 1099, but after doing one house a week you've made over $30,000 for the year. That's taxable income. For Internet terms, you're on 30 different paying websites and you make $500 from each one during the year. That's $15,000 of taxable income. When you sign your tax return, you are attesting to the fact that you have reported any and all income that you recieved. If you have omitted something, the IRS can charge you with fraud - penalties, interest and possibly jail sentence. And the IRS can go back to the beginning of time if they suspect fraud - not just the "7 years" most people think. When you are audited, the IRS will require you to provide them with all your bank statements for a certain period of time. Your PayPal account is a bank account as far as the IRS is concerned and they will usually ask for that also. They can ask for your e-bay history or whatever they want to. They are going to count any moneies you received as income, you have to prove otherwise. If they find any income that you didn't report on your tax return, you're in trouble. But, here's something you need to remember. This income you have, normally has expenses related to it. If you didn't have internet access you couldn't make money online. If you didn't have a computer, you couldn't make money online. If you have a business paypal account, there are fees involved. You may even be able to write off some of your house expenses. Basically, you really should talk to a reputable tax person. Quite a few of the tax prep chains do not know the rules and will tell you that this income is a gimmie - you don't have to pay taxes on it. They're wrong, talk to a professional. It may cost you a little more money (another expense that you can deduct) but it's going to save you in the long run if you're ever audited. [i]CIRCULAR 230 NOTICE: The IRS has issued Circular 230 which is intended to stop abusive tax shelters. Its reach is much broader. The new law requires that the following be added to written statements concerning Federal tax issues: "Any statements contained herein or in attachments hereto relating to a Federal tax issue are not intended or written to be used, by the recipient or any other taxpayer for the purpose of avoiding penalties under Federal tax law and were not written to support the promotion or any marketing of the transaction or matters discussed herein."[/i]

I've been told, that as long as your earnings, even from an offline source, from a single source don't equal 600 dollars or more you don't have to claim them. I.e. if you made 100 from myLot, 100 from another, 100 from another, 200 from some site, 300 offline. You have more than 600, but not 600 from a single source and no need to claim it. To my knowledge once you reach 600, offline and online employers give this tax sheet, but I forget the name and you fill it out.

Ouch! I never even thought of that! Thank you so much for bringing this topic up because it seriously never even crossed my mind, and I would never think of claiming my earnings on my taxes! It makes sense though! I guess before I make a pay out I will have to seek some advice on that because that is pretty scary! I do not want to get in any sort of trouble with the IRS. I am sorry your friend had to go through that but thank you for sharing his unfortunate situation because it really set off a red flag for me! Hope your friend gets out of the pickle he is in ! Take care !!

Technically I suppose we should. It would be the honest thing to do. I have not made anything yet, so it hasn't mattered. This is the first month that I will make payout. I think that I will begin to keep a record though so that I can report it. Better safe than sorry!!!

Yes you should report any income that is over 600 per year per source. See the catch there. Apparently he must of made more than that in one source like maybe Ebay? I also have a paypal account and to be honest I have always added to my paypal from it never have deposited to my bank account from paypal.. I haven't made enough to claim yet. Will see by the end of the year. Oh and yes if you do earn more than 600 from one source they are by law suppose to send you a 1099 of those earnings. They can be penalized if they don't. Thats what I learned in the past from my mom who did taxes for over 30 years before she passed.