Important information for all members to read

[RJ]

I am posting this since it will have impact on our site in a number of ways in the year to come.

New rules on paypal will cause them to report you if you transactions exceed 200 and your total transactions hit $20,000 starting next year.

Many of the single coops have exceeded these limits in the past!

Here is the rub, If I continue doing coops even as a hobby and even if I continue to keep the cost to where I am not turning profit, I will be forced to file documents with the IRS, keep detailed records of everything I purchase for the coops and file forms each year to prove to them that I am doing this as a hobby and do not owe them money. Otherwise they may claim I owe taxes on the total amount of the coop value which is sometimes HUGH!

This impacts the others doing coops for the group also. It is a real issue and I am at this moment not sure how I am going to resolve it for myself.  As this is a hobby for my enjoyment it becomes hard to justify all of it.

I opened this thread to discuss this issue but I do point out that I am an honest citizen and work for Law Enforcement, that said I will not be interested or allow the thread to turn into how we can do anything but honest methods. Any post made on other ways will be removed.

When you consider the work involved in doing coops for basically free it may get very hard to get people to do coops in the coming year.

I'm very interested in others thoughts on it.

RJ

[ponddude]

RJ,

I was wondering how you were going to deal with this.  I was contacted by Paypal earlier this year regarding it as well.  When it all comes down to the bottom line, Paypal is only doing what the government has told them.   This has to do with new tax laws that were passed during the Bush administration and are taking effect in 2011.  It really impacts how our hobby is going to continues.

I am in the exact same boat as you are in and if I continue to do this as a hobby I really can not justify it at the end of the year.  I have looked into other payment methods such as Google Checkout which made a brief appearance on my site, but didn't like how it integrated.  I even looked into becoming a certified 501(c)(3) organization but than it becomes illegal to even make the 3% fees that are most usually charged.  All and all, it doesn't look good for us to continue to go as we currently do.

I know a lot of people will bark about this, but becoming a legitimate company may only be the only method that avoids keeping a tremendous amount of documentation for the government.  In most cases in becoming an LLC you only have to charge sales tax in the state you conduct business in.  (In my case NJ, in your case FL)  Looking into the business world can be daunting but I moved into it after college and even have a degree in it.  Although I haven't used it in my "real" job (haven't we all) it may become very important in the future.

[Greg]

It may be true that you might need to collect sales tax on sales in the state you're doing business in, but the burden of record keeping and satisfying the feds that indeed you did not make any money on the sales that take place is not lightened in any way in my experience.

Then there is the potential issue of gross receipts tax in some states werein they (the state taxing authority) doesn't care about profitability and levies a tax on the business entity based on the gross cash flow of the business...

Tough issue for sure.

Greg

[Jeffl]

Is there a link that explains the laws and rules in more detail?

[mmais68569]

We could always go back to the old way before PayPal, checks, money orders & cash. It would mean more bookkeeping but would avoid the tax reporting.
                 Mike

[rrowan]

Just another random half thought from yours truly.

This would also seem to hurt the bottom line of the suppliers we use for the co-ops. Like mouser and the pcb manufacture that RJ uses. Seem like they would want to help us with this problem. I am pretty sure either Bill and/or RJ could directly talk to the sales rep of each company for help.

Cheers

Rick R.

[RJ]

Just another random half thought from yours truly.

This would also seem to hurt the bottom line of the suppliers we use for the co-ops. Like mouser and the pcb manufacture that RJ uses. Seem like they would want to help us with this problem. I am pretty sure either Bill and/or RJ could directly talk to the sales rep of each company for help.

Cheers

Rick R.

What do you think they could do for us Rick I curious what the idea would be?

RJ

[Kwajtony]

I have looked, albeit briefly, at the IRS website on the Taxation of Hobbies.  Perhaps, PAYPAL would be so kind as to add a category that declares this transaction is "HOBBY" related and we can register as "HOBBY" users.  The only "requirement" then would be to document how much we spent on pieces / parts in support of our hobby vs what paypal collected Viola.  This would clearly mark it as a hobby not intentioned for the "creation of profit" nor have "profitable" years more than two of five or something like that.  I will ask my CPA the next time I talk to her about this and her interpertation (did I really write "my CPA," it's not like that ---  the CPA handling my parents probate -- that's better).

The ability of us Little People to get together and combine purchases to take advantage of volume discounts should not cause us a tax problem (IMHO).

Tony "C"

[WWNF911]

The ability of us Little People to get together and combine purchases to take advantage of volume discounts should not cause us a tax problem (IMHO).

I don't think you'll find anyone here that doesn't agree with that.  

Leon

[JJJR]

I have looked, albeit briefly, at the IRS website on the Taxation of Hobbies.  Perhaps, PAYPAL would be so kind as to add a category that declares this transaction is "HOBBY" related and we can register as "HOBBY" users. 

The only problem I could see and Paypal would not be opt to go this route is anyone could claim "hobby" to avoid reporting.
And sadly with the crooks out thier looking for ways to bypass tax paying and reporting I could see this being used by shady individuals as a method to get around tax reporting themselves. Which sucks as the good people that we are could be ruined by such individuals. Its for this reason I don't see Paypal granting such an option.   

Cash or checks might be the only option again unless anyone else has a different idea?

[n1ist]

Won't checks have the same issue?  I'd guess banks would  have similar reporting rules.
/mike

[Dennis Cherry]

Won't checks have the same issue?  I'd guess banks would  have similar reporting rules.
/mike

You are right, the banks have the $10,000 rule that if you make a deposit of $10,000 or more it is reported to the IRS. Deposit $9,999 or less and it is not reported.

I think this is still being used by the banks and IRS.

[tbone321]

The difference is that the banks ONLY report single deposits of $10,000 or more.  They have no concern about the number of small deposits or a total of small deposits.  What I would look into is what exactly paypal is basing this reporting on.  Is is all uses or is it only the payment type that we are using.  Remember, we are using the payment for goods and services option which even by its name indicates that it is intended for a for profit business use.  If one of the other options does not require them to report to the IRS, perhaps we need to make adjustments to use one of those other options.  I know that one of them doesn't send the address but if that's all it is then as long as the notes area is still sent to identify who sent the payment and what it is for then the missing address is easy to get around.  I do have another possible work around but it is a bit long to type out but it may make it a bit easier on the coop managers.

[Freebird]

Okay  Im just thinking out loud here...  What about limiting coop managers to 9999.99 a year?  It would mean more coop managers would have to step up to the plate.  And then what about more coops and limiting the amount in a coop.  Just a thought.

Freebird

[tbone321]

The problem with doing that is that it would limit the value of doing coops at all.  One of the primary benefits of the coop is that the large volume related to a significant savings on the cost of parts.  If you limit the size of the coops down to low then those cost savings disappear and it just becomes a lot of work for the coop manager for nothing.