# Paying for business services via PayPal "friends and family"



## AllyWho (May 16, 2015)

This is a thread to discuss the wider business implications of paying for business services (such as cover art, editing, formatting, promotional services) via PayPal's "friend and family" option.

I'm outside the US, so I'm hoping someone with a better understanding of your legal and tax requirements can weigh in.

My understanding is that paying as F&F has a number of wider implications:
1. Tax deductibility. Depending on your tax jurisdiction you may not be allowed to claim the expense as a deduction.
2. No recourse for a refund. Should something go awry, you do not have any recourse to seek a refund.
3. Fees are paid by the person sending the money (ie: the author) as opposed to the receiver (service provider).


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## CassieL (Aug 29, 2013)

I'd like to see this expanded to also include discussions of using Venmo as well. I had an audiobook narrator ask for this after I'd already signed the contract and was not pleased.

Part of the issue in the United States is that you have to report payments you make to anyone for business services if you pay them more than $600 in a calendar year. 
https://www.irs.gov/businesses/small-businesses-self-employed/am-i-required-to-file-a-form-1099-or-other-information-return

My understanding is that if you use paypal, you're exempt from that requirement because they have their own reporting requirement. But it wouldn't be triggered if you use friends and family. (Or a service like Venmo.)

And filing 1099s is not a simple thing you can just do in a day. It takes a month lead time or more to do it.


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## Not any more (Mar 19, 2012)

1 - you can still deduct the expense, but if PayPal doesn't include those payments in the 1099 to the vendor (because they don't treat them as a vendor) and you get audited, it can end up with both the buyer and seller in a protracted discussion with the tax man.
2- That is my understanding. It is much easier to get a refund from PayPal than to dispute it through your bank.
3 - Yes


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## Ann in Arlington (Oct 27, 2008)

I'm fading fast as it's past my bedtime . . . . gut response is paying someone as your 'friend' vs as your 'business associate' is most likely to be an issue if the IRS decides to audit you. It speaks to whether you're running things in a 'businesslike' manner. But I'm not aware of the nuances of paypal payments . . . . I will sleep on it and may have some further thoughts in the morning.


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## MyraScott (Jul 18, 2014)

Without PayPal reporting the transaction, if it is more than $600 the receiving party would need to provide their SS# or EIN so you can prepare a 1099... otherwise you can't deduct it as a business expense.  Without that identifying information, it's just, well, a friends and family transaction. 

I guess if people are fine with not being able to deduct these large expenses on their taxes, then it really is just handing money over to another party.


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## Not any more (Mar 19, 2012)

Ann in Arlington said:


> I'm fading fast as it's past my bedtime . . . . gut response is paying someone as your 'friend' vs as your 'business associate' is most likely to be an issue if the IRS decides to audit you. It speaks to whether you're running things in a 'businesslike' manner. But I'm not aware of the nuances of paypal payments . . . . I will sleep on it and may have some further thoughts in the morning.


If you use PayPal, they issue 1099misc to your vendors from PayPal. As a vendor, say a cover artist, I get one 1099misc from PayPal instead of two hundred from all my various clients. The issue of paying F&F is if you deduct a business expense and the vendor doesn't claim the income.


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## Elizabeth Ann West (Jul 11, 2011)

I opened the door about deductible expenses. When I took business classes in the US it was emphatically stressed that all business expenses need to be clearly that. Ideally a business bank account or credit card account is used, but if that's higher cost just a separate personal checking account for a sole proprietor works. What you don't want is like your utility bills and business bills and fun expenses all coming from one account. This makes for confusing accounting and in the event of an audit, which is a rare event, you are setting a red flag for the IRS.

There are publications for small business that go through the minimal levels of expectations from the IRS to be able to claim a business vs a hobby. And if you are comingling funds etc if you have an issue with losses, non separate banking is also another clear signal you might not be running a legitimate business.

Where it comes to PayPal it used to be we all issued 1099 MiSC for any directly paid freelance work over $600 in a calendar year. This isn't just for writers, but if you pay your lawn service with cash or check and it's more than $600 in a year, or $10 where it comes to royalties, the paperwork is supposed to be filed. This captures the underground economy so everyone is paying their share.

However, an asterisk on this now of you read the instruction for the 1099 forms is that of payment goes through a 3rd party payment service like PayPal you do not have to do a 1099 misc. This is because there are gates now with a 1099k to capture accounts on PayPal and similar systems with more than 200 transactions and $20,000 in volume. If we issued 1099 misc and 1099 k to someone it would be possible for the same monies to be counted twice as taxable income.

Now the instruction of the 1099 form states you don't have to do a 1099 misc if a third party payment system handles the transaction but the PayPal pages specifically call out that friends and family is NOT counted for 1099K calculations. So using Family and Friends you are literally avoiding PayPal's systems for proper taxable income reporting and thats why they say to not use it for goods or services. 

Now I know people thought they were just saving another person fees but the reality is fees are a part of doing business. If you doing accrual method of accounting then you can even deduct those fees. With cash systems of accrual you do not unless you get issued a 1099k. Then you'd want to check your cash records against that to make sure of the fees are not deducted on the 1099K (I haven't had one in a few years so I can't remember) that you do deduct them on your Schedule C. There's a line for that.


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## Pnjw (Apr 24, 2011)

Bottom line: It's against the terms of service at Paypal to use Friends and Family for a business transaction. They can and will shut down your account if they find out you are doing this. It can also be IRS fraud. And lastly if you have a dispute, you can't file a claim with Paypal. So don't do it.


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## Not any more (Mar 19, 2012)

Deanna Chase said:


> Bottom line: It's against the terms of service at Paypal to use Friends and Family for a business transaction. They can and will shut down your account if they find out you are doing this. It can also be IRS fraud. And lastly if you have a dispute, you can't file a claim with Paypal. So don't do it.


Unless, of course, you enjoy hanging out with tax auditors and lawyers. No accounting for some people's tastes.


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## Rick Gualtieri (Oct 31, 2011)

Deanna Chase said:


> Bottom line: It's against the terms of service at Paypal to use Friends and Family for a business transaction. They can and will shut down your account if they find out you are doing this. It can also be IRS fraud. And lastly if you have a dispute, you can't file a claim with Paypal. So don't do it.


And if the business you're associating with is asking to be paid that way, perhaps reconsider your relationship with them.


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## Susan Stec (Aug 9, 2014)

Deanna, you are correct. It's a shady affair. One other issue. It is against PayPal rules to charge your customer over the amount of purchase to cover their fee. This was also being done. And accounts WERE closed and are under investigation for tax fraud. I am now hearing something about having authors pay through Amazon gift cards for services. Is this legal? And does anyone know if you can get money for an Amazon card?


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## Pnjw (Apr 24, 2011)

Rick Gualtieri said:


> And if the business you're associating with is asking to be paid that way, perhaps reconsider your relationship with them.


Absolutely. I had a cover artist who asked for payment this way. Because of that and a couple of other reasons I stopped using them.


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## Pnjw (Apr 24, 2011)

Deanna Chase said:


> Absolutely. I had a cover artist who asked for payment this way. Because of that and a couple of other reasons I stopped using them.


I don't know about legal. I suppose as long as the person who is paid in gift cards claims the income on their taxes and one sends a 1099, then it would be okay. I'm unclear on that. But I sure as heck wouldn't be paying any vendor in gift cards. Talk about unprofessional. And I'm not about to try to explain that to the IRS should it come up.


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## Elizabeth Ann West (Jul 11, 2011)

Rick Gualtieri said:


> And if the business you're associating with is asking to be paid that way, perhaps reconsider your relationship with them.


I would say if there are no other red flags, speak up. I recently had a great freelancer I'm working with ask me to pay her with family and friends with the explanation that she wanted to avoid the fees. I wrote back I could not do that, that I could do that this one time (transaction was under $200) but that would also be the end of our business relationship. I was courteous and polite and explained that I run a business so I will pay her charge but avoiding PayPal fees jeopardized both of our accounts.

She immediately responded back no issues, had a custom invoice and we've had no issues now.

I do think somewhere along the lines it just became common practice to go "oh use family and friends so there's no fees for anyone" and not realize the bigger ramifications. So I would say broach the subject and know where you fall on the matter. Just as many here are learning how serious of an issue this is, I think many cover artists, promoters, and editors etc. Are learning that too.


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## A Woman&#039;s Place Is In The Rebellion (Apr 28, 2011)

Cassie Leigh said:


> I'd like to see this expanded to also include discussions of using Venmo as well. I had an audiobook narrator ask for this after I'd already signed the contract and was not pleased.


I had the same experience and ended up scrambling at the end of the year to deal with the 1099. I was not a happy camper. Now I know to confirm method of payment up front.


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## Pnjw (Apr 24, 2011)

Elizabeth Ann West said:


> I would say if there are no other red flags, speak up.


I think this is fair. Communication can go a long way and that one conversation will tell you a lot about the person.


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## Rick Gualtieri (Oct 31, 2011)

Elizabeth Ann West said:


> I would say if there are no other red flags...


100% agreed. I should have wrote "insisted" instead of ask.


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## AllyWho (May 16, 2015)

Elizabeth Ann West said:


> I do think somewhere along the lines it just became common practice to go "oh use family and friends so there's no fees for anyone" and not realize the bigger ramifications.


Is the "no fees" a US only thing? As someone outside the US, when I pay someone inside the US via F&F (not book related, costuming which is probably a more expensive habit! lol) *I* always end up having a charge added to the F&F amount. So it costs me more as I pay the PayPal fees.


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## Elizabeth Ann West (Jul 11, 2011)

There's a variety of options, but there is also the international transaction fees with might be the fee you're getting AliceW.


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## Not any more (Mar 19, 2012)

Once upon a time in a land far, far away, I was involved in an industry that did a lot of cash payments. Everyone carried around rolls of cash, and often bookkeeping was rather spotty. Not for me, as my mother was a tax accountant and did my books. I also walked away clean when IRS came down on the industry like a ton of bricks. Just because people have been "doing it this way" for forty years, doesn't mean IRS has a sense of humor.


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## Not any more (Mar 19, 2012)

AliceW said:


> Is the "no fees" a US only thing? As someone outside the US, when I pay someone inside the US via F&F (not book related, costuming which is probably a more expensive habit! lol) *I* always end up having a charge added to the F&F amount. So it costs me more as I pay the PayPal fees.


The "no fees" is to the vendor. PayPal always takes their fee from someone. So, yes, if a cover artist asks to be paid F&F, I pay the fees for them.


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## Susan Stec (Aug 9, 2014)

MyraScott said:


> I guess if people are fine with not being able to deduct these large expenses on their taxes, then it really is just handing money over to another party.


Myra, I think you can clam your purchases, even if you have paid through family and friends, Square Cash, Amazon gift card or what ever, you notate the reason for payment of a service.

Also, when I did not receive a 1099 for a box set I made over $1000 for the month of December 2016, I emailed the organizer to ask for one. I was told "I am not required to provide you with a 1099 if you were paid via PayPal. I contacted PayPal about this when I was doing my taxes and they confirmed it. If you have any questions, contact PayPal customer service."

Which I did.She was correct.

21 authors, over $20,000 in payments for 1 month and not required to send any one of us a 1099. She did break my payment into 3 under 600 each, sent on different days.


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## over and out (Sep 9, 2011)

1


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## RinG (Mar 12, 2013)

I'm not familiar with tax law in the US at all, but what about if we're talking about a group promo, where everyone chips in towards a prize/advertising? If we're talking small amounts ($10-20 each) how would that be handled? I can't seem to find an answer on this one.


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## MonkeyScribe (Jan 27, 2011)

Rick Gualtieri said:


> And if the business you're associating with is asking to be paid that way, perhaps reconsider your relationship with them.


This applies to so many things in life. I used to run a small business that had a real estate component, and various suppliers and contractors would offer to do stuff off the record. One time, a car took out my sign, and one of the bids came in really high, but the guy said he'd do it for half the price of the bid, I'd get a check from the insurance company for the full amount, and I'd give him a kickback from the difference between the two.

Hmm, I wonder about the quality of his materials, whether he's paid up on his insurances, and how quickly the insurance scam investigators would find their way back to me when he slipped up elsewhere.

Bottom line is that if a contractor is willing to cheat other people, he's willing to cheat you, too. People are rarely scammers in only one way.


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## Not any more (Mar 19, 2012)

MonkishScribe said:


> Bottom line is that if a contractor is willing to cheat other people, he's willing to cheat you, too. People are rarely scammers in only one way.


^THIS^ Oh, so much this. I'm not a Christian, but I do believe in the Golden Rule. Karma is a b**ch.


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## Ann in Arlington (Oct 27, 2008)

'kay. Have had a good night's sleep so here's my take. Reminder: I am an Enrolled Agent, a tax professional credentialed by the IRS with 30+ years experience in personal income tax filing/reporting. Here's what I'd tell MY client if s/he asked the question.

I always remind my selfl-employed clients that they'll need, for any expenses they want to claim, complete records of who they pay, the date, how much, what for, and have some sort of written documentation to substantiate it if needed. I usually suggest a spreadsheet that they keep updated frequently -- not necessarily daily, but it's not advisable to leave a pile of receipts for months before entering them -- or worse yet, until next year when it's time to do taxes again -- because things can so easily get lost or be forgotten.

The 1099MISC issue is one about which there is a fair amount of confusion. My duty to my clients is to ensure they've got what THEY need to claim things correctly on their taxes.

If my client is buying paper and ink at staples -- a receipt from the store along with the other information kept in a log of some sort is sufficient. No 1099 of any sort is needed if you're buying stuff from a large corporation.

If they are contracting with a vendor to supply services, my advice to my clients is to get complete contact information and tax ID numbers BEFORE signing any contract or agreement and before paying any money. So if they hire, as part of their business, Bobby Smith to come in and spend 10 hours working on something specific, for which they're going to pay him $200, they need to have Bobby's full name, address, and tax ID number -- whether Social Security Number of Federal Employee Identification number. *This is true whether they plan to pay them by cash or check OR by some on line service like Pay Pay.*

But wait, you say -- the 1099MISC is only required if you pay the person $600 or more in a year -- you're only paying Bobby $200 -- quite apart from any 1099K rules. That's true. You may not be required to issue a tax reporting form, but my recommendation is still to get the information. First, you then have it in case you hire them several times and the total for the year goes OVER $600 and, second, their willingness to provide it means they are operating in a 'businesslike manner' as well. I recommend to my clients that they very strongly consider NOT hiring someone who is NOT wiling to provide that information. There is a form available to print from the IRS.gov website called W9 -- I advise my self employment clients to have copies available to provide to people they are contracting with for work.

