Hi jobful,
Thank you for your clarification, it was very helpful.
Briefly, whenever you perform a service for someone for which you
receive a payment, you are required to report the amount as income to
the IRS. It doesn't matter that the person paying you is out of the
country and, as politicalguru-ga stated, it doesn't matter how you are
paid (by check, credit card, paypal, etc).
The only income PayPal would report to the IRS for you is interest
earned on their PayPal Money Market Account. If you don't have a money
market or business account, PayPal does not have your Social Security
Number and will not be reporting anything about you to the IRS.
The IRS has a pretty good self-help section called Tax Trails where
you are able to make choices according to which description best fits
your situation and follow the trail to the answer.
Tax Trails - Main Menu
"You'll be sitting pretty for sure when you see that the questions
listed below can be answered simply and swiftly. Just follow the trail
to the associated prompts. Tax Trails is an interactive session which
poses questions that you can answer by selecting Yes or No. It's just
that simple. Your choice then activates a hypertext link to the next
appropriate question until an answer is possible. In the meantime,
we're heading out to round up a few more questions for you. Happy
Trails!"
http://www.irs.gov/individuals/article/0,,id=132035,00.html
I chose Self-Employment Income under Taxable Income for you, then
Independent Contracting . Here is what came up -
Tax Trails - Self-Employment Income
"Independent contractors include lawyers, accountants, contractors,
subcontractors, public stenographers, auctioneers, outside sales
agents, etc., who are in an independent trade, business, or profession
in which they offer their services to the general public. They are not
employees.
You are self-employed if you carry on a trade or business as an
independent contractor. A trade or business is generally an activity
carried on for a livelihood or in good faith to make a profit. Income
earned by a person who is working as an independent contractor is
self-employment income.
You do not have to carry on regular full-time business activities to
be self-employed. Part-time work in addition to your regular job may
be self-employment.
An independent contractor must report the income and expenses from the
business or profession on Schedule C (Form 1040). Schedule C-EZ (Form
1040) may sometimes be used instead of Schedule C.
Figure your self-employment tax on Schedule SE (Form 1040)."
http://www.irs.gov/individuals/article/0,,id=133995,00.html
From what you have said, I think your situation falls either under
"Independent Contractor" if you perform these services regularly, or
if you perform the services only once in a while and it is not a
business, then it is "Other Income". In both cases, your income is
taxable.
Services performed regularly (business): use Schedule C
Services performed once in a while (other income): use Line 21 on your 1040
>>> Business Income
Independent Contractor:
Schedule C: Profit or Loss From Business
"Use Schedule C (Form 1040) to report income or loss from a business
you operated or a profession you practiced as a sole proprietor. Also,
use Schedule C to report wages and expenses you had as a statutory
employee. An activity qualifies as a business if your primary purpose
for engaging in the activity is for income or profit and you are
involved in the activity with continuity and regularity. For example,
a sporadic activity or a hobby does not qualify as a business. To
report income from a nonbusiness activity, see the instructions for
Form 1040, line 21.
Small businesses and statutory employees with expenses of $5,000 or
less may be able to file Schedule C-EZ instead of Schedule C. See
Schedule C-EZ for details.
You may be subject to state and local taxes and other requirements
such as business licenses and fees. Check with your state and local
governments for more information."
http://www.irs.gov/instructions/i1040sc/ar01.html
Scedule C Instructions
http://www.irs.gov/instructions/i1040sc/ch02.html#d0e325
>>> Other Income
Other Income: Line 21
"Use line 21 to report any income not reported elsewhere on your
return or other schedules. See the examples below. List the type and
amount of income. If necessary, show the required information on an
attached statement. For more details, see Miscellaneous Income in Pub.
525.
http://www.irs.gov/instructions/i1040gi/ar02.html#d0e3737
Publication 525: Other Income
"Fees for services. Include all fees for your services in your income."
http://www.irs.gov/publications/p525/ar02.html#d0e7144
Don't get confused if you see the term "Foreign Source Income". Just
because the money is coming from Russia does not mean it is Foreign
Source Income. What is important is where the services are performed,
not where the person is who is paying for the services. If you are in
the U.S. when you perform the service, then it is not Foreign Source
Income.
>>> New York
The same can be said for your New York tax.
NY Resident Income Tax Return Instructions
Line 15 Other Income
"Enter the total other income reported on your federal return. Write
each type of income and its amount in the white area on line 15."
http://www.tax.state.ny.us/pdf/2004/inc/it201i_2004.pdf
NY Resident Income Tax Return
Line 15: Other Income
http://www.tax.state.ny.us/pdf/2004/inc/it201_2004.pdf
I hope I've been able to make this clear for you but if you have any
questions, please post a clarification request and wait for me to
respond before closing/rating my answer.
Thank you,
hummer
I searched the IRS and NY State websites. |
