Online shopping increases in popularity each year, these days you can not only buy online from big corporations, but you can just as easily use companies like Paypal to send money to friends and family members. Some people believe that we are moving toward becoming a completely cashless society. That said, how much do you really know about your taxes and paypal?
PayPal operates like a bank
While Paypal isn’t technically a bank, it is the leader in online banking and it can be an excellent resource for small businesses. All of the money paid to you through Paypal (or other similar sites) should be treated the way you do all of your other accounts. Make sure that you are sharing your Paypal information with your accountant or bookkeeper so that he or she can be sure it is accurately reflected in your books.
Paypal offers debit cards
Since so many small businesses use paypal to invoice their customers, it makes sense for many people to leave their money in the paypal account instead of transferring it out to a traditional bank. For this reason, Paypal began offering debit cards to their customers so you can spend money directly from your Paypal account. While this seems like a great benefit, be aware that online banking sites like Paypal are not regulated like traditional banks. Which brings us to the next point…
Paypal is not FDIC insured
While paypal acts as a bank, unlike traditional banks, Paypal is not FDIC insured. This means that in the case of bank failure the government has not insured the company and therefore they will not be able to assure the safety of your money. This may not be a problem if you use Paypal simply as a way to receive money, but if you use it as a bank to store your money you should be aware of the inherent risks.
Paypal may report your income to the IRS
When using paypal to run your business, remember that the site will report to the IRS your yearly earnings if they are more than $20,000 or if you exceed 200 individual payments. Make sure that your bookkeeper is aware of every transaction you’re making with your Paypal account so it can be included in your tax return.
These days there are so many great resources for people who are starting small business. Whether you use Paypal or another online banking service, make sure you are well aware of the way the company functions and the risks their services might pose to you financially. If you have any questions about this product feel free to contact us for a free consultation.