*N.B.* This is sensitive, personally identifiable information you are obtaining on these people. They have the right to know WHY you want it and how you plan to keep it safe from nefarious personages. Accordingly, you should have a policy, ideally written, that explains in simple language that you are requesting it so that you have the information available for reporting to the IRS if required and that you will not use the information for anything else unconnected to that. Further, you should be able to attest that the paperwork is kept securely -- whether it's physical security like a locked file cabinet or digital security if you keep your files electronically.

Those are the general rules of record keeping required by any business, specifically: for any item of income or expense, you need complete, contemporaneous records of the date and amount of payment, the complete name/business connection of the other party, and a note of what, specifically, the expense is for to clarify the business connection. That should be a log book and, in addition, you should have paper or digital receipts kept to substantiate the log.


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## Ann in Arlington (Oct 27, 2008)

What about my clients who might be on the 'vendor' side of this deal. . . . so they are the people who are getting asked for their name and SSN and all that?

Well, I advise them that if they are asked for that information, they should provide it if they are comfortable that they are working with a reliable person. They may ask for the requestor to provide them with a blank W9 to fill out. They have a right to keep a true copy of what they provide. They have a right to ask and be satisfied, via a written memorandum, that the person to whom they are providing this information has thought about how to keep their details safe and secure and have a policy that the info will ONLY be needed for purposes if required IRS reporting.

So, now my client is Bobby Smith who contacts me early in the year that he's started a small side business and has a client who's demanding this info from him. I explain all of the above to him as well as HIS responsibility to keep accurate income records and the possibility that he might be issued a 1099MISC from the paying party for work he does during the year. Keep in mind, the paying party is REQUIRED to issue the 1099MISC if they pay a person at least $600. For simplicity of bookkeeping and their own record-keeping, some may choose to issue the 1099MISC even for a lower amount. It is critical for my client, in this case, to have records that show EXACTLY what he received and when, so that, if there is a discrepancy, he has a basis for reporting something different -- whether it's over or under the $600 threshhold.

FWIW, if I had a client who wasn't willing to do things this way, I would very likely advise him that he needed to find another person to do his taxes because my obligation is to report things the way I know they need to be reported and I can't choose to ignore things just because it's inconvenient or is potentially going to cost my taxpayer more money. I don't make my clients show every little receipt and I don't audit their books. I do tell them to keep their records complete, keep their receipts, and to note anything they're not sure of with an 'asterisk' or something so that we can discuss it at tax time. Which is another reason that a short statement as to the business reason of any expense is helpful. If I suspect my client is under-reporting income, I have a 'come-to-Jesus' meeting explaining MY potential liability and why he needs to do things the way I advise or find someone else. Here's the thing: my credential is issued by the IRS and I can be fined or my credential pulled if it is determined that I am acting contrary to the requirements of Circular 230. If any of y'all want to read that, just google it. It's a bit dry. But you'll see that it spells out ethical obligations, among other things, pretty clearly.


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## Melody Simmons (Jul 8, 2012)

Ann in Arlington said:


> 'kay. Have had a good night's sleep so here's my take. Reminder: I am an Enrolled Agent, a tax professional credentialed by the IRS with 30+ years experience in personal income tax filing/reporting. Here's what I'd tell MY client if s/he asked the question.


Wow! Did not know that about you!

Perhaps you can confirm that this is correct then?

"As long as the foreign contractor is not a U.S. person and the services are wholly performed outside the U.S., then no Form 1099 is required and no withholding is required." So say an author from US hires and editor or cover designer from UK then no tax forms are involved?

Also what about this article:

https://smallbiztrends.com/2015/01/1099-contractors-paypal-credit-card.html

Quote:

If my small business paid independent contractors or other businesses using PayPal or a credit card, must we send them a 1099-MISC form for federal income tax purposes?
The answer is: No.
You are not required to send a 1099 form to independent contractors such as freelancers, or to other unincorporated businesses such as LLCs, if you paid them via PayPal or credit card.
That is the case even if you paid the recipient more than $600 last year. (The normal threshold for when 1099-MISC forms are required is when you've paid the recipient a total of $600 or more.)
Instead, in the case of electronic payments, the credit card companies and payment companies will handle any required reporting.
Those electronic payment providers are required under certain circumstances to send out a different version of the 1099, called the 1099-K, instead.


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## Ann in Arlington (Oct 27, 2008)

O.K. The paypal issue.

I admit that I may not be aware of the ins-and-outs and nuances of using pay pal to send remittance to vendors or to receive payment for work done. I myself have only used it for personal expenses. I don't think I've ever received money that way, and when I've paid that way it's been through a specific website. For example, there's a craft fair promoter who sells advance tickets at a couple bucks discount. You have to buy and print them on line, and you have pay via PayPal. I've once or twice sent my brother money -- our personal email domain name is paid for through his account and when it comes due I send him the money so he can pay it. So I have no personal experience with using it as a conduit for business related expenses.

I'm happy to be corrected but here's my understanding: there are two kinds of payments. One is for personal expenses -- the 'friends and family' type. This is meant for transferring money not related to any business dealings. It has minimum fees. There are also business types of payments which do have fees associated and should be used by people paying or receiving money as part of their business. So receiving if you're accepting payment for work, and paying if you've contracted someone for work. It seems to me that the reason there are extra fees for the business payments is because of the IRS regulations that PayPal has to work under. They will be required to file/send 1099K documents under certain condition. And they're required to keep those records longer than the ones for that $20 you had to pay your best friend for when she bought dinner last week.

So . . . how does that impact you, the individual business person, and YOUR reporting requirements to vendors you pay?

Here's what I'd advise my clients: Even if you're paying via PayPal, you should keep the W9 information. For payments via PayPal, you should USE the business payment method and you should periodically print/save the PayPal records of what they've remitted to your vendors on your behalf. This to prove you paid them for your own expense record keeping as well as to document that they were paid via PayPal which exempts you from the 1099MSIC filing requirement for them.

For my clients who may receive payments this way, they still need to keep the complete records I talked of before, even if -- maybe _especially if_ -- they don't expect to be paid enough that PayPal will be issuing them a 1099K. Again, they should request payment via the business method, and if there are fees they have to pay, well, they're legitimate business expenses. And they should have some sort of account book where they keep track of all their income whether it comes via PayPal, or more traditional payment methods.

I think that, if a client asked me, I'd advise them not to work with someone who wanted to be paid -- or wanted to pay them -- via the 'friend and family' payment method to avoid bank fees. That is NOT operating in a businesslike manner. Someone, in an earlier post, noted that she'd been asked to pay that way and she advised the person that she wasn't comfortable doing it. That's the proper course of action. You can't do anything about how THEY manage their business, but you CAN be sure that YOU always act in a professional manner. And that will protect you if the fit hits the shan and you get caught up as a person who did business with someone who was not above board.

Here's how I look at it: if they're willing to fudge the numbers to save themselves some tax money, why would you think they would be completely honest and reliable if you have a dispute about something later on? I get that there's a whole segment of people who are generally pretty honest but think it's o.k. to play games if the loser is the government. Personally, those aren't people I want to do business with and I admit I can't completely trust 'em. 

Personal example: I go to a lot of craft fairs and the vendors I buy from again and again are the ones who don't have a problem with me paying by credit card and/or are happy to give me a written receipt. Even for a fairly small value item, I don't like to walk away feeling like I just got something from the back of a truck in a dark alley!  I have walked away before when the seller was pressuring me, even mildly, to pay cash. I KNEW thy wanted to avoid counting it as income to avoid income tax and also sales tax to the state. My response, when my spidey senses tingle, is to tell them I'm so sorry, I have no cash, but thank you very much. I don't carry a checkbook, so if they can't take a card, I won't be buying from them. They usually "find" their card reader at that point, but it's probably too late. For the record, I do NOT mind someone who, for a $10 or $15 item asks if I can use something besides a card because of the fees to the CC company -- as long as they're still willing to give me a written receipt, I'm fine with that.


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## Ann in Arlington (Oct 27, 2008)

Melody Simmons said:


> Wow! Did not know that about you!
> 
> Perhaps you can confirm that this is correct then?
> 
> ...


I think I addressed this in one of my posts -- I broke my thoughts into distinct parts so that it didn't become an eye-searing wall of text!  But just in case:

I am specifically talking about US tax filing requirements for US persons paying US persons.

You do not have to issue a foreign person a 1099MISC -- it's strictly a form required for matching purposes within the US tax system. In the case of a US author hiring a UK vendor -- it is still appropriate to require complete contact information and request a receipt from the UK person for your own recordkeeping. Again, we're talking covering your OWN backside so that no one can accuse you of trying to skirt the rules.

And, as noted, if they're paid through PayPal, or via a credit card, no 1099MISC is generally required. That rule is relatively new -- I'm thinking 2012 or so. Before the advent of PayPal and such like there wasn't really any clear direction. Generally, if you were paying by CC, you were paying someone who had a substantial business and no 1099MSIC was needed -- that's strictly for transactions between individuals. The 1099K rule came in as a way to capture gross under-reporting of income and CC payments were put under the same umbrella as other electronic transactions.

Here's the reasoning: if you're paying by CC or PayPal business, you're paying a business or individual who is operating as a business. PayPal or the CC company keeps records and you also have an independent record of the payment -- beyond just your say so or personal log. Broken record time: it is still BEST if you can get a receipt from the person, in addition to keeping a record of the line item on your CC statement, and your expense log should note the date, amount, and business purpose of the expense.* If you pay them by cash or check, you want to get a receipt (ESPECIALLY FOR CASH! ) and you will be required to issue the 1099MISC if it's $600 or more. *This is the only way the government knows about the payment!* And is also why there are people who want to operate an 'all cash' business and aren't keen on receipts. They don't want a paper trail. I suspect it's also the reason behind vendors requesting payments via PayPal as 'friends and family' vs through a business account.

*some people get concerned when I mention needing to write the business purpose of the expense. Usually it's pretty obvious: Harry Jones is a cover artist and that's clearly what you're paying him for; you may want to include which book, specifically, he's doing the cover for. When it's an expense that's not so obvious -- like taking someone to lunch or paying for research materials -- you probably want a bit more detail: Paid for lunch for Frank Walker at Oscar's Restaurant. During the meal, we discussed details of his time as a honey dipper as research for my book, "Outhouses of the Midwest". (Meal expenses are also o.k. if the business discussion was immediately before or after the meal -- keep track of the total spent; the allowed deduction is half.)


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## The one with all the big dresses on the covers (Jan 25, 2016)

Every time I see tax threads come up on kboards, I feel so thankful that the tax system is simpler in Australia! (Simpler for me, that is, I don't know if it's simpler for my accountant )

I'm just wondering if there's any forms or particular records or whatnot that I need to provide to a US person who's paying me my share of the royalties from an anthology/box set (via PayPal). As you said, a 1099 doesn't seem to apply, but I don't want to leave them in the lurch come tax time, and I want to be sure I'm doing the right thing (for them and me) from an ethical point of view, too.


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## Ann in Arlington (Oct 27, 2008)

MelanieCellier said:


> Every time I see tax threads come up on kboards, I feel so thankful that the tax system is simpler in Australia! (Simpler for me, that is, I don't know if it's simpler for my accountant )
> 
> I'm just wondering if there's any forms or particular records or whatnot that I need to provide to a US person who's paying me my share of the royalties from an anthology/box set (via PayPal). As you said, a 1099 doesn't seem to apply, but I don't want to leave them in the lurch come tax time, and I want to be sure I'm doing the right thing (for them and me) from an ethical point of view, too.


I'm not versed in Australian tax law, but if you have an Australian tax guy/accountant, he'd be the one to ask.

The IRS does not expect you to file 1099MISC to report income paid . . . . or, even if they do, they can't require you to do so. You are not under their jurisdiction as you are not a US citizen or resident. If a US person pays you, they aren't required to issue a 1099MISC for the same reason.

In general, I can't think the rules are different in Australia as regards keeping good, complete records such as I've suggested above. Provide receipts when appropriate whether the person is Australian or foreign. Request receipts from both Australian and foreign persons you've paid for services. That should cover you!

But this does bring up one other issue: if you are paying in Aussie dollars and the person is receiving US dollars, (or vice versa) any conversion should be calculated a the time of the transaction. It shouldn't really be a problem, though: You send the person $200 AUS and it shows up at their end as $150. No problems. Contrast that with a client I have who has a rental property in Croatia. . . . the Kuna is the functional currency for the rental operations, though, obviously, his functional currency is the US dollar. He gets a spreadsheet at the end of the year with income and expenses spelled out (in Croatian!). We realized early on it would be too hard to convert each of those small transactions so, instead, we use a yearly average conversion rate to come up with the dollar amounts for his tax return.


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## Wayne Stinnett (Feb 5, 2014)

I hire people to do certain work for me. The hiring process rarely includes a contract other than an email or phone call of intent to do business, and I inform them that transactions will be through Paypal. When the work is complete, I ask for an invoice and pay it immediately through Paypal. The same with my own online sales from my website. All through Paypal. I've never had a vendor complain about the fees associated with Paypal. I pay those same fees, when I sell a book or teeshirt. The fee amount is entered in my ledger as a valid business expense and deducted as such.

The fee is a small amount and it's deductible. In a business transaction, the vendor is neither a friend or a family member, they are a business associate. Outside of the business, they may very well be a friend or family member, but that doesn't make the business dealing a gift.

If it smells fishy, just walk away.


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## Mark E. Cooper (May 29, 2011)

I have no clue about the legalities, but I use PayPal for narrations etc. I always ask the narrator to send me an invoice, and I pay THAT. Then I print out the receipt and that goes in my files and accounting software with a reference number.


