Group buys..a question

[Smitty37]

In the group by from Dayacom thread a number of people mentioned getting a businessperson to coordinate the buy. I think it would be an accounting nightmare for my business taxes. I don't know how I could do it without running into some tax problems. Any of you other business people ever give any thought to this?

 

[jskeen]

Hey LeRoy, I know for a fact that just moving large quantities of money through your paypal account can raise flags at the Infernal Revenue Service, let alone actually using your tax id number on a order form for something like this.

 

[Russianwolf]

Short run, yes, it can raise flags.

Long run, no. The income and expenses are equal so the net tax effect would be zero.

 

[Smitty37]

I'm sure you're right

Hey LeRoy, I know for a fact that just moving large quantities of money through your paypal account can raise flags at the Infernal Revenue Service, let alone actually using your tax id number on a order form for something like this.

Yes, if it is considered a cash purchase (I don't know if a paypal transfer is) anything $10,000 or over has to be reported to the IRS by both the bank and the person making the transfer.

 

[dogcatcher]

The person that did the buy should technically report all of the money received as income and then deduct the expenses which would include the items purchased. It should be a wash, but the receipts are income according to the Internal Revenue Code. Failure to report income can create some real problems if audited.

 

[Smitty37]

Clarification

I should have made clear, I did income tax preparation for about 25 years. I know that on the surface it seems to be a wash vis-a-vis income and expense... so long as you don't get audited and have a whole bunch of money passing through your accounts that you won't have invoices to cover unless you create an invoice for each buyer just as you would for a regular sale. How you would track is more what I'm looking for.

 

[DCBluesman]

I'm sorry, but most of the information presented here is incorrect. There is no income (for tax purposes) here. This is simply a third-party transaction.

In the U.S., these are the only categories of taxable income (per the IRS) for individuals and businesses.

1. Wages, salaries, tips, etc.
2. Taxable interest.
3. Dividends.
4. Taxable refunds, credits or offsets of State and local income taxes. There are some exceptions - refer to Form 1040 instructions.
5. Alimony (or separate maintenance payments) received.
6. Business income (or loss).
7. Capital gain (or loss).
8. Other gains (or losses) (i.e., assets used in a trade or business that were exchanged or sold).
9. Taxable amount of individual retirement account (IRA) distributions. (Includes simplified employee pension [SEP] and savings incentive match plan for employees [SIMPLE] IRA.)
10. Taxable amount of pension and annuity payments.
11. Rental real estate, royalties, partnerships, S corporations, trusts, etc.
12. Farm income (or loss).
13. Unemployment compensation payments.
14. Taxable amount of Social Security benefits.
15. Other income. (Includes: prizes and awards; gambling, lottery or raffle winnings; jury duty fees; Alaska Permanent fund dividends; reimbursements for amounts deducted in previous years; income from the rental of property if not in the business of renting such property; and income from an activity not engaged in for profit).

In order to insure that you survive a challenge, you would set up an escrow account which would handle the receipt and disbursement of funds.

You may also used a licensed escrow company.

 

[Smitty37]

Maybe

I'm sorry, but most of the information presented here is incorrect. There is no income (for tax purposes) here. This is simply a third-party transaction.

In the U.S., these are the only categories of taxable income (per the IRS) for individuals and businesses.

1. Wages, salaries, tips, etc.
2. Taxable interest.
3. Dividends.
4. Taxable refunds, credits or offsets of State and local income taxes. There are some exceptions - refer to Form 1040 instructions.
5. Alimony (or separate maintenance payments) received.
6. Business income (or loss).
7. Capital gain (or loss).
8. Other gains (or losses) (i.e., assets used in a trade or business that were exchanged or sold).
9. Taxable amount of individual retirement account (IRA) distributions. (Includes simplified employee pension [SEP] and savings incentive match plan for employees [SIMPLE] IRA.)
10. Taxable amount of pension and annuity payments.
11. Rental real estate, royalties, partnerships, S corporations, trusts, etc.
12. Farm income (or loss).
13. Unemployment compensation payments.
14. Taxable amount of Social Security benefits.
15. Other income. (Includes: prizes and awards; gambling, lottery or raffle winnings; jury duty fees; Alaska Permanent fund dividends; reimbursements for amounts deducted in previous years; income from the rental of property if not in the business of renting such property; and income from an activity not engaged in for profit).

In order to insure that you survive a challenge, you would set up an escrow account which would handle the receipt and disbursement of funds.

You may also used a licensed escrow company.

