Are PayPal fees tax deductible? If you are a freelancer or small business that uses PayPal to collect payments for services, this is an important question for you during tax time. Simply put, PayPal fees add up. Every time you receive money through PayPal, the fees are deducted from your payments.
Yes, PayPal fees related to collecting money from customers or clients and operating your business are, in fact, deductible and will reduce taxable income. Let's explore which processing fees you can deduct when you do your PayPal taxes.
Note: if you want to automatically track and record all your tax deductions, try Bonsai Tax. With our software, we can scan your bank account/credit card receipts to find potential tax write-offs and keep detailed records for the IRS. Users typically save $5,600 from their tax bill with our tool. Try a 14-day free trial here.
Fees are calculated based on the transaction's TOTAL AMOUNT. PayPal deducts their charge from the Total Amount and puts the leftover balance into your PayPal Account when someone pays you. After you've received the cash, you can use them however you wish, such as withdrawing them to a bank account, requesting a paper check, or making an online transaction.
For instance, if you sold an item for $100 and the total amount of the sale was $100, you'll receive the payment minus the fees. PayPal processing fees given to your business can be reported on Schedule C as Business Income, usually as "Other Income."
Similarly, the PayPal fees you pay are shown as "Other Expenses" under "Business Expenses."
Here are all the transaction rates/processing fees you can write off as a loss if you use PayPal to receive business-related payments.
These PayPal payment fee types are all tax deductible.
It's important to keep receipts (digital or physical) of expenses or deductions to limit how much you pay Uncle Sam. On top of processing fees from PayPal, you can claim many more deductions as a self-employed business.
Let's review some of the other expenses you can deduct.
Remember, in order to write off expenses, you have to claim the income to the IRS. They also have to be a reasonable expense related to your business. You cannot claim a course you took, that is not related to your profession.
If you sell products on eBay as a hobby, you do not need to file self-employment taxes. Hobby income is considered to be personal income, and not business income. The Internal Revenue Service has specific guidelines to when income is considered business versus hobby. Although you do not have to file self-employment tax, you'll still need to claim income tax on the money you earn as a hobby.
Listen, handling taxes for your business doesn't have to stress you out. With Bonsai Tax, we'll track all your tax deductions automatically. You won't have to worry about what counts as a tax deduction or how to properly track receipts. Our app will do all of that for you. Try a 14-day free trial today.
We always recommend you seek the advice of a tax professional if you have any questions related to filing your tax return.
A verbal contract (formally called an oral contract) refers to an agreement between two parties that's made —you guessed it— verbally.
Formal contracts, like those between an employee and an employer, are typically written down. However, some professional transactions take place based on verbally agreed terms.
Freelancers are a good example of this. Often, freelancers will take on projects having agreed on the terms and payment via the phone, or an email. Unfortunately, sometimes clients don't pull through on their agreements, and hardworking freelancers can find themselves out of pocket and wondering whether a legal battle is worth all the hassle.
The main differences between written and oral contracts are that the former is signed and documented, whereas the latter is solely attributed to verbal communication.
Verbal contracts are a bit of a gray area for most people unfamiliar with contract law —which is most of us, right?— due to the fact that there's no physical evidence to support the claims made by the implemented parties.
For any contract (written or verbal) to be binding, there are four major elements which need to be in place. The crucial elements of a contract are as follows:
Therefore, an oral agreement has legal validity if all of these elements are present. However, verbal contracts can be difficult to enforce in a court of law. In the next section, we take a look at how oral agreements hold up in court.
Most business professionals are wary of entering into contracts orally because they can difficult to enforce in the face of the law.
If an oral contract is brought in front of a court of law, there is increased risk of one party (or both!) lying about the initial terms of the agreement. This is problematic for the court, as there's no unbiased way to conclude the case; often, this will result in the case being disregarded. Moreover, it can be difficult to outline contract defects if it's not in writing.
That being said, there are plenty of situations where enforceable contracts do not need to be written or spoken, they're simply implied. For instance, when you buy milk from a store, you give something in exchange for something else and enter into an implied contract, in this case - money is exchanged for goods.
There are some types of contracts which must be in writing.
The Statute of Frauds is a legal statute which states that certain kinds of contracts must be executed in writing and signed by the parties involved. The Statute of Frauds has been adopted in almost all U.S states, and requires a written contract for the following purposes:
Typically, a court of law won't enforce an oral agreement in any of these circumstances under the statute. Instead, a written document is required to make the contract enforceable.
Contract law is generally doesn't favor contracts agreed upon verbally. A verbal agreement is difficult to prove, and can be used by those intent on committing fraud. For that reason, it's always best to put any agreements in writing and ensure all parties have fully understood and consented to signing.
Verbal agreements can be proven with actions in the absence of physical documentation. Any oral promise to provide the sale of goods or perform a service that you agreed to counts as a valid contract. So, when facing a court of law, what evidence can you provide to enforce a verbal agreement?
Unfortunately, without solid proof, it may be difficult to convince a court of the legality of an oral contract. Without witnesses to testify to the oral agreement taking place or other forms of evidence, oral contracts won't stand up in court. Instead, it becomes a matter of "he-said-she-said" - which legal professionals definitely don't have time for!
If you were to enter into a verbal contract, it's recommended to follow up with an email or a letter confirming the offer, the terms of the agreement , and payment conditions. The more you can document the elements of a contract, the better your chances of legally enforcing a oral contract.
Another option is to make a recording of the conversation where the agreement is verbalized. This can be used to support your claims in the absence of a written agreement. However, it's always best to gain the permission of the other involved parties before hitting record.
Fundamentally, most verbal agreements are legally valid as long as they meet all the requirements for a contract. However, if you were to go to court over one party not fulfilling the terms of the contract, proving that the interaction took place can be extremely taxing.
So, ultimately, the question is: written or verbal agreements?
Any good lawyer, contract law firm, or legal professional would advise you to make sure you formalize any professional agreement with a written agreement. Written contracts provide a secure testament to the conditions that were agreed and signed by the two parties involved. If it comes to it, a physical contract is much easier to eviden in legal circumstances.
Freelancers, in particular, should be aware of the extra security that digital contracts may provide. Many people choose to stick to executing contracts verbally because they're not sure how to write a contract, or they think writing out the contract terms is too complicated or requires expensive legal advice. However, this is no longer the case.
Today, we have a world of resources available at our fingertips. The internet is a treasure trove of invaluable information, platforms, and software that simplifies our lives. Creating, signing, and sending contracts has never been easier. What's more, you don't have to rely on a hiring a lawyer to explain all that legal jargon anymore.
There are plenty of tools available online for freelancers to use for guidance when drafting digital contracts. Tools like Bonsai provide a range of customizable, vetted contract templates for all kinds of freelance professionals. No matter what industry you're operating in, Bonsai has a professional template to offer.
A written contract makes the agreement much easier to prove the terms of the agreement in case something were to go awry. The two parties involved can rest assured that they're legal rights are protected, and the terms of the contract are sufficiently documented. Plus, it provides both parties with peace of mind to focus on the tasks at hand.
Bonsai's product suite for freelancers allows users to make contracts from scratch, or using professional templates, and sign them using an online signature maker.
With Bonsai, you can streamline and automate all of the boring back-office tasks that come with being a freelancer. From creating proposals that clients can't say no to, to sealing the deal with a professional contract - Bonsai will revolutionize the way you do business as a freelancer.
Why not secure your business today and sign up for a free trial?