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## J.A. Sutherland (Apr 1, 2014)

I'm not a lawyer, but I'm a bit of a law-geek with a heavy emphasis on police and prosecutorial misconduct, so I view things through the lens of what _could_ a zealous prosecutor do? (keep in mind that you likely commit three felonies a day)

As this discussion resulted about a group where paying with F&F was openly discussed, _if_ an investigator determined that the organizer was attempting to evade taxes through this method (or even, really, that they did avoid taxes without that being the intent), then it's entirely possible for the entire mess to move beyond the "naughty tax peon here's your penalty" phase and into the conspiracy to defraud statute. Overcharging is typical and standard practice, so it's not inconceivable.


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## Ann in Arlington (Oct 27, 2008)

LMareeApps said:


> In this situation, you could raise an invoice for the amount owed and have them pay against that.
> 
> It similar to when I've had Govt grant applications approved. They agree to the amount they're willing to pay, then request you raise an invoice for them to pay against. That way they have documentation showing what their payment was for, and you have an invoice to match the payment to in your records.


Invoices are great even if your business is so small that you need a magnifying glass.

My husband has a sort of handyman business . . . he doesn't really put himself out there, looking for work, as he does have a full time wage job. But he gets inquiries from people who've heard about him by word of mouth. These aren't other business people hiring him, but individuals hiring him for small jobs on, usually, their personal residence. Regardless, I INSIST that he advise any potential hirer of his hourly rate and provide an invoice to them whether they want to hand him cash or check. Some insist on cash believing, I guess, that that way he can skip reporting it. Some don't care about the invoice, but I DO!


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## ShadyWolfBoy (Sep 23, 2015)

Ann in Arlington said:


> Invoices are great even if your business is so small that you need a magnifying glass.
> 
> My husband has a sort of handyman business . . . he doesn't really put himself out there, looking for work, as he does have a full time wage job. But he gets inquiries from people who've heard about him by word of mouth. These aren't other business people hiring him, but individuals hiring him for small jobs on, usually, their personal residence. Regardless, I INSIST that he advise any potential hirer of his hourly rate and provide an invoice to them whether they want to hand him cash or check. Some insist on cash believing, I guess, that that way he can skip reporting it. Some don't care about the invoice, but I DO!


I can't speak for the USA, but here in Canada the invoice is key. If I have an invoice for $x and can show a payment going out of my account for $x, that's the end of the question so far as CRA is concerned.

I've traditionally used the F&F method to pay contractors myself because I'm more able to eat those fees than my contractors are, but this thread has made me rethink that and I've started a couple of conversations on the topic.

Given the level of contractors I deal with, I expect approximately zero issues changing over, though we'll probably renegotiate rates to make sure no one is caught out unexpectedly.

Everyone I work with charges me too little money anyway


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## The one with all the big dresses on the covers (Jan 25, 2016)

Ann in Arlington said:


> I'm not versed in Australian tax law, but if you have an Australian tax guy/accountant, he'd be the one to ask.
> 
> The IRS does not expect you to file 1099MISC to report income paid . . . . or, even if they do, they can't require you to do so. You are not under their jurisdiction as you are not a US citizen or resident. If a US person pays you, they aren't required to issue a 1099MISC for the same reason.
> 
> ...


Yes, good recordkeeping is also important for us, of course. We just have different levels of requirement, and I wouldn't want the other person to be caught out with their own taxes because they were willing to work with an Aussie 

Admittedly the exchange rate issue becomes a bit more complicated when my royalties are paid in US dollars into my PayPal account, and then I pay that money out in US dollars to cover designers, editors, etc. rather than converting it. But, of course, I need to pay my taxes on the money in AUS dollars. This financial year will be the first time it's come up for me. Thankfully that's why I have an accountant  Thank goodness for people like you, Ann - you are all greatly appreciated by people like me. I can't imagine ever wanting to become an accountant or tax professional of any sort


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## Guest (May 2, 2017)

Deanna Chase said:


> I don't know about legal. I suppose as long as the person who is paid in gift cards claims the income on their taxes and one sends a 1099, then it would be okay. I'm unclear on that. But I sure as heck wouldn't be paying any vendor in gift cards. Talk about unprofessional. And I'm not about to try to explain that to the IRS should it come up.


Actually, a gift card would be the same as paying cash. A few years ago, the rules regarding gift cards not counting as income were changed. Lots of companies used to give gift cards instead of bonus checks to avoid treating the bonus as income. But gift cards are now treated as income by the IRS. As far as the IRS is concerned, a gift card is no different than handing someone cash.

I have had authors who don't use Paypal ask to be paid by gift card. Never had an issue. Just treat it as a cash payment and keep the documentation. And if you pay someone $600 or more in gift cards, make sure to issue a 1099.

Fun fact: all Vine reviewers actually get 1099s for the free items we get through Amazon if the value for the year is $600 or more.

Moral of the story: it doesn't matter what form the payment is made in so long as you document it. The IRS doesn't really care if you are paying people in rose bushes...just make sure it is recorded.

The ONLY thing that should really set a red flag for you is if a vendor refuses to provide a W9. You should always require a W9 from anyone providing a service to you in the event you pay them $600 or more (the threshold is only $10 for royalties...keep that in mind for people who do royalty sharing!).


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## PhoenixS (Apr 5, 2011)

Let me just pop this in here regarding F&F payments. To me, this reads that if the transaction is through F&F, then a 1099Misc needs to be issued from the person doing the paying since Paypal will not be issuing a 1099 of their own if "goods and services" isn't checked.



> Are personal payments that I receive counted in the total that will be reported to the IRS?
> 
> No. Personal payments that are not payments for the sale of goods or services will not be counted when determining if the IRS thresholds have been reached and will not be included on your Form 1099-K if you exceed the thresholds. However, all payments received for the sale of goods or services will be used to calculate the gross payment volume to be reported. PayPal monitors accounts to ensure that personal payments are not being used for sales of goods and services.


https://www.paypal.com/us/webapps/mpp/irs6050w


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## NikkiBuschEditing (Jan 3, 2015)

As mentioned previously, it's against PayPal's TOS to pay a service provider via F&F. If you pay a vendor through PayPal or other third-parties such as Stripe, the third party is responsible for issuing the 1099K and you will save yourself the headache of issuing a 1099 to the service provider at the end of the year.

I have never asked any editing client to pay me via F&F no matter what country they are from. I could lose my PayPal account permanently for violating their TOS. It also would prevent my clients from being able to appropriately claim their editing expenses on their tax returns. One author offered to pay me through F&F because she had paid others that way and I politely declined. It's not worth the risk and those PayPal fees are tax deductible anyway.

One other option I use for US-based authors is payment via PayPal Business on FreshBooks (it's different from "PayPal for Business" on PayPal). If the payment is made by eCheck through FreshBooks, the majority of the PayPal fee is waived and it costs only .50 per transaction. It only works with the classic version of FreshBooks and not with the newly released version, which is why I will not upgrade to the new version of FreshBooks. The payment is still included in PayPal's 1099K.


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## Anna_ (Jan 18, 2015)

Glynn Stewart said:


> I can't speak for the USA, but here in Canada the invoice is key. If I have an invoice for $x and can show a payment going out of my account for $x, that's the end of the question so far as CRA is concerned.
> 
> I've traditionally used the F&F method to pay contractors myself because I'm more able to eat those fees than my contractors are, but this thread has made me rethink that and I've started a couple of conversations on the topic.
> 
> ...


Glynn, thank you for weighing in on the Canadian perspective. I'm glad I've been doing it right.


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## VanessaC (Jan 14, 2017)

Totally basic, and probably really daft question, but this discussion has got me thinking.  I only use PayPal as a payment method, and had no idea that there were different types of accounts.

So my daft question is this: how do I know if my supplier is using a "business" account with PayPal?  Is the fact that they send me an invoice via PayPal enough reassurance?


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## Rick Gualtieri (Oct 31, 2011)

VanessaC said:


> Totally basic, and probably really daft question, but this discussion has got me thinking. I only use PayPal as a payment method, and had no idea that there were different types of accounts.
> 
> So my daft question is this: how do I know if my supplier is using a "business" account with PayPal? Is the fact that they send me an invoice via PayPal enough reassurance?


INAL, but not sure it matters if they are or aren't. What more matters is that when you send them money, you're using the option given to pay for goods or services.


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## VanessaC (Jan 14, 2017)

Rick Gualtieri said:


> INAL, but not sure it matters if they are or aren't. What more matters is that when you send them money, you're using the option given to pay for goods or services.


Thank you. I hadn't noticed when I've used PayPal before, but will definitely be checking that from now on (I should say that there's absolutely no question in my mind that the very few suppliers I've used are legit, I'm just developing a healthy paranoia now!).


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## Not any more (Mar 19, 2012)

Bards and Sages (Julie) said:


> Actually, a gift card would be the same as paying cash. A few years ago, the rules regarding gift cards not counting as income were changed. Lots of companies used to give gift cards instead of bonus checks to avoid treating the bonus as income. But gift cards are now treated as income by the IRS. As far as the IRS is concerned, a gift card is no different than handing someone cash.


A few years ago, the mayor of Baltimore was indicted and convicted of embezzling gift cards. Nothing like a federal corruption conviction to ruin your day.


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## dianapersaud (Sep 26, 2013)

VanessaC said:


> Totally basic, and probably really daft question, but this discussion has got me thinking. I only use PayPal as a payment method, and had no idea that there were different types of accounts.
> 
> So my daft question is this: how do I know if my supplier is using a "business" account with PayPal? Is the fact that they send me an invoice via PayPal enough reassurance?


I use a Pay Pal Business account to pay for promoters. I just checked my last few transactions and they list the vendor name, the description of the service (example "Feature Promotion") and the amount.

All of the vendors I use either send me an invoice via email or I'm prompted to pay on their website as soon as I book the promo.

I also have a personal Pay Pal account but haven't used it in years. Does anyone with a person PP account know what the transactions look like on their end? I used my personal pay pal for buying stuff on ebay and that's all. I don't know how to use it for anything else.


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## Fel Beasley (Apr 1, 2014)

Thanks for this thread and everyone's input. I'm going to have to rethink a few things. I've been asked to pay friends and family a lot by different authors for small amounts for multi-author group promotions and anthologies (where the money is pooled and paid directly to the cover artist.) These authors don't have a business or anything, so I didn't view it as a service (they aren't profiting financially). These were for small amounts (like $20 or less a transaction), but it adds up. Now, I'm not sure if I should claim any of this on my taxes, even though I know where the money was directed. But since I didn't pay the vendor myself, I don't have proof for the IRS if I get audited, that that was where my money went. Especially since I don't think the authors are going to report the money they received from me as income (I could be wrong. I'll have to ask each individually). 

I think I'd rather just not report it as a business expense and eat the loss rather than risk an audit.


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## Fel Beasley (Apr 1, 2014)

dianapersaud said:


> I use a Pay Pal Business account to pay for promoters. I just checked my last few transactions and they list the vendor name, the description of the service (example "Feature Promotion") and the amount.
> 
> All of the vendors I use either send me an invoice via email or I'm prompted to pay on their website as soon as I book the promo.
> 
> I also have a personal Pay Pal account but haven't used it in years. Does anyone with a person PP account know what the transactions look like on their end? I used my personal pay pal for buying stuff on ebay and that's all. I don't know how to use it for anything else.


I just have a personal pay pal account that I only use for business expenses (not smart I know. But I'm a newbie). Transactions look the same for me if I'm paying an invoice or through the vendor's website. If I'm sending payment for services through paypal (and not an invoice), I always include a note that describes exactly what service I'm paying for so I don't forget later.


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## VanessaC (Jan 14, 2017)

dianapersaud said:


> I use a Pay Pal Business account to pay for promoters. I just checked my last few transactions and they list the vendor name, the description of the service (example "Feature Promotion") and the amount.
> 
> All of the vendors I use either send me an invoice via email or I'm prompted to pay on their website as soon as I book the promo.
> 
> I also have a personal Pay Pal account but haven't used it in years. Does anyone with a person PP account know what the transactions look like on their end? I used my personal pay pal for buying stuff on ebay and that's all. I don't know how to use it for anything else.


Sorry, I should have been much clearer. My PayPal account is a personal one from years back which until very recently I think had had a grand total of one use (a holiday cottage where the landlord would only accept PayPal). It's now had a total of three uses!

As I understand it, the supplier who is invoicing me uses my email address to generate the invoice - the email address is associated with my PayPal account as part of my details on PayPal. The invoice then pops up in my inbox and I pay it through PayPal's site. As Felicia says, when I go to pay my invoices it just gives me a button to click for payment, there's no option for goods or services.

Not sure if it's slightly different for me as I'm in the UK - when I mentioned to my accountant that I was going to self-publish, he just advised me to keep a note of all financial transactions - he does my tax returns for me, so I'm going to let him sort all that out!


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## Ann in Arlington (Oct 27, 2008)

Felicia Beasley said:


> Thanks for this thread and everyone's input. I'm going to have to rethink a few things. I've been asked to pay friends and family a lot by different authors for small amounts for multi-author group promotions and anthologies (where the money is pooled and paid directly to the cover artist.) *These authors don't have a business or anything, so I didn't view it as a service (they aren't profiting financially). *These were for small amounts (like $20 or less a transaction), but it adds up. Now, I'm not sure if I should claim any of this on my taxes, even though I know where the money was directed. But since I didn't pay the vendor myself, I don't have proof for the IRS if I get audited, that that was where my money went. Especially since I don't think the authors are going to report the money they received from me as income (I could be wrong. I'll have to ask each individually).
> 
> I think I'd rather just not report it as a business expense and eat the loss rather than risk an audit.


Re: the bit I put in bold . . . . if they're working authors, they DO have a business. And you should be paying them as such. You don't know that they're not profiting financially, but, even so, that's not really the issue. If you pay them for work they do for you -- they're contracted labor. If they don't want to report the income, that's not your concern. You want to handle YOUR accounts professionally so that YOU don't get into hot water.

Regardless of whether you pay as F&F or business, they should be reporting the income. If you use business, you don't have to worry about filing information forms. If you use F&F, and you want to claim these legitimate expenses against your business income, then you may have a filing requirement depending on how you characterize the payments. As Julie noted, the threshhold for 'royalties' is $10 . . . . for 'non-employee compensation', it's $600.

And, again, if you have kept thorough records and filed any required forms, you are probably still fine claiming the expenses on your US taxes. But, for sure, consult YOUR tax professional -- don't take the word of a semi-anonymous person on the internet no matter what credentials they say they have. And, yes, I mean me.  For me, though, and for my clients, my mantra is 'records, records, records'.

As to whether doing it as F&F when it's a business payment may jeopardize your standing with PayPal -- that I can not speak to.


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## Matt.Banks (May 5, 2016)

So by paying cover artists, editors etc via Pay Pal, as a writer, I don't have to issue any tax forms? Pay Pal will automatically send each vendor a 1099? But I'd still have to record each vendor's tax information? Which I would assume would be their Social Security Number? Would their forms then also include my SSN? What are ways to protect having multiple vendors having access to my SSN?


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## Ann in Arlington (Oct 27, 2008)

Matt.Banks said:


> So by paying cover artists, editors etc via Pay Pal, as a writer, I don't have to issue any tax forms? Pay Pal will automatically send each vendor a 1099? But I'd still have to record each vendor's tax information? Which I would assume would be their Social Security Number? Would their forms then also include my SSN? What are ways to protect having multiple vendors having access to my SSN?


If you pay them not via F&F, you don't have to issue 1099s. If you pay them via F&F, PayPal will NOT, so you would be required to issue the forms if they meet the threshholds.

Requesting the taxpayer ID info is for your protection in case you need to file the forms. If you always use the business kind of PayPal payment, you're probably fine, but I think it would still be smart to have full contact information for anyone you pay. And they should send you invoices/bills and provide receipts -- both of which can be electronic.

A person doing business can use their SSN as their tax ID number but it is easy and completely FREE to get an EIN to use for business purposes. I advise it for my clients who may be in a position of having to provide tax info for someone who will be paying them. AND it's required if you have to issue 1099s or W2s yourself.

And if you do provide your SSN or EIN, you have, as I mentioned, the right to get, in writing, something from the person requesting it that spells out why they want it, how they intend to use it, and how they intend to protect it.


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## Guest (May 2, 2017)

Matt.Banks said:


> So by paying cover artists, editors etc via Pay Pal, as a writer, I don't have to issue any tax forms? Pay Pal will automatically send each vendor a 1099? But I'd still have to record each vendor's tax information? Which I would assume would be their Social Security Number? Would their forms then also include my SSN? What are ways to protect having multiple vendors having access to my SSN?


Paypal sends out a 1099-K, which is slightly different from the 1099-MISC. If a person is getting a 1099-K from Paypal, then (the current interpretation from the IRS) is that you should not send a 1099-Misc as well.

If you are in the U.S., get an EIN (Employer Identification Number). This is the number you would use on all 1099s you issue. They are free, easy to get, and you only need one regardless of how many pen names or businesses you operate (so long as those businesses are all sole-proprietorships, but if you are running an LLC or something else you already have a EIN for that so this conversation isn't relevant.) The added benefit is that you can use the EIN to set up a separate business bank account and also use the EIN with almost all distributors instead of your SSN. And having one is another check in your favor should the IRS ever start questioning whether you are a legitimate business or a hobby.

Regardless of how you pay a contractor, always request a W9. If the IRS changes its rules at the end of the year and decides it wants people who use Paypal to issue 1099, you'll be covered. Or if for some reason a vendor can no longer take PayPal and requests a check or wire transfer, you won't be left scrambling.

And at the risk of stating the obvious, keep ALL W9s in a secure place. I suggest a safe or locked fire box. You have legal obligations to keep that information safe. And for the love of the gods, don't keep digital copies on an unsecured cloud service!


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## Alan Petersen (May 20, 2011)

Wayne Stinnett said:


> I hire people to do certain work for me. The hiring process rarely includes a contract other than an email or phone call of intent to do business, and I inform them that transactions will be through Paypal. When the work is complete, I ask for an invoice and pay it immediately through Paypal. The same with my own online sales from my website. All through Paypal. I've never had a vendor complain about the fees associated with Paypal. I pay those same fees, when I sell a book or teeshirt. The fee amount is entered in my ledger as a valid business expense and deducted as such.
> 
> The fee is a small amount and it's deductible. In a business transaction, the vendor is neither a friend or a family member, they are a business associate. Outside of the business, they may very well be a friend or family member, but that doesn't make the business dealing a gift.
> 
> If it smells fishy, just walk away.


So important to ask for invoices! My wife is a tax accountant and we need that documentation should the IRS come knocking with an audit. Everyone gets hung up on PayPal fees and this and that but you can write that off as a business expense. But they don't think about having the proper documentation for tax purposes, even if the amount is less than the 1099 $600 threshold get an invoice. It doesn't have to be fancy and PayPal makes it so easy:










If the person doing work for you (from a cover designer to someone running a promo for you) refuses to send you an invoice they are probably trying to avoid reporting that income on their taxes, so it's best to walk away since that can screw you up if they or you get audited.

When it comes to taxes you can't have too much documentation. But one missing piece of paper can cost you plenty and a lot more than PayPal's fees.


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## Fel Beasley (Apr 1, 2014)

Ann in Arlington said:


> Re: the bit I put in bold . . . . if they're working authors, they DO have a business. And you should be paying them as such. You don't know that they're not profiting financially, but, even so, that's not really the issue. If you pay them for work they do for you -- they're contracted labor. If they don't want to report the income, that's not your concern. You want to handle YOUR accounts professionally so that YOU don't get into hot water.
> 
> Regardless of whether you pay as F&F or business, they should be reporting the income. If you use business, you don't have to worry about filing information forms. If you use F&F, and you want to claim these legitimate expenses against your business income, then you may have a filing requirement depending on how you characterize the payments. As Julie noted, the threshhold for 'royalties' is $10 . . . . for 'non-employee compensation', it's $600.
> 
> ...


Thank you, Ann. Will definitely talk to my tax guy, probably sooner rather than later, so I know how to proceed in the future.


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## Diamond Eyes (Feb 11, 2017)

Any business service that requests someone use a payment that explicitly states it's for "friends and family" raises a huge red flag and is just asking for trouble. It really does not seem worth it long-term to risk your PayPal account, IRS problems, and who know what other issues just to avoid a 4% fee.


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## Motivrite (May 3, 2017)

I did this once. Guy had a decent portfolio and was responsive right up until he got the money. He responded one more time when I asked him what was up a month later and then ghosted. Disappeared off the face of the Internet. Paypal told me I had no recourse to get my money back since it was a transfer.

Ever since then I insist someone invoices me for stuff like that. It's a business transaction and if they can't treat it like a business there are plenty of other people who are plenty willing. It's a definite red flag for me.


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## RinG (Mar 12, 2013)

MelanieCellier said:


> Admittedly the exchange rate issue becomes a bit more complicated when my royalties are paid in US dollars into my PayPal account, and then I pay that money out in US dollars to cover designers, editors, etc. rather than converting it. But, of course, I need to pay my taxes on the money in AUS dollars. This financial year will be the first time it's come up for me. Thankfully that's why I have an accountant  Thank goodness for people like you, Ann - you are all greatly appreciated by people like me. I can't imagine ever wanting to become an accountant or tax professional of any sort


Not to derail the thread, but the ATO has records of tax rates (daily, monthly, yearly) that you can use to convert to au dollars. That's what I use.


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## The one with all the big dresses on the covers (Jan 25, 2016)

Rinelle Grey said:


> Not to derail the thread, but the ATO has records of tax rates (daily, monthly, yearly) that you can use to convert to au dollars. That's what I use.


Thanks Rinelle! Now that you mention it, I do vaguely remember my accountant saying something like that. I will probably get them to do it, though, so I don't risk making a mistake


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## spellscribe (Nov 5, 2015)

MelanieCellier said:


> Thanks Rinelle! Now that you mention it, I do vaguely remember my accountant saying something like that. I will probably get them to do it, though, so I don't risk making a mistake


 I was of the understanding you HAVE to use their conversion


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## Ann in Arlington (Oct 27, 2008)

Motivrite said:


> I did this once. Guy had a decent portfolio and was responsive right up until he got the money. He responded one more time when I asked him what was up a month later and then ghosted. Disappeared off the face of the Internet. Paypal told me I had no recourse to get my money back since it was a transfer.
> 
> Ever since then I insist someone invoices me for stuff like that. It's a business transaction and if they can't treat it like a business there are plenty of other people who are plenty willing. It's a definite red flag for me.


This is a good point. Again, I'm not a PayPal power user, but if there are two categories of payments, there's clearly a reason for it. It makes sense that a 'friends and family' payment is not going to have the same protections as a business payment which likely would be closer to what you get via bank card. I suspect you can find out for sure by reading about them at Pay Pal. 

So, even if you trust the person COMPLETELY -- something could come in from left field and out of anyone's control. If you sent him the money without it being shown as a business transaction, you probably have zero recourse.


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## cvwriter (May 16, 2011)

Felicia Beasley said:


> Thanks for this thread and everyone's input. I'm going to have to rethink a few things. I've been asked to pay friends and family a lot by different authors for small amounts for multi-author group promotions and anthologies (where the money is pooled and paid directly to the cover artist.) These authors don't have a business or anything, so I didn't view it as a service (they aren't profiting financially). These were for small amounts (like $20 or less a transaction), but it adds up. Now, I'm not sure if I should claim any of this on my taxes, even though I know where the money was directed. But since I didn't pay the vendor myself, I don't have proof for the IRS if I get audited, that that was where my money went. Especially since I don't think the authors are going to report the money they received from me as income (I could be wrong. I'll have to ask each individually).
> 
> I think I'd rather just not report it as a business expense and eat the loss rather than risk an audit.


If you are pooling money for promotion with other authors, this is not a service. I've gotten together with a bunch of authors to do a Kindle Giveaway or a blog hop or something, and no one is profiting from this. It all goes toward advertising and prizes. I don't see why this can't be sent as friends and family in this case, unless the recipient of the pool is doing any of the promotion personally, like if he/she has a newsletter or website promo involved. But, you can't claim it as a business expense, and if we're talking $20 once or twice, that wouldn't be a big deal. But if you have 100s of dollars that you can't claim, that can affect your deductible in a big way. Pooling for a cover artist is different. You are paying for work. Also, if you're in an anthology, sending money to the organizer should not go under F&F because they are providing the service of putting the work together, launching it, and handling all incoming money and business/advertising/cost transactions, then paying the authors and sending out MISC-1099s the following year. That is also work.


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## Fel Beasley (Apr 1, 2014)

cvwriter said:


> If you are pooling money for promotion with other authors, this is not a service. I've gotten together with a bunch of authors to do a Kindle Giveaway or a blog hop or something, and no one is profiting from this. It all goes toward advertising and prizes. I don't see why this can't be sent as friends and family in this case, unless the recipient of the pool is doing any of the promotion personally, like if he/she has a newsletter or website promo involved. But, you can't claim it as a business expense, and if we're talking $20 once or twice, that wouldn't be a big deal. But if you have 100s of dollars that you can't claim, that can affect your deductible in a big way. Pooling for a cover artist is different. You are paying for work. Also, if you're in an anthology, sending money to the organizer should not go under F&F because they are providing the service of putting the work together, launching it, and handling all incoming money and business/advertising/cost transactions, then paying the authors and sending out MISC-1099s the following year. That is also work.


Thank you for the clarifying some of these issues. I am going to ask my tax preparer for specifics (since things can differ state to state), but I'm not sure about the not claiming business expenses for giveaways and blog hops. If I run a giveaway for a Kindle myself, pay for advertising and the prize, can I claim that as a business expense? (I was under the impression I could). What makes it different if it's multiple authors pooling their money? Thank you again for your reply. I do provide a copy of my w-9 to all the organizers I work with through anthologies/box sets, so I do expect and have been told I'll receive a 1099. (I'm covered on this at least).

It's difficult for a new author (or anyone) to know what's really okay and what's not when if it so prevalent and you've been assured it's fine. (Not accusing anyone of misleading anyone on purpose or anything.) One thing I've learned from this situation and others is that I need to talk to a tax professional before I spend money on something I think will be a business expense, rather than waiting until next year when I do my return and find out 100s of dollars can't be deducted.


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## Fel Beasley (Apr 1, 2014)

LMareeApps said:


> It's not that you can't claim the expenses of advertising, prize purchases etc. It's that in the case described, you're not paying for those things. You're simply gifting money to a friend. They are then using that money to pay advertising etc, and therefore they would be the ones who can claim the expense.
> 
> The only expense you could claim is if the friend who was collecting the money provided you with an invoice for their coordination services, which then swings it back to being service provision - not a gift to family and friends.


Ah. Got it  I've never been told I have to send F&F, just that if I send through services, I'll need to account for the added expense. Since I'm cheap, I've always gone with the F&F option. Now I know not to do that.


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## Motivrite (May 3, 2017)

Ann in Arlington said:


> This is a good point. Again, I'm not a PayPal power user, but if there are two categories of payments, there's clearly a reason for it. It makes sense that a 'friends and family' payment is not going to have the same protections as a business payment which likely would be closer to what you get via bank card. I suspect you can find out for sure by reading about them at Pay Pal.
> 
> So, even if you trust the person COMPLETELY -- something could come in from left field and out of anyone's control. If you sent him the money without it being shown as a business transaction, you probably have zero recourse.


Yup. I knew I had zero recourse when I sent it out but I figured "I can trust this guy! He's got a decent online presence!" You live and you learn. Invoices for everything now.


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## Ann in Arlington (Oct 27, 2008)

A note about claiming expenses or not -- this is just by way of general information, nothing specific to authors.

It is generally agreed that, to get your own best result, you should absolutely claim any an all expenses that you legitimately have. Which means they are business related and you have the necessary logs/records/receipts/other paper documentation.

In some cases, you may want to forgo claiming expenses because you're afraid of an audit. Don't do that. If it's a legitimate expense and you have the documentation, claim it. If it's a tiny amount, they're probably not going to bother with you. If it's a large amount you're cheating yourself.

If you are unsure that it IS a legitimate expense, consult a reputable, credentialed tax professional and follow their advice. If they prepare the return and take it, and there's an issue, they will stand behind their work. If you like, ask about their credentials, reputation, and policy regarding examinations of returns they prepare. What guarantees do they offer of their work?

But, you know, in general, if you don't want to claim it, you are not REQUIRED to do so. HOWEVER. (There's always a 'however'.)

There is a specific situation in which your choosing to not claim expenses could get you in big vats of hot water. If your income is such that you are entitled to claim the Earned Income Tax Credit (EITC) on your personal 1040 -- you'd best be scrupulous about your expenses. Here's the thing. That credit is zero if you make zero and zero if you make more than something around $30K (don't recall the actual figure, but this'll do for illustration, and it depends on a number of factors.) Between those two, it's a balanced bell curve, so the maximum credit is available if your income is at $15K.

Say your ONLY income is your self employment. You have gross of $30K and expenses of $20K. But you play with the numbers and realize that, hey, if you just skip claiming $5K of your expenses, you're going to have a much better answer. Sure you'll pay more in SE tax, but you get it back, and then some, via the EITC. Not a smart move. This is a GIANT RED FLAG to the IRS. They look more closely at schedule Cs anyway, and if there's also EITC on the return, they review them even more carefully. And have been known to send letters.

I admit it's a weird thing. On the one hand, you can't claim the expenses if you don't have the documentation. On the other hand, you can't NOT claim them if they're legitimate, even when it ends up not being to your advantage.  I have heard of cases where the person simply 'lost' the documentation so as to 'not be allowed' to claim them. The problem with this strategy is that IRS can, and does, look at things in the aggregate -- so: are your expenses this year consistent with other year expenses and consistent with the amounts and types of expenses generally claimed in this 'industry'. Example -- you generally deduct around $5K of expenses -- you're always well above 30K and don't think much about it. But you had a short year, and you only made $15K. So you decide to deduct ZERO expenses in order to maximize your EIC. The IRS will take notice and you will very likely get a letter wondering why the expenses you've had every other year are suddenly NOT THERE.

So. Best just do it and see how it comes out and don't try to game the system. AND -- reputable tax professionals are required to ask questions to be sure their clients are not trying to pull the wool over the eyes of the IRS. So if you're getting asked these things, don't be insulted: be happy you've got a person who's doing things the right way.


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## Pnjw (Apr 24, 2011)

Ann in Arlington said:


> This is a good point. Again, I'm not a PayPal power user, but if there are two categories of payments, there's clearly a reason for it. It makes sense that a 'friends and family' payment is not going to have the same protections as a business payment which likely would be closer to what you get via bank card. I suspect you can find out for sure by reading about them at Pay Pal.
> 
> So, even if you trust the person COMPLETELY -- something could come in from left field and out of anyone's control. If you sent him the money without it being shown as a business transaction, you probably have zero recourse.


I have been using Paypal for forever. Since 1999. Paying through F&F means you have zero protection from Paypal to claim a dispute should something go wrong. The only way would be if you used a credit card and you contact your CC company. If you pay using Goods and Services, you have 180 days to start a claim.


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## RinG (Mar 12, 2013)

spellscribe said:


> I was of the understanding you HAVE to use their conversion


It's my understanding that you have to use their conversion UNLESS you immediately transferred the money into .au dollars as soon as it hits your account. Then you can use the actual amount you received. That's what my last accountant said. (That said, she made some big mistakes with another issue, so...) I usually use the ATO figures, as it's simpler, and I don't always transfer immediately.


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## A Fading Street (Sep 25, 2016)

I use PayPal for all of my transactions and I wouldn't dream of requesting a friends and family transfer to avoid a few $ in fees. It just seems a little unprofessional for a business relationship to me.


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## Wayne Stinnett (Feb 5, 2014)

For those wondering what the difference is. Paypal deducts thirty cents, plus 2.9% of the payment amount for business transactions. If you send $1000 to an editor, for instance, they will receive $970.70 and can deduct the fee of $29.30 as a valid business expense. 

If twenty different writers, send a "promoter" $1000, the "promoter" will receive $19,414 and can deduct $586 as a valid business expense. If the "promoter" does this twenty times, they've received $388,280 and can deduct $11,720 as a valid business expense.  

This is the correct, honest, ethical, above board, legal way to conduct business. Doing otherwise is called tax fraud. You could probably add theft to that, since doing so is basically stealing from Paypal, a business, just like the, ahem, "promoter".

I tend to lump all thieves, liars, cheaters, tax evaders, dishonest, unethical, underhanded people into one classification. I just call them all turd fondlers.


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## Rick Gualtieri (Oct 31, 2011)

Wayne Stinnett said:


> I tend to lump all thieves, liars, cheaters, tax evaders, dishonest, unethical, underhanded people into one classification. I just call them all turd fondlers.


Damnit, Wayne! I almost choked on my breakfast reading that.


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## Not any more (Mar 19, 2012)

Wayne Stinnett said:


> You could probably add theft to that, since doing so is basically stealing from Paypal, a business, just like the, ahem, "promoter".


I don't remember the exact numbers, but sending through F&F does have a fee to the sender. It's probably not as much as what businesses are charged. I think it would be a good question if the sender can deduct that from their taxes, since you've declared to PayPal that it's not a business transaction.

Question for those in other countries: How well does PayPal work for you? I'm considering trying to use it for transfers to overseas family that we now do through ATM transactions.


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## Pnjw (Apr 24, 2011)

Here's what I don't get about all this: If the issue is that the person/business doesn't want to be caught eating the Paypal fees, why don't they just up their fee to cover it? This is how normal businesses work. Then you get to write off the fees as a normal business expense. 

So instead of saying the cost is $1000 plus Paypal fees, you say the cost is $1030. End of story. Now you aren't breaking any T&Cs and you have a write off. This shouldn't be that hard.


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## LadyG (Sep 3, 2015)

Wayne Stinnett said:


> I tend to lump all thieves, liars, cheaters, tax evaders, dishonest, unethical, underhanded people into one classification. I just call them all turd fondlers.


Coffee hurts when it comes out the nose, you know.


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## Not any more (Mar 19, 2012)

Deanna Chase said:


> Here's what I don't get about all this: If the issue is that the person/business doesn't want to be caught eating the Paypal fees, why don't they just up their fee to cover it? This is how normal businesses work. Then you get to write off the fees as a normal business expense.
> 
> So instead of saying the cost is $1000 plus Paypal fees, you say the cost is $1030. End of story. Now you aren't breaking any T&Cs and you have a write off. This shouldn't be that hard.


I think some people have a problem with doing something that transparent. Honesty just doesn't come naturally to them.


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## MyraScott (Jul 18, 2014)

Business fees are a part of business.  As others have mentioned, they are also a tax writeoff, reducing your tax burden.  Making your customer pay the fee through a F&F transaction is not great business... they can't write it off.  And pointing out "YOU have to pay the fee" seems really petty when, let's face it, established businesses don't do that.  It makes your business look amateur and a little skeevy because not only are you "avoiding the fee" you are also dodging IRS reporting.

There's just no good reason to do it.


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## Wayne Stinnett (Feb 5, 2014)

brkingsolver said:


> I don't remember the exact numbers, but sending through F&F does have a fee to the sender. It's probably not as much as what businesses are charged. I think it would be a good question if the sender can deduct that from their taxes, since you've declared to PayPal that it's not a business transaction.
> 
> Question for those in other countries: How well does PayPal work for you? I'm considering trying to use it for transfers to overseas family that we now do through ATM transactions.


No, there's no fee at all for sending gifts to friends and family. Make no mistake. Sending money in this way is considered by both Paypal and the IRS as a gift. On the first of every month, I send money to my daughter and donate to Homes for Warriors, using Paypal's friends and family feature. These are gifts, as defined by the IRS. As a gift, the person sending it can't claim it as a deduction (with the exception of a bona fide 501(c)3 tax exempt charity, as mentioned above) and doing so would constitute more tax fraud. The person receiving the gift (as in my daughter's case) is under no obligation to declare it as income. Income can't be taxed twice and since I'm not claiming it as a deduction, I'm paying taxes on it, and she's under no obligation to do so. Case in point is Christina's recent fund raising. She, nor the fund, are a 501(c)3 tax exempt entity, so no donations made to it or her can be deducted in any way by the donors. Nor, is Christina under any obligation to declare it as income, since the donors are already paying the income taxes on their donations.

Disclaimer: I'm not a tax person, just a writer who surrounds himself with smarter people. Something I advise everyone to do. Ask a CPA or tax professional.


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## Rick Gualtieri (Oct 31, 2011)

Wayne Stinnett said:


> No, there's no fee at all for sending gifts to friends and family. Make no mistake. S


That's not entirely true. If you send a payment via F&F through a direct bank transfer or your PayPal balance there will be no fee because presumably there's no fee to PayPal to do so. However, if you send a payment through either a credit card or Paypal credit, they will charge you a fee. This is because Visa, Mastercard, etc are likely charging them a fee to do so and they're simply passing that on to you.

I just tested via a sample transaction and confirmed this. Fees are entirely dependent on how you send the F&F payment.


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## The one with all the big dresses on the covers (Jan 25, 2016)

brkingsolver said:


> Question for those in other countries: How well does PayPal work for you? I'm considering trying to use it for transfers to overseas family that we now do through ATM transactions.





Wayne Stinnett said:


> No, there's no fee at all for sending gifts to friends and family. Make no mistake. Sending money in this way is considered by both Paypal and the IRS as a gift. On the first of every month, I send money to my daughter and donate to Homes for Warriors, using Paypal's friends and family feature. These are gifts, as defined by the IRS. As a gift, the person sending it can't claim it as a deduction (with the exception of a bona fide 501(c)3 tax exempt charity, as mentioned above) and doing so would constitute more tax fraud. The person receiving the gift (as in my daughter's case) is under no obligation to declare it as income. Income can't be taxed twice and since I'm not claiming it as a deduction, I'm paying taxes on it, and she's under no obligation to do so. Case in point is Christina's recent fund raising. She, nor the fund, are a 501(c)3 tax exempt entity, so no donations made to it or her can be deducted in any way by the donors. Nor, is Christina under any obligation to declare it as income, since the donors are already paying the income taxes on their donations.
> 
> Disclaimer: I'm not a tax person, just a writer who surrounds himself with smarter people. Something I advise everyone to do. Ask a CPA or tax professional.





Rick Gualtieri said:


> That's not entirely true. If you send a payment via F&F through a direct bank transfer or your PayPal balance there will be no fee because presumably there's no fee to PayPal to do so. However, if you send a payment through either a credit card or Paypal credit, they will charge you a fee. This is because Visa, Mastercard, etc are likely charging them a fee to do so and they're simply passing that on to you.
> 
> I just tested via a sample transaction and confirmed this. Fees are entirely dependent on how you send the F&F payment.


I live in Australia and recently sent an overseas payment via PayPal F&F (to a friend in the US, in no way related to business) and can confirm that I was charged a fee despite using money sitting in my PayPal account. (Is that what you meant by PayPal credit, Rick?) I sent the money in the same currency (US dollars) as the money in my account. I'm not sure why they would need to charge a fee for that, if they don't for a direct bank transfer.

Other than that, it seemed to go smoothly, brkingsolver.


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## Rick Gualtieri (Oct 31, 2011)

MelanieCellier said:


> I live in Australia and recently sent an overseas payment via PayPal F&F (to a friend in the US, in no way related to business) and can confirm that I was charged a fee despite using money sitting in my PayPal account. (Is that what you meant by PayPal credit, Rick?) I sent the money in the same currency (US dollars) as the money in my account. I'm not sure why they would need to charge a fee for that, if they don't for a direct bank transfer.
> 
> Other than that, it seemed to go smoothly, brkingsolver.


No. There's a difference between your PayPal balance and PayPal Credit. Your balance is your money, essentially sitting in the PayPal account. Credit works basically the same as a credit card / micro loan. You have a pool of XXX dollars to borrow from, no interest charged if paid back in 6 months etc.


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## Not any more (Mar 19, 2012)

I did some checking, and it seems as though the country I want to send money to blocks PayPal, at least through a F&F transfer. I don't have a business account because I don't sell goods or services directly. The only money that ever goes into my PayPal account was from Smashwords when I sold books through them.


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## PhoenixS (Apr 5, 2011)

Just confirming, with a link:
It depends HOW you're funding the money you send to family and friends. If via credit, there IS a transaction fee. If you're sending outside the US, there will be a transaction fee.

For F&F, the sender usually eats the cost of those fees.

https://www.paypal.com/en/webapps/mpp/paypal-fees

Wayne: I believe gift amounts to relatives are capped. Not sure what the current cap is (it used to be $10K per year), but after the threshold is reached, the gifted amount does need to be reported. _[ETA: U.S. perspective]_


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## C. Gockel (Jan 28, 2014)

This might be a dumb question, but I thought if your friends and family gave you money in the real world, you have to report it? 

Err ... 'cause I do.


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## Rick Gualtieri (Oct 31, 2011)

C. Gockel said:


> This might be a dumb question, but I thought if your friends and family gave you money in the real world, you have to report it?
> 
> Err ... 'cause I do.


The IRS is there to help... 

https://www.irs.gov/uac/eight-tips-to-determine-if-your-gift-is-taxable


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## Not any more (Mar 19, 2012)

C. Gockel said:


> This might be a dumb question, but I thought if your friends and family gave you money in the real world, you have to report it?
> 
> Err ... 'cause I do.


Only above a certain amount. I send about $5K a year to my MIL, and it's below the limit.


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## Ann in Arlington (Oct 27, 2008)

brkingsolver said:


> I don't remember the exact numbers, but sending through F&F does have a fee to the sender. It's probably not as much as what businesses are charged. I think it would be a good question if the sender can deduct that from their taxes, since you've declared to PayPal that it's not a business transaction.


From the IRS perspective, they don't care HOW you make a legitimate payment on behalf of your business, only that it is properly documented. So a fee you have to add when you remit payment, is still part of the business expense. Example: in the US, state sales tax is added on to the price of consumer goods. If you buy a ream of paper for $9.99 and there's a 5% sales tax, what you actually pay is around $10.50. The whole $10.50 is allowed as an expense. I assume the same would be true for paypal fees.

THAT SAID . . . part of what the IRS looks at is whether you're operating your business in a professional and businesslike manner. Consistently using the friends and family payment method to pay business expenses, vs the business method would NOT tend to count in your favor. If they decide you're not a business, they can disallow expenses.

On the recipient's friend, as others have said, the fees you have to pay to paypal or credit card companies, are deductible as a legitimate business expense. Funny thing: in many states, companies are not allowed to say that they charge more if you use a credit card, but they are allowed to offer a discount for cash payments. Semantics.


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## Ann in Arlington (Oct 27, 2008)

C. Gockel said:


> This might be a dumb question, but I thought if your friends and family gave you money in the real world, you have to report it?
> 
> Err ... 'cause I do.


Money you receive as a gift is not taxable as income to you. Period.*

A person who GIVES money in large amounts, may be liable for gift tax. It's a side branch of the estate tax. In short, you can give away up to something around 5 million dollars before you'll have to pay gift tax. So if you give away a million dollars over the course of your life, you still can bequeath another $4 million and not have to worry about estate tax.**

If in a given year you give one person more than $14,000, you have to file a gift tax return. But in most cases you owe not tax. It's just keeping track of your lifetime limit. This doesn't come into play much for most 'normal' people  but if, say, a couple give a big chunk of money to their kid to make a down payment on a house, it can. Again, the KID who gets the money has no tax obligation on account of receiving the money; the parents who give it may have a filing requirement.

*when you are the beneficiary of an estate, the amount in the estate when the person dies is 'free money'. But usually it takes at least some months to settle, sometimes longer, and if there's a fairly big amount, there may be money earned. The money earned between when the person dies and when you get the money is income to you. Also there may be bits of life insurance proceeds, annuities, IRAs, and/or pensions that mean taxable income to the beneficiaries.

**That's as the tax code is NOW. Note that states may have lower exclusions.


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## amdonehere (May 1, 2015)

I have some questions that I hope someone more knowledgeable may answer.

I occasionally organize and host X-promos with a group of fellow authors. I host the promo on my own website and I'm the main contact person. I do not run a promo business and don't ever intend to. I do this purely on a voluntary basis and everything is done without any contract, etc. I don't charge anything. I'm not even an Amazon Associate (can't be bothered).

So far no $$ has changed hands, but I can see the value of running Facebook ads for these promos of the circumstances are favorable for that. I also know some other authors who do what I do, and they do ask for $5 or $10 pay in to help pay for the FB ads. Sometimes Bookbub ads too but I don't know how that works so for myself at least, I don't plan to get into all that. 

The kind of X-promos I do benefit a group of authors. But everything happening lately is getting people like me worried. I supposed so long as no money changes hands, authors who do what I do are safe (maybe?). But does that mean we should entirely refrain from adding FB ads or other ads as a way to expand our promo's reach?

I most CERTAINLY do not want any contributions to FB ads to be sent to me as "business". I don't want the scope of voluntary work I offered to expand to me having to report this as "income" and then "deductible" etc. Having to do accounting for what I offer as a favor is more than what I want to sign up for. I also don't want to inadvertently be defined as a "promoter" in the business of promoting. I am not. I'm also not interested in drafting up contracts for something that I do purely to benefit everyone participating (including myself) in a X-promo. I don't have time for all that.

At what point is someone going to allege authors who do what I do as being a "promoter"? What if we want to add FB ads to the promo? Would we suddenly expose ourselves to risks? 

Sure, people can say, well if you are worried, then don't run any X-promos. But the way I see if, unless authors allow each other a level of trust, all this is going to do is stop people like me from volunteering our time and efforts. If we do FB ads (or BB ads for those hosting promos who do it), it benefits everyone in the promo. But now, we might not do it anymore because it's just not worth the risk. Now this doesn't benefit anybody. But with the way things are now, who dares to take the lead if someone might suddenly accuse us of running a business when we're not? What if some misunderstanding happens, and just because a pool of money had been established for doing ads, all of a sudden someone says the author organizing and hosting the promo didn't have a contract, etc.?  We're talking about amounts of $5-$15 here (from what I've seen most other organizers had done), not $500. If it were me, I'd sooner send the $5-$15 back with a bow-tie around it than to have to draft a contract, where terms can be misconstrued and misunderstood. And frankly my time is better spent elsewhere if someone wants to be difficult.

I supposed an option is to ask for donations rather than a contribution from everyone. But how would that be fair to the authors who do donate? Those who don't donate will get a free ride. Yes, it's still the author's decision to make a volunteer donation, but I feel like on principle, it's not fair.

And who's to say that someone won't start making allegations that the host/organizer isn't pocketing the donations, if the host/organizer asks the participating authors to contribute via PayPal Friends and Family instead of business?

Hosting and organizing a X-promo is very time intensive. If I have to issue invoices, sign and chase people to execute contracts, do tax accounting for deminimus amounts like $5 each payment -- sorry, it's too much. I don't have an admin assistant or a staff to handle those sorts of things. I'm just a prawny author.

I honestly have no financial stake at doing this other than bumping the sale of my own books. I'd be happy to run and host a X-promo and let another participating author run the FB ads. But who dares to take that risk now?

So end results is, authors like me who used to take the lead to create and facilitate promos, are now leery and nervous. I'm sure no one would miss me if I'm the only one who stops. But I don't think I'm the only author who hosts X-promos who are now concerned. If we all stop, everyone loses.

Can anyone clarify where we are to draw the line here?

What disclaimers can I give so that we can keep pooling money for ads, but also make it clear to participating authors that the promo host is not running a business nor can they hold us liable?

In terms of government, there is such a thing as over-regulating, to the point where it backfires and hurts businesses. I feel like this is the case here. To be frank, the atmosphere in the indie-community right now is making me scared to offer to host anything where money might change hands. I don't want to get involved with the main controversy that has led to this, but if "She-Who-Shall-Not-Be-Named" is being accused and alleged as a business after she said she organized boxsets to pay it forward, how do we who really are doing voluntary work protect ourselves?

I'm asking this question entirely as a neutral bystander. I'm not giving an opinion one way or another whether she is or is not running a business.

Do we really want an indie authors community where those most willing to volunteer their time and effort are backing out and not stepping up because we have to prove every little thing and no one trusts us?

I almost feel like this topic deserves its own thread, as I know several other authors who, like me, run X-promos and we don't do it as a business. But I'm also don't want to aggravate the tension-filled atmosphere around here anymore with yet another thread. Maybe Ann, Betsy, or Becca can advise whether this topic deserves its own separate discussion?


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## Ann in Arlington (Oct 27, 2008)

Alexa:

My best advice to you is to run this by a qualified tax professional/business advisor. You may not be thinking of it as a business, but, if people are sending you money, however they do that, the IRS may do so when all the facts and circumstances are considered. It would be wise to find out ahead of time what pitfalls there might be to doing this as a volunteer -- not the least of which could be personal liability.


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## mdrake (Jul 14, 2016)

AlexaKang said:


> I almost feel like this topic deserves its own thread, as I know several other authors who, like me, run X-promos and we don't do it as a business.


My default advice is always: ask a CPA who specializes in taxes. It won't be expensive for you to sit down with one for 30-60 minutes and visit upon "am I a hobby, or a business?" They'll also be able to tell you where the lines are, and what to do/not do and so on.

Sort of like the question "contractor or employee?"

Being a "hobby" doesn't mean that you can't run your hobby in an organized, economical, or even profitable fashion. It doesn't mean your hobby can't make you a decent amount of money.


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## amdonehere (May 1, 2015)

Ann in Arlington said:


> Alexa:
> 
> My best advice to you is to run this by a qualified tax professional/business advisor. You may not be thinking of it as a business, but, if people are sending you money, however they do that, the IRS may do so when all the facts and circumstances are considered. It would be wise to find out ahead of time what pitfalls there might be to doing this as a volunteer -- not the least of which could be personal liability.


Ann,

Thanks for your reply but TBH, I'm less concerned about the IRS than the potential of being accused by another author of something or another, and then being dragged into a civil lawsuit. That's actually what I'm most concerned about.


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## amdonehere (May 1, 2015)

mdrake said:


> My default advice is always: ask a CPA who specializes in taxes. It won't be expensive for you to sit down with one for 30-60 minutes and visit upon "am I a hobby, or a business?" They'll also be able to tell you where the lines are, and what to do/not do and so on.
> 
> Sort of like the question "contractor or employee?"
> 
> Being a "hobby" doesn't mean that you can't run your hobby in an organized, economical, or even profitable fashion. It doesn't mean your hobby can't make you a decent amount of money.


Mdrake, thanks. As I replied to Ann, I'm not so much concerned about the IRS or tax matter. Utlimately, for myself, anything I do will be below $200. I'd pay taxes on it if I have to. (Although I can't say the same for other authors also volunteering to host X-promos.)

What I am concerned about is the risk from other indie authors, going forward now. What risks do we have from each other? How much time are we volunteers are expected to keep all sorts of records for EACH OTHER just to prove we're clean to each other?

I don't want to be spending my time posting this screenshot or that screenshot for each and every $5 contribution or donation. It's not worth my time when I'm offering to do what is a favor to everyone.


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## Ann in Arlington (Oct 27, 2008)

AlexaKang said:


> Ann,
> 
> Thanks for your reply but TBH, I'm less concerned about the IRS than the potential of being accused by another author of something or another, and then being dragged into a civil lawsuit. That's actually what I'm most concerned about.


Then you want to talk to a lawyer. If there's money changing hands, there ought to be some sort of written agreement, even if it doesn't rise to the level of 'contract'. Without that, it's your word against theirs.


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## amdonehere (May 1, 2015)

Ann in Arlington said:


> Then you want to talk to a lawyer. If there's money changing hands, there ought to be some sort of written agreement, even if it doesn't rise to the level of 'contract'. Without that, it's your word against theirs.


No, then I just won't do it. It's not a job. I have no need or obligation to anyone. It would cost me more lawyer fees for no gains to myself whatsoever.

ETA: "I won't do it" means I won't offer to help run FB ads.

Again, there's a bigger issue here is that we're now in an atmosphere where we're costing ourselves opportunities. I'm really, really sorry to see everything coming to this. But if this is the community that everyone wants, then people are leaving those like me no choice.


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## Rick Gualtieri (Oct 31, 2011)

Ann in Arlington said:


> Then you want to talk to a lawyer. If there's money changing hands, there ought to be some sort of written agreement, even if it doesn't rise to the level of 'contract'. Without that, it's your word against theirs.


Work for hire contract templates aren't hard to find online (albeit they *should* be run past a lawyer). As business owners, it's in our best interest for there to exist a written contract every time money changes hands. Will this always happen? I'm a realist, so I'll say probably not, but in that case we need to accept the risk.

I recently took a small job to write content for a startup company, a few hundred bucks, nothing major. I took over from a previous writer who they'd paid via a handshake deal. They parted ways amicably so I doubt there will be any issue, but I refused to work that way. I explained that it wasn't even just to cover myself and make sure I got paid, so much as both of us agreeing in writing who owned what when the job was finished. Did it slow things down? Not much. Maybe an extra day, but in the end we both have something we can fall back on if needed.


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## Not any more (Mar 19, 2012)

AlexaKang said:


> No, then I just won't do it. It's not a job. I have no need or obligation to anyone. It would cost me more lawyer fees for no gains to myself whatsoever.
> 
> ETA: "I won't do it" means I won't offer to help run FB ads.
> 
> Again, there's a bigger issue here is that we're now in an atmosphere where we're costing ourselves opportunities. I'm really, really sorry to see everything coming to this. But if this is the community that everyone wants, then people are leaving those like me no choice.


One way to do it is to assign each person in the cross promo to buy a certain dollar amount of promotion and then let everyone know so you're all on the same page. I don't know if that will always work, but it takes care of the accounting and liability issues.

Say three authors want to do a box set. One pays for the cover, one pays for half the promos and the third person pays the other half.


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## amdonehere (May 1, 2015)

Rick Gualtieri said:


> Work for hire contract templates aren't hard to find online (albeit they *should* be run past a lawyer). As business owners, it's in our best interest for there to exist a written contract every time money changes hands. Will this always happen? I'm a realist, so I'll say probably not, but in that case we need to accept the risk.
> 
> I recently took a small job to write content for a startup company, a few hundred bucks, nothing major. I took over from a previous writer who they'd paid via a handshake deal. They parted ways amicably so I doubt there will be any issue, but I refused to work that way. I explained that it wasn't even just to cover myself and make sure I got paid, so much as both of us agreeing in writing who owned what when the job was finished. Did it slow things down? Not much. Maybe an extra day, but in the end we both have something we can fall back on if needed.


But you're talking about a job. Hosts like me aren't work for hire. It's not my job to promote any other authors. This is a group activity as much as a weekend cookout where everyone chips in and I host it at my house.

So no. In this case, I'm not a business owner and I'm not going to go that far. I'm better off not hosting the cookout at my house. It's like telling me that because I host a cookout, I'm now obligated to get a restaurant license.

I think it's worth asking ourselves, is this the kind of community we want, that's all.


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## amdonehere (May 1, 2015)

brkingsolver said:


> One way to do it is to assign each person in the cross promo to buy a certain dollar amount of promotion and then let everyone know so you're all on the same page. I don't know if that will always work, but it takes care of the accounting and liability issues.
> 
> Say three authors want to do a box set. One pays for the cover, one pays for half the promos and the third person pays the other half.


That would be the case for boxsets, but I'm not talking about boxsets. We're talking about X-promos with newsletter swaps, and free or 99c sales over a few days. FB ads don't work that well by each person running $5-$10 ads. Only person who benefit then is Mark Zukerburg. And not everyone knows how to even set up a FB ad, let alone run it.


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## Rick Gualtieri (Oct 31, 2011)

AlexaKang said:


> I think it's worth asking ourselves, is this the kind of community we want, that's all.


Do we want it? I can agree there, no, definitely not. I would love to live in a world where we could do handshake deals and everyone was trustworthy.

The problem is not everyone is the same. You might be able to do that with 99/100 people, but it's that last person who will drain you dry and leave you with nothing.


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## Tulonsae (Apr 12, 2015)

Content removed due to TOS Change of 2018. I do not agree to the terms.


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## amdonehere (May 1, 2015)

Tulonsae said:


> I am confused by this. This thread is about business practices. Most (at least, it seems that way) people in this indie community are business people. Are you saying that we should be asking ourselves if we want this indie community to follow business practices or not?


No. That's not what I'm asking. But the matter of PayPal payments now spills over to what some of us do as volunteer activities. The line of business vs. volunteer is blurred. I'm asking, how do we who volunteer but are not running a business will be treated by other authors, if money changes hands as part of a X-promo.

Seems like the answer is, don't exchange any money. Not worth the risk when you're just volunteering.

The Xpromo could benefit from ads, but the personal risks are just not worth it when you're in fact not running a business.


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## Rick Gualtieri (Oct 31, 2011)

AlexaKang said:


> No. That's not what I'm asking. But the matter of PayPal payments now spills over to what some of us do as volunteer activities. The line of business vs. volunteer is blurred. I'm asking, how do we who volunteer but are not running a business will be treated by other authors, if money changes hands as part of a X-promo.
> 
> Seems like the answer is, don't exchange any money. Not worth the risk when you're just volunteering.


Can you please give an example, because I'll admit I'm a little fuzzy on the volunteer vs business part of this.


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## Monique (Jul 31, 2010)

I'm confused on this, too. Why wouldn't you just treat it as a business event to be safe and avoid any issues?


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## Justawriter (Jul 24, 2012)

AlexaKang said:


> I have some questions that I hope someone more knowledgeable may answer.
> 
> I occasionally organize and host X-promos with a group of fellow authors. I host the promo on my own website and I'm the main contact person. I do not run a promo business and don't ever intend to. I do this purely on a voluntary basis and everything is done without any contract, etc. I don't charge anything. I'm not even an Amazon Associate (can't be bothered).
> 
> So far no $$ has changed hands, but I can see the value of running Facebook ads for these promos of the circumstances are favorable for that. I also know some other authors who do what I do, and they do ask for $5 or $10 pay in to help pay for the FB ads. Sometimes Bookbub ads too but I don't know how that works so for myself at least, I don't plan to get into all that.


I've organized several of these types of promos now and have found the easiest way to do it, is to have everyone agree up front to spent a certain amount of money on FB ads. We did $20 and people could boost to their friends and fans or target authors, whatever they wanted to do. The advantage of doing it that way is its WAY less work for you and each author has their own base to tap into. It worked out really well!


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## amdonehere (May 1, 2015)

Rick Gualtieri said:


> Can you please give an example, because I'll admit I'm a little fuzzy on the volunteer vs business part of this.


I already tried to explain but what I'm talking about is this.

A bunch of us sometimes get together to do group sales and group giveaway. We all announce the sale in our newsletters. Sometimes we also run the group giveaway through Instafreebie. This is to help us all expand our readership in specific genres, and increase our subscribers.

I personally have not run any ads for these group promos. But others have. We can run FB ads about these promos. And everyone chips in $5-$15 for the FB ads (or maybe BookBub ads, I don't know. I don't know squats about BB ads.) A I understand it, sometimes the host also pay for other costs like creating the group sale or giveaway images, or whatever minor associated costs incurred.

The promo host shows all the books on 99c sale or free on his/her website. Many of us do this as a volunteer. No one pays us. We don't even NEED to do FB ads, but it can help when we all pool our $$ and run a $50-$100 ad, vs. a measley $5 ad yourself on FB. Power in numbers.

Why would any of us who are hosts want to now be categorically defined as a promoter by having to collect the pooled payment for FB ads as a business payment on PayPal? Earlier in this thread, it was even established that by collecting from as a business transaction, we firmly established that we are now running a promoter business. Now just because we host the group sale or giveaway on our website, and take the volunteer lead on the project, we are in the business of promotion?

For me, I'd say no way.

But if we ask that the money pooled be sent as F&F payment, we might be seen as unclean and questionable.

Again, for me, I'd say no way. Best option is just don't offer to help this way.

To make the line even more blurred, there are some promo hosts who DO take a payment doing this kind of promos and profit from this. They aske for a higher pay-in.

I can only speak to my own experience. I run this to help myself and others promo our books. I'm not interested in the least bit to start a promo business. Every author who had participated in these promos had benefitted from authors X-promos, and many of them would not have had the opportunity otherwise. What is happening currently though, is making people like me want to pull back. At the minimum, I'd have a lot of second thoughts about helping to run FB ads or anything where payments are pooled.

Based on cost-benefit analysis, I'd say it's better we all share the lost opportunity, rather than the host bearing all the risks of liabilities.


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## amdonehere (May 1, 2015)

PamelaKelley said:


> I've organized several of these types of promos now and have found the easiest way to do it, is to have everyone agree up front to spent a certain amount of money on FB ads. We did $20 and people could boost to their friends and fans or target authors, whatever they wanted to do. The advantage of doing it that way is its WAY less work for you and each author has their own base to tap into. It worked out really well!


Pamela, how do you make sure everyone did indeed hold up their end? Do they all have to show a post that they had boosted ads?

There is also the consideration that many authors are not as tech savvy or some don't even use FB.


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## Pnjw (Apr 24, 2011)

AlexaKang, I think you're making this out to be a bigger thing than it has to be. If ten of you go together to promote a giveaway, you aren't a professional promoter, you're just a member of the group offering to do the ads. But you are conducting a business transaction. You are collecting money in order to run ads for your shared promotion. In that case, instead of doing F&F just collect the money as a business transaction and use the money that's left over after the fees to run the ads. You then claim the money received as income and write off your paypal fees and the money you spent on advertising.


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## Rick Gualtieri (Oct 31, 2011)

Deanna Chase said:


> AlexaKang, I think you're making this out to be a bigger thing than it has to be. If ten of you go together to promote a giveaway, you aren't a professional promoter, you're just a member of the group offering to do the ads. But you are conducting a business transaction. You are collecting money in order to run ads for your shared promotion. In that case, instead of doing F&F just collect the money as a business transaction and use the money that left over after the fees to run the ads. You then claim the money received as income and write off your paypal fees and the money you spent on advertising.


Beat me to it.


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## Justawriter (Jul 24, 2012)

AlexaKang said:


> Pamela, how do you make sure everyone did indeed hold up their end? Do they all have to show a post that they had boosted ads?
> 
> There is also the consideration that many authors are not as tech savvy or some don't even use FB.


It's super easy. We make a graphic that goes to a landing page that has all the books. Everyone posts that on their FB page, and then just boosts that post if they want to keep it simple--even people who are not at all tech savvy can do that, or be walked through how to do it. If others want to do actual ads, that's fine too.

We do it by the honor system. I trust people until I have a reason not to. If you were worried about that, you could ask for screen shots of their FB ad spend. Or a link to their newsletter. We also have everyone agree to send the link/graphic to their newsletter and we staggered those emails out over 3 days, 5 per day, so no one was overwhelmed if they were on multiple lists.

These promos can be very smooth to organize as long as everyone knows what they are agreeing to up front.

--Edited to add, I think it's important that everyone in these kinds of promos be on FB, otherwise they are not going to add value to the rest of the group. We found that limiting the promo size to 15-20 people, in the same niche, was most effective.


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## amdonehere (May 1, 2015)

Deanna Chase said:


> AlexaKang, I think you're making this out to be a bigger thing than it has to be. If ten of you go together to promote a giveaway, you aren't a professional promoter, you're just a member of the group offering to do the ads. But you are conducting a business transaction. You are collecting money in order to run ads for your shared promotion. In that case, instead of doing F&F just collect the money as a business transaction and use the money that's left over after the fees to run the ads. You then claim the money received as income and write off your paypal fees and the money you spent on advertising.


I think I'll have to disagree here because most X-promos I've seen are larger than just 10 people. I've seen some involving as large as 100+ books.

In the current environment, seems like it's not worth anyone volunteering their time to chance it.

Pamela, thank you for your advice. Definitely a good option for other hosts to consider. I have author friends who are older though and I'd hate to exclude them for not having a FB account.

I've said what I have to say on this. Bottom line is: for X-promo hosts who are not doing this for profit, you've been warned.


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## Pnjw (Apr 24, 2011)

AlexaKang said:


> I think I'll have to disagree here because most X-promos I've seen are larger than just 10 people. I've seen some involving as large as 100+ books.
> 
> In the current environment, seems like it's not worth anyone volunteering their time to chance it.
> 
> ...


My ten was just an example. I assume you meant you disagree with my statement about making this out to be a bigger thing than it has to be. If you have 100 authors sending you money, then yes, I'd for sure have stuff in writing and I'd be very clear what I was spending money on. I'd be clear about it with ten people, but the more people you have the more chance for disagreements and the more transparent you are the better.


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## MyraScott (Jul 18, 2014)

In the end, these are all business activities.  They are being used to promote business- banding together and everyone throwing in an amount to spend doesn't make it not a business activity.  It's designed to stimulate sales... the fact that no one is taking extra fees for organizing it doesn't make it less of a business activity. 

People should contribute enough to cover PayPal fees and the contributions-expenses should all balance out, so no additional income.  

But yeah, I'd say don't offer to handle the money if you aren't comfortable with all of that.


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## Wayne Stinnett (Feb 5, 2014)

PhoenixS said:


> Wayne: I believe gift amounts to relatives are capped. Not sure what the current cap is (it used to be $10K per year), but after the threshold is reached, the gifted amount does need to be reported. _[ETA: U.S. perspective]_


If there is a cap, my CPA didn't mention it. I've been sending her $1K a month since my latest granddaughter was born two years ago this November.


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## Tulonsae (Apr 12, 2015)

Content removed due to TOS Change of 2018. I do not agree to the terms.


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## spellscribe (Nov 5, 2015)

AlexaKang said:


> I already tried to explain but what I'm talking about is this.
> 
> A bunch of us sometimes get together to do group sales and group giveaway. We all announce the sale in our newsletters. Sometimes we also run the group giveaway through Instafreebie. This is to help us all expand our readership in specific genres, and increase our subscribers.
> 
> ...


Going by Aussie tax law, if I did that I'd have to claim all money coming in then deduct the expenses, even if he net amount is zero. If I'm on the other end and sending you money to put towards ads, I need a receipt to claim it - this can be issued via PayPal (even on a personal account) so it's a one click payment on my end.

Apart from taxes, business payments mean I have recourse if you steal all our money and disappear. Or, more likely, some personal emergency means you're unable to fulfil our agreement or manually refund me ('what if I die' is always something I try keep in mind when going into anything collaborative. What can I say, I'm morbid).

I have neverband will never pay f+f for anything book related. I'm always happy to pay a surcharge in cases like a boxed set, but the tax dept, either here or in the US, is not something I want to have to go up against.


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## amdonehere (May 1, 2015)

spellscribe said:


> Going by Aussie tax law, if I did that I'd have to claim all money coming in then deduct the expenses, even if he net amount is zero. If I'm on the other end and sending you money to put towards ads, I need a receipt to claim it - this can be issued via PayPal (even on a personal account) so it's a one click payment on my end.
> 
> Apart from taxes, business payments mean I have recourse if you steal all our money and disappear. Or, more likely, some personal emergency means you're unable to fulfil our agreement or manually refund me ('what if I die' is always something I try keep in mind when going into anything collaborative. What can I say, I'm morbid).
> 
> I have neverband will never pay f+f for anything book related. I'm always happy to pay a surcharge in cases like a boxed set, but the tax dept, either here or in the US, is not something I want to have to go up against.


You are speaking from a participant's POV. If you put yourself in the host's position, why even bother? It's a favor to begin with, and now you have to worry above people bringing recourses against you over $5 bucks? This is exactly the kind of breakdown in trust I'm talking about, where what begins as something of goodwill by everyone all around, in the current environment, turns into something more pain in the rear.

I'm not advocatng that people should do things "wrong" so to speak. But it's fair warning to anyone thinking of being an organizer: best way to protect themselves is don't ever take or handle any money. I don't think many volunteert cross promo hosts had given this much thought up till now. Even just by the responses here is enough to show it's just not worth it. Sometimes, the road to hell with is paved with good intentions.


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## Forgettable (Oct 16, 2015)

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## amdonehere (May 1, 2015)

LMareeApps said:


> I think the thing to remember is that you are a business. The people you are working with might be friendly, and might even be your friends, but they too are businesses. You aren't doing favours or volunteering (even if you aren't being paid), you're operating your business and doing business-related activities. There are many people out there who happily run their businesses on handshake deals based in trust, but you can't put aside the fact they are knowingly taking a risk with their business.
> 
> The take away from this shouldn't be 'what a shame we can't trust each other'. It should be 'we are operating businesses and should act accordingly'.


That's fine but my point is that no one is under any obligation to offer to do anything to promote others. And those of us who do so on voluntary basis are not running a promo business, so I don't agree that it's part of operating one's business. I think the take away is that anyone who organizes any events in that capacity should refrain from handling money. It is not an obligation to assume the task, you know. And it is a favor, so leave the business out of it. No money involved, no transaction, no business. Saves a lot of headaches and unwittingly getting oneself into troubled waters.

ETA: the other side of it is that no author is required to be in any cross promo. They want in because it's a chance to boost their sales. If they are so concerned, they don't have to participate. If they want a purely business transaction, there are always the standard promo services like Bknight, Freebooksy, etc. i find it quite troubling in cases when everyone reaps the benefit, but they would pass on all the risks to one person who had done the most to bring about the successful run. I've been a participant in cross promos myself and I can't see myself putting the organizer who isn't in the business as a promoter in such a thankless position. If I didn't have some level of goodwill and trust that the project is for common good, I would just choose not to get in. I can't see pinning the host down with contracts and recourses or whatnot over $5-10, especially when I'll likely get a sales bump that exceeds such minor amount. But to each rheir own. As I said, if I don't feel comfortable with the host or everything not done exactly as a business, I don't have to get in.


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## Forgettable (Oct 16, 2015)

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## amdonehere (May 1, 2015)

LMareeApps said:


> But you're not volunteering. You're working in your capacity as a self-publisher promoting your work. You just happen to be working with other self-publishers to get more out of your combined advertising monies. It's still a business activity. There's no favour involved. I think that's where you're getting yourself all frustrated. Yes you are taking on an extra burden (that likely others don't want) by putting your hand up to coordinate the efforts, but that doesn't make it any less a business activity. There's no way to leave the business out of it, unless you also leave any advertising and products and monetary exchange out of it.
> 
> Really though, it shouldn't be a big deal, unless you have people wanting to circumvent paying paypal fees. You can do that by sending them an invoice and having them deposit money directly in your bank account instead. Though usually people don't like to do that in case you don't provide the service they've given the money for which then brings it full circle to wanting to use paypal for the 'protection' which you don't get when it's gifted anyway....


Well you and I both just said the same thing. Don't do any advertisement and products and money exchange. I don't know why you insist I must run it as a business. i've said, as you did, to leave all that out.


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## Forgettable (Oct 16, 2015)

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## notjohn (Sep 9, 2016)

Cassie Leigh said:


> And filing 1099s is not a simple thing you can just do in a day. It takes a month lead time or more to do it.


If you use TurboTax, as most taxpayers with any kind of complexity should be doing, it couldn't be easier. It's done online, takes a couple minutes, and TT/Intuit files the electronic return to the IRS.

However, we're not required to file 1099s for payments to businesses. Admittedly this is a bit of a question mark for freelance editors and formatters and designers -- many of them try to look businesslike but are just amateurs like us. If you hire Joe the Plumber to rebuild your bathroom, it's going to cost more than $600, but there's no requirement that you file a 1099. That's between Joe the Plumber and Donna IRS down at the strip mall. The same should be true for a graphic designer, especially if you pay her more than $600 in a calendar year. I wouldn't worry about it. Just get and keep annotated receipts.

I've twice been field audited (meaning I pack up my records and cart them down for an interview with Donna), and the legitimacy of any deduction has never been questioned. In the days when I drove a lot on business, I'd keep a weekly record on two pages of a commercial diary, then at the end of the week put the total miles in the Sunday slot and circle the figure. That awful Donna once made me page through the journal and call our the weekly figures, while she added them up, but she never questioned the validity of the recorded amount.

It's all a matter of keeping records, for a minimum of five years, and ideally forever.


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## amdonehere (May 1, 2015)

LMareeApps said:


> No, I'm not sure we are saying the same thing. I'm saying the only way to leave business out is to simply not coordinate the cross promos. Don't do it. Let someone else do it. It's not a volunteer position, because it is a business activity. Once you start saying to other businesses, 'send your money to me, and I'll organise the ads', you're not acting as a hobbyist or as a friend. You're acting as a sole trader/proprietor providing a service for other sole traders/proprietors (businesses comprised of an individual person).
> 
> Having said that, I'm not really saying 'don't do it' either. I'm saying, understand your fiscal and legal responsibilities before you take on such roles.


We are splitting hair here but it is a volunteer activitiy and not a business activity, as between the authors, as long as no money changes hands. Authors participating need to be clear that you can't have the type expectations as you would from a for profit business if, as you said, the host or organizer does not ask you to send in money to them. On principle I think it's going to far to treat a fellow author who isn't profiting from it all that way, but fine. Even sticking to the rules, people can't just start making demands as they can from a service if they aren't asked to send in any money, period. You can run a cross promo without taking any money. It'll be a lesser reach, but better safe than sorry for the host.

It needs to be clarified that a host or organizer in a cross promo where no money is asked or exchanged does not suddenly become a service provider in the business of promoting. The nightmares that can result from that perception will ruin any incentive by anyone to ever attempt to do anything for the sake of helping others.


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## Rick Gualtieri (Oct 31, 2011)

notjohn said:


> If you use TurboTax, as most taxpayers with any kind of complexity should be doing, it couldn't be easier. It's done online, takes a couple minutes, and TT/Intuit files the electronic return to the IRS.


Filing 1099's isn't difficult. I interpreted that to mean preparing for them, i.e. reaching to contact your vendor for a W9 etc. Pretty much giving yourself adequate lead time.


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## Forgettable (Oct 16, 2015)

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## amdonehere (May 1, 2015)

LMareeApps said:


> If there's no money changing hands, you'd have no need to be using Paypal, so the point is really moot. This whole thread is about making sure when you are paying for services or accepting money for services rendered (even if you make no profit from those services) via Paypal, that you understand your fiscal and legal obligations, and basically make sure your backside is covered.


Yes it is a moot point now but I originally brought it up because I know many similar promos are happening and the way people got into it was not with the kind of mindset that had arisen since all the controversy began. There are hosts and organizers using Paypal and I for one start feeling nervous even as a bystander. All I hope is that other hosts now start being careful, and in fact, my own advice would be to just leave $$ out of everything altogether.



> ETA - you would still be providing a service to businesses, so I'd strongly recommend at least having a written agreement in place that outlines what you will and will not be doing on behalf of the other writers, again to cover yourself in the situation someone becomes disgruntled and makes claims you've undermined their business in some way.


That's good advice. Probably a caution in the form of a policy in the sign up form would suffice. A written agreement without consideration is actually not enforceable as a contract in the US, so a participant can't legally demand anything if he/she never gave anything of value or benefit to the organizer in exchange. Sometimes, simpler is better. If people are under the wrong assumption there's a real contract involved even though the contract is not legally enforceable, it could lead to all sorts of other problems and misunderstandings too.

But I also think that authors signing up to participate ought to come into the project with some good will and common sense. By that I mean, if you want full level customer service, then don't participate. Find a paid-for service instead. You're asking to be part of something where you benefit from a group effort. It helps to be cooperative, and be understanding that the volunteer organizer doesn't owe anyone anything as long as there's no harm done.


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## Forgettable (Oct 16, 2015)

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## ChristinaGarner (Aug 31, 2011)

notjohn said:


> If you use TurboTax, as most taxpayers with any kind of complexity should be doing, it couldn't be easier. It's done online, takes a couple minutes, and TT/Intuit files the electronic return to the IRS.
> 
> However, we're not required to file 1099s for payments to businesses.


Are you saying Turbo Tax will file the 1099s on my behalf for payments to other companies? I don't _think_ you're saying that, but if you are, that's awesome and a service of theirs I've overlooked.

Regrading not being required to file for payments to a business. I've been googling the heck out of that because it's honestly something that (foolishly) never occurred to me to do for the reason you said--I had new tires and my brakes put in my car and I didn't file a 1099 for the mechanic!

Likewise, my editing services for the past year topped $600 (to one editor) as did my payments to a book promoter. I've been trying to figure out if I need to scramble and get that together now or just assume the other part has already done as I regularly do--claim the payments regardless of whether I get a 1099 or not.

Going forward I'll know better, but I'm trying to decide the best way to clean up a few payments for last year.


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## Pnjw (Apr 24, 2011)

ChristinaGarner said:


> Regrading not being required to file for payments to a business. I've been googling the heck out of that because it's honestly something that (foolishly) never occurred to me to do for the reason you said--I had new tires and my brakes put in my car and I didn't file a 1099 for the mechanic!
> 
> Likewise, my editing services for the past year topped $600 (to one editor) as did my payments to a book promoter. I've been trying to figure out if I need to scramble and get that together now or just assume the other part has already done as I regularly do--claim the payments regardless of whether I get a 1099 or not.
> 
> Going forward I'll know better, but I'm trying to decide the best way to clean up a few payments for last year.


I am not an accountant, but my understanding is that any vendor who is not incorporated that does contract work for you, you need to send them a 1099 if you paid them over $600 (editors, cover designers, formatters, VAs, etc). If you disperse royalties, the threshold is $10. The exceptions to that is if your vendor is incorporated or if you paid them via a third party payment center, such as Paypal.


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## Guest (May 8, 2017)

ChristinaGarner said:


> Regrading not being required to file for payments to a business. I've been googling the heck out of that because it's honestly something that (foolishly) never occurred to me to do for the reason you said--I had new tires and my brakes put in my car and I didn't file a 1099 for the mechanic!


You do NOT file a 1099 for personal expenses.


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## Ann in Arlington (Oct 27, 2008)

Bards and Sages (Julie) said:


> You do NOT file a 1099 for personal expenses.


True statement.


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## ChristinaGarner (Aug 31, 2011)

Bards and Sages (Julie) said:


> You do NOT file a 1099 for personal expenses.


That makes perfect sense, but what if I were writing off part of my car maintenance? (I'm not, but I can see some situations where there could be overlap, like home office, etc...)

Sorry to be dense, lol, I just don't know the ins and outs of this.


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## Ann in Arlington (Oct 27, 2008)

ChristinaGarner said:


> That makes perfect sense, but what if I were writing off part of my car maintenance? (I'm not, but I can see some situations where there could be overlap, like home office, etc...)
> 
> Sorry to be dense, lol, I just don't know the ins and outs of this.


1099s have to be filed when you're paying an individual.

So if you hire Harry down the street, who's just clever about cars and helps people out now and then but doesn't have a shop, to fix your 100% business vehicle, and you pay him $1000, arguably, you should file a 1099. You should hash all this out with him ahead of time; you'll need to get his SSN. He may want to avoid paying tax on the income he earns this way so may decide that if you're going to file a document, he doesn't want your business.

If you take the car to Harry's car shop . . . you've paid a business, not an individual. No 1099 is required.


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## ChristinaGarner (Aug 31, 2011)

Deanna Chase said:


> I am not an accountant, but my understanding is that any vendor who is not incorporated that does contract work for you, you need to send them a 1099 if you paid them over $600 (editors, cover designers, formatters, VAs, etc). If you disperse royalties, the threshold is $10. The exceptions to that is if your vendor is incorporated or if you paid them via a third party payment center, such as Paypal.


Well, the PayPal payments in question were via that pesky friends and family, sigh, so they won't be sending the 1099 on my behalf. However, my contract was with an LLC so I'll have to do some digging to see if it's incorporated for not...


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## Guest (May 8, 2017)

ChristinaGarner said:


> Are you saying Turbo Tax will file the 1099s on my behalf for payments to other companies? I don't _think_ you're saying that, but if you are, that's awesome and a service of theirs I've overlooked.


Yes, they have a service for sending your 1099s for you. Since I don't use TurboTax myself, I use Track1099. Costs a few bucks a year and really easy once you have the initial set up done (and even that didn't really take a ton of time, just entering in the person's info).

I do 1099s for my editor because I pay her with checks. Covers, nope, because that goes through PayPal and they cover that side, if needed. This site breaks the IRS page down into more readable form: http://markjkohler.com/1099-rules-for-business-owners/ (except he neglects to discuss all the wonderful online options we now have LOL)


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## ChristinaGarner (Aug 31, 2011)

Ann in Arlington said:


> 1099s have to be filed when you're paying an individual.
> 
> So if you hire Harry down the street, who's just clever about cars and helps people out now and then but doesn't have a shop, to fix your 100% business vehicle, and you pay him $1000, arguably, you should file a 1099. You should hash all this out with him ahead of time; you'll need to get his SSN. He may want to avoid paying tax on the income he earns this way so may decide that if you're going to file a document, he doesn't want your business.
> 
> If you take the car to Harry's car shop . . . you've paid a business, not an individual. No 1099 is required.


This makes perfect sense, and it's pretty embarrassing that this has never occurred to me before. (insert blush emoji)


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## ChristinaGarner (Aug 31, 2011)

Anma Natsu said:


> Yes, they have a service for sending your 1099s for you. Since I don't use TurboTax myself, I use Track1099. Costs a few bucks a year and really easy once you have the initial set up done (and even that didn't really take a ton of time, just entering in the person's info).
> 
> I do 1099s for my editor because I pay her with checks. Covers, nope, because that goes through PayPal and they cover that side, if needed. This site breaks the IRS page down into more readable form: http://markjkohler.com/1099-rules-for-business-owners/ (except he neglects to discuss all the wonderful online options we now have LOL)


Perfect--thank you! And good point about the covers and editing--I pay the right way (as a service) for covers and editing via PP so I guess I'm in the clear there. Whew!


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## Pnjw (Apr 24, 2011)

ChristinaGarner said:


> Well, the PayPal payments in question were via that pesky friends and family, sigh, so they won't be sending the 1099 on my behalf. However, my contract was with an LLC so I'll have to do some digging to see if it's incorporated for not...


Yeah, F&F you'd have to send one. I'm an LLC and not incorporated, so I'd guess that's a no. Good luck.


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## ChristinaGarner (Aug 31, 2011)

Deanna Chase said:


> Yeah, F&F you'd have to send one. I'm an LLC and not incorporated, so I'd guess that's a no. Good luck.


LLCs can be incorporated but I suspect this one is not. I will definitely need to find out and react accordingly. Thanks for you help!


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## Wayne Stinnett (Feb 5, 2014)

Tulonsae said:


> It's 14k for 2017. If you go over the limit in a single year (each year can be different), then your accountant will declare it. You declare it, not her. It affects your estate. Also, it's per person. So if you're giving money to 2 people, you can give them each 14k.
> 
> ETA: According to the IRS website, it was 14k 2 years ago, too.
> ETA again: I am not an accountant. I just have a father-in-law who gives out money to his children and grandchildren....


I wonder if the obverse is the same. Will someone being gifted more than $14K from several different sources also trip the declaration?


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## Monique (Jul 31, 2010)

Wayne Stinnett said:


> I wonder if the obverse is the same. Will someone being gifted more than $14K from several different sources also trip the declaration?


It doesn't look like it according this article, but ...

http://blog.taxact.com/gift-tax-do-i-have-to-pay-gift-tax-when-someone-gives-me-money/


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## Betsy the Quilter (Oct 27, 2008)

Thanks for sharing about this business!
https://www.track1099.com


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## Ann in Arlington (Oct 27, 2008)

Wayne Stinnett said:


> I wonder if the obverse is the same. Will someone being gifted more than $14K from several different sources also trip the declaration?


No. Because the tax bill, in the case of a gift, is on the GIVER. A gift is NEVER taxable to the recipient. If my husband and I each give my son $10,000, we've got no filing requirement and the Boy has free money. If we each give him $20,000 however, WE do have a filing requirement, though likely no tax due. The Boy still has free money.

All that said, banks are required to report/keep track of -- not sure just how it works -- transactions of $10,000 or more, even if between US entities.


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## Tulonsae (Apr 12, 2015)

Content removed due to TOS Change of 2018. I do not agree to the terms.


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## ImogeneNix (May 4, 2017)

MelanieCellier said:


> Admittedly the exchange rate issue becomes a bit more complicated when my royalties are paid in US dollars into my PayPal account, and then I pay that money out in US dollars to cover designers, editors, etc. rather than converting it.


Hi Melanie

What I do is print out the PayPal incoming payments and tag them to whatever might be the cost involved and staple them together. That's what my accountant gets along with the excel spreadsheet.


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