First.. Whether there is reportable income or not depends entirely on how you account for it. There has always been mentioned, giving the coordinator a small stipend for their effort. If any part of what you received is retained as compensation for your effort you will be required to report all of it as income. Additionally, since the coordinator will be receiving all of the moneys, making a single payment to the vendor (who will be unlikely to even get the names of the participants), receiving all of the kits and reshipping them to each payer, I would be very leary that it would even wash with the IRS as a 3rd party transaction.

Second, I don't know about the world in general but in real estate an escrow account needs to be established and each individual's deposit must be identified as to its owner, and in no case may monies in escrow be co-mingled with your own or other escrowed funds. Nor can they be used for anything other than the stated purpose. It might work but it would be a lot of work.

 

[dogcatcher]

I'm sorry, but most of the information presented here is incorrect. There is no income (for tax purposes) here. This is simply a third-party transaction.

Before I retired I used to have my Treasury Card as an Enrolled Agent, like a CPA and Attorneys I could practice before the IRS. This is free advice, take or leave it.

All income is taxable unless specifically excluded by law.

http://www.irs.gov/businesses/small/article/0,,id=117613,00.html

You can receive income in the form of money, property, or services. This section discusses many kinds of income that are taxable or nontaxable. It includes discussions on employee wages and fringe benefits, and income from bartering, partnerships, S corporations, and royalties. The information on this page should not be construed as all-inclusive. Other steps may be appropriate for your specific type of business.

Generally, an amount included in your income is taxable unless it is specifically exempted by law. Income that is taxable must be reported on your return and is subject to tax. Income that is nontaxable may have to be shown on your tax return but is not taxable. A list is available in Publication 525, Taxable and Nontaxable Income.

Constructively-received income. You are generally taxed on income that is available to you, regardless of whether it is actually in your possession.

 

[DCBluesman]

All income is taxable unless specifically excluded by law.

Correct, but DEPOSITS are not INCOME. FWIW, I was a practicing CPA with Peat Marwick Mitchell & Co (now KPMG) from 1978-82.

 

[Russianwolf]

There has always been mentioned, giving the coordinator a small stipend for their effort. If any part of what you received is retained as compensation for your effort you will be required to report all of it as income. .

Actually, the organizer does not get any compensation from doing a group buy here. The only benefit they get is not having to pay postage on the second leg, and possibly first choice of freebies that may come with the order. The discounts and first leg shipping are spread over everyone as well as any extra fees (paypal, etc.) As per the rules for group buys, any funds left over should be donated to the site if not refunded to the participants.

 

[dogcatcher]

All income is taxable unless specifically excluded by law.

Correct, but DEPOSITS are not INCOME. FWIW, I was a practicing CPA with Peat Marwick Mitchell & Co (now KPMG) from 1978-82.

First a lot of third party payments are taxable.

List of specifically excluded income that does not have to be reported. No where does it cover this situation. Reading between the lines get taxpayers in trouble, sometime big trouble. The reason I know is I had to clean up after someone else did some thing similar to this. It took about 6 months and a few of the taxpayers dollars being paid to me and a little to the IRS. I actually made more in fees out of it than the IRS did.
http://www.law.cornell.edu/uscode/html/uscode26/usc_sup_01_26_10_A_20_1_30_B_40_III.html

 

[Smitty37]

Deposits where....

All income is taxable unless specifically excluded by law.

Correct, but DEPOSITS are not INCOME. FWIW, I was a practicing CPA with Peat Marwick Mitchell & Co (now KPMG) from 1978-82.

Deposits where? I agree a deposit in the bank is not income per se, but the cash or check deposited in an account owned by me might well be.

My original question is directed at people who are already in business - probably related to pen turning. And, as such will very likely already have business accounts. For instance I receive payments via PayPal this is business income. I make disbursments from PayPal to pay for business purchases. Paypal charges me fees which are deducted from my account and are business expenses. My paypal account while called a personal account is in fact a business account.

If I were to coordinate a group buy, I would either have to set up another paypal account, mix business and non-business funds or not accept paypal as payment.

 

[Smitty37]

didn't say they did

There has always been mentioned, giving the coordinator a small stipend for their effort. If any part of what you received is retained as compensation for your effort you will be required to report all of it as income. .

Actually, the organizer does not get any compensation from doing a group buy here. The only benefit they get is not having to pay postage on the second leg, and possibly first choice of freebies that may come with the order. The discounts and first leg shipping are spread over everyone as well as any extra fees (paypal, etc.) As per the rules for group buys, any funds left over should be donated to the site if not refunded to the participants.

I didn't say they did, I said it has always been mentioned. Perhaps I'm wrong about "always" but it has been mentioned in the couple I've read. As now written, the current rules for running a group buy do not prohibit the coordinator receiving a stipend (I just read them again). But, if you are a business running a group buy my question remains. The IRS often requires that income be reported even if it is totally offset by expences i.e. gambling winnings.

 

[DCBluesman]

Why do so many people throw up red herring's in a discussion? While laws vary from locale to locale, here is a good primer based on the law in New York state. [quote=dogcatcher;1076659]

All income is taxable unless specifically excluded by law.

Correct, but DEPOSITS are not INCOME. FWIW, I was a practicing CPA with Peat Marwick Mitchell & Co (now KPMG) from 1978-82.

First a lot of third party payments are taxable. My comment was that DEPOSITS are not income. I said NOTHING about third party payments.

List of specifically excluded income that does not have to be reported. No where does it cover this situation. Reading between the lines get taxpayers in trouble, sometime big trouble. The reason I know is I had to clean up after someone else did some thing similar to this. It took about 6 months and a few of the taxpayers dollars being paid to me and a little to the IRS. I actually made more in fees out of it than the IRS did.
http://www.law.cornell.edu/uscode/html/uscode26/usc_sup_01_26_10_A_20_1_30_B_40_III.html[/quote]

All income is taxable unless specifically excluded by law.

Correct, but DEPOSITS are not INCOME. FWIW, I was a practicing CPA with Peat Marwick Mitchell & Co (now KPMG) from 1978-82.

Deposits where? I agree a deposit in the bank is not income per se, but the cash or check deposited in an account owned by me might well be. Might well be? What kind of argument is that?

My original question is directed at people who are already in business - probably related to pen turning. And, as such will very likely already have business accounts. For instance I receive payments via PayPal this is business income. I make disbursments from PayPal to pay for business purchases. Paypal charges me fees which are deducted from my account and are business expenses. My paypal account while called a personal account is in fact a business account.

If I were to coordinate a group buy, I would either have to set up another paypal account, mix business and non-business funds or not accept paypal as payment.

You make my point! You do not co-mingle the funds with your business any more than you co-mingle your personal funds with your business funds.

 

[Smitty37]

Why do so many people throw up red herring's in a discussion? While laws vary from locale to locale, here is a good primer based on the law in New York state. [quote=dogcatcher;1076659]

All income is taxable unless specifically excluded by law.

Correct, but DEPOSITS are not INCOME. FWIW, I was a practicing CPA with Peat Marwick Mitchell & Co (now KPMG) from 1978-82.

First a lot of third party payments are taxable. My comment was that DEPOSITS are not income. I said NOTHING about third party payments.

List of specifically excluded income that does not have to be reported. No where does it cover this situation. Reading between the lines get taxpayers in trouble, sometime big trouble. The reason I know is I had to clean up after someone else did some thing similar to this. It took about 6 months and a few of the taxpayers dollars being paid to me and a little to the IRS. I actually made more in fees out of it than the IRS did.
http://www.law.cornell.edu/uscode/html/uscode26/usc_sup_01_26_10_A_20_1_30_B_40_III.html

All income is taxable unless specifically excluded by law.

Correct, but DEPOSITS are not INCOME. FWIW, I was a practicing CPA with Peat Marwick Mitchell & Co (now KPMG) from 1978-82.

Deposits where? I agree a deposit in the bank is not income per se, but the cash or check deposited in an account owned by me might well be. Might well be? What kind of argument is that? It is not an argument it is a statement of fact. Cash or check that I deposit might or might not be income. For instance I can give someone cash for a check and deposit the check. it is not income. Someone can give me a check to pay for services rendered and I deposit that check...it is income.

My original question is directed at people who are already in business - probably related to pen turning. And, as such will very likely already have business accounts. For instance I receive payments via PayPal this is business income. I make disbursments from PayPal to pay for business purchases. Paypal charges me fees which are deducted from my account and are business expenses. My paypal account while called a personal account is in fact a business account.

If I were to coordinate a group buy, I would either have to set up another paypal account, mix business and non-business funds or not accept paypal as payment.

You make my point! You do not co-mingle the funds with your business any more than you co-mingle your personal funds with your business funds. The question was how to avoid doing such things as co-mingling money and how to account for the money passing through business accounts. [/quote]

I don't think that what you originally suggested (escrowing funds) can work, and I think a business that tried that approach might well run afoul of the IRS -- if audited -- if never audited by the IRS you can get away with almost anything your own conscience will allow.

 

[DCBluesman]

I'm done discussing, but the original post said NOTHING about "how to avoid doing such things as co-mingling money and how to account for the money passing through business accounts." Just another red herring.

In the group by from Dayacom thread a number of people mentioned getting a businessperson to coordinate the buy. I think it would be an accounting nightmare for my business taxes. I don't know how I could do it without running into some tax problems. Any of you other business people ever give any thought to this?

 

[Russianwolf]

The IRS often requires that income be reported even if it is totally offset by expences i.e. gambling winnings.

So report it..... The income and the expenses. Income is not taxable. Profit is. Profit is Income minus Expenses. You only get in trouble when you try to hide something, so don't hide it. Especially when it doesn't increase your tax burden.

 

[jskeen]

Never toss a general statement into a pack of accountants! It's worse than throwing a steak at a pack of dogs. This is exactly what happens, Accountants argue for hours over how many lawyers it takes to fill 1/9 of hell, and the problem is, if it's your account they are arguing over, You have to pay one of them by the Hour!

Nothing personal guys, I'm sure it's important information to somebody

 

[Smitty37]

Post Number 6

I'm done discussing, but the original post said NOTHING about "how to avoid doing such things as co-mingling money and how to account for the money passing through business accounts." Just another red herring.

In the group by from Dayacom thread a number of people mentioned getting a businessperson to coordinate the buy. I think it would be an accounting nightmare for my business taxes. I don't know how I could do it without running into some tax problems. Any of you other business people ever give any thought to this?

The things you highlighted are tax problems.... and, Read post #6....

 

[Smitty37]

Confused

I thought I had asked a question to other businesses who are members. I think I got some answers from folks who are not in business at least not within the IRS definition of business.

The major requirement of a business is that it must be operated for the purpose of making a profit. It does not matter how many pens you sell or how much money you take in, or even if you make a profit. If you don't intend to make a profit it is a hobby. If you don't actually make a profit it can still be a business, if your intent is to make a profit.

 

[TellicoTurning]

I thought I had asked a question to other businesses who are members. I think I got some answers from folks who are not in business at least not within the IRS definition of business.

The major requirement of a business is that it must be operated for the purpose of making a profit. It does not matter how many pens you sell or how much money you take in, or even if you make a profit. If you don't intend to make a profit it is a hobby. If you don't actually make a profit it can still be a business, if your intent is to make a profit.

Here's another country heard from, but if you sell your pens, even it it's a hobby, don't you intend to make a profit??

 

[turbowagon]

To throw another wrinkle in here, hobby income for those not filing taxes as a business is subject to the 2% AGI floor. Which means you cannot deduct expenses up to 2% of your adjusted gross income.

For example, if you AGI is $100,000... and you sold $1,000 in pens and reported $1000 as income from group buy payments, you would still be required to pax tax on all $2000.

 

[SDB777]

It would be amazing if anyone ever did another group buy....or was that the intent on this thread being started?

Group buy = discount on product to the individual
Anti-group buy = profit for a business wanting to sell you something




Scott (couldn't have happened anywhere but this forum) B

 

[Smitty37]

Not necessarily

I thought I had asked a question to other businesses who are members. I think I got some answers from folks who are not in business at least not within the IRS definition of business.

The major requirement of a business is that it must be operated for the purpose of making a profit. It does not matter how many pens you sell or how much money you take in, or even if you make a profit. If you don't intend to make a profit it is a hobby. If you don't actually make a profit it can still be a business, if your intent is to make a profit.

Here's another country heard from, but if you sell your pens, even it it's a hobby, don't you intend to make a profit??

Fortunately for hobbiests, not according to the IRS.

 

[Smitty37]

Not anti-group buy

It would be amazing if anyone ever did another group buy....or was that the intent on this thread being started?

Group buy = discount on product to the individual
Anti-group buy = profit for a business wanting to sell you something




Scott (couldn't have happened anywhere but this forum) B

Well let me be clear about something....I am not anti-group buy and might even join one if it's for a product I want. But being in the business of selling pen kits I've made up my mind that I won't coordinate one, other business folks will make up their own minds.

 

[dogcatcher]

It would be amazing if anyone ever did another group buy....or was that the intent on this thread being started?

Group buy = discount on product to the individual
Anti-group buy = profit for a business wanting to sell you something




Scott (couldn't have happened anywhere but this forum) B

I would not consider this discussion anti group buy, it is clarifying some tax issues that people need to be aware of to keep them out of trouble with the IRS. Myself, I would not touch one, beside the IRS issues, in Texas the Texas State Comptroller can also get involved because of state sales tax issues.

 

[Smitty37]

Tax law

The IRS often requires that income be reported even if it is totally offset by expences i.e. gambling winnings.

So report it..... The income and the expenses. Income is not taxable. Profit is. Profit is Income minus Expenses. You only get in trouble when you try to hide something, so don't hide it. Especially when it doesn't increase your tax burden.

Income is taxable, profits usually constitute income...read the 16th amendment of the US Constitution - The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration.