you need to make more than $20k for paypal to even report ya to the IRS... like technically you're suppose to report all income, but the IRS ain't ever gonna come for you if you make $1k off your paypal. if you hit the threshold paypal will actually send you tax forms!
So I've been really interested in getting into making adoptables and maybe commissions someday, but I was doing my taxes recently and just kinda thought... "man PayPal probably isn't gonna send me a W-2 for my adopts huh?"
I'm down for any advice related to the title - especially since this thread might be helpful to more people than just me - but I have a few main questions I'd like to get addressed!
(For reference, I live in the U.S. if that makes a difference for any of these! I'll also keep mentioning adopts, but obviously all of this can apply to commissions and other digital business as well.)
1) PayPal Business Account
I've heard here and there that there's some kind of business account for PayPal, is that a thing?? If so, is it something you're required to have in order to make money using PayPal or does it just provide certain benefits/protections over a normal PayPal account? Do you have to make a new account or can you "upgrade" an existing account? Is it free? What's different about a business account over a normal one? Could you get in legal trouble if you accepted payments on a non-business account? Do things get weird if you continue to use your fresh new business account for buying?
2) Invoices
Word on the street is that invoices are the cool, hip, safe, professional, and legal way to make all that sick dosh. Every so often I'll see some new post on Tumblr or Twitter saying that they changed how things work about them again or there's some obscure thing you have to check or whatever. Is there an up-to-date "instructions" post somewhere on how to send a proper invoice?
3) Taxes
This is really the thing I want to know about the most since I've never seen anyone in the adopt world utter the word "taxes" and I really enjoy not being in jail for tax fraud. That would really hurt the ol' adopt shop. So, what's the relationship between the money you earn using PayPal and taxes? Does PayPal, like, generate a thing that shows your earnings at the end of the year, or maybe just does that with a business account? Or do you need to manually keep track of all of the money you make digitally? Well, I guess you should be keeping track of that kind of thing anyway BUT you know.
Does it only matter if you make over X amount? I know you don't have to do taxes at all if you didn't make over 1,000 bucks, but I have a job that gives me quite a few more bucks than that. Not enough bucks, but I still gotta do taxes either way. So, I'd imagine even if I don't make a lot of money digitally I'd still have to tell the government I made 100 adopt bucks that year lest I get in trouble for my secret OC black market, right? Can any of the big earners around these parts shed some light on what might be different for them than an adopt creator who makes much less per year if there is any difference? A girl's gotta have dreams.
How do you declare that kind of thing? I just use TurboTax but I'm pretty sure I saw some kind of self-employment option somewhere along the lines that I'd imagine you can plug your earnings into or something?? Can you do that even if you have an additional job or jobs???? Does none of this really matter and no one really says anything about their digital earnings when they do their taxes and the government doesn't give a waffle???? Why do I know so little about taxes when I just did mine like two days ago?????? Don't do that kids, do your taxes earlier cuz I had to pay 30 bucks for my state taxes bc I was a slacker and now my Super Impressive 43 buck refund is only 13 bucks and what's that gonna pay for, 23 Orbs in Fire Emblem Heroes???? Folks that's not enough money to do anything responsible with, do your taxes before April or you're gonna end up with five more Barsts. 3* ones.
4) Misc.
Is there anything else someone new to selling art (be they commissions or adopts) digitally should be aware of before they frolic off into the world of still suffering through making art as usual but now getting money for it? Like, is there anything one should know about... I dunno, chargebacks and copyright and things like that or something?? Basically, are there questions I didn't think to ask that I should be asking?
And yeah! That's it! I really appreciate any help and advice that can be given! If other people have questions related to earning with PayPal then feel free to use this thread to ask them as well! And, like that last point says, if you have any other wisdom to impart that doesn't involve the other three points you should post it anyway, I bet it'll be useful!!
Regarding your first question, personal account is more for online shopping or sending money to friend/fam but not for receiving money from business transactions. If you're intending to take comms and is a casual seller, I believe Premier account would be the right choice. Here's a chart for better comparison: https://www.paypal.com/cgi-bin/webscr?cmd=p/pop/choosing_account_type_signup-outside premier account charges a small fee for every transaction (I think it's a few percent??) while business charges a monthly fixed fee. You can own up to 2paypal account so you can either upgrade your personal one, or open a brand new one and keep your personal one.
Hi! I'm someone who does primarily digital work/adoptables and this is my second year paying taxes for it.
1) Probably nice to upgrade to business, but I personally have not and as far as I know haven't run into any issues with it. You can still send invoices and accept payments for goods/services and they still take out their fee. I also still get my tax form and I still report taxes w/o any issue. As far as I know you just upgrade your account but I couldn't tell you about any differences beyond that.
2) Invoices are definitely more professional, but again not something I bother with. I just personally find them a pain and have not run into enough problems with buyers to find it worth using. So I think you'd be fine either with or without, it's honestly up to you and what you feel more comfortable using.
3) Actually, if you make more than $400 a year, you are technically supposed to report that income. However, like Wicked said, paypal will not report what you've made unless you've made both over $20k a year AND have over, like, 200 transactions or something? So it's up to you if you want to fly under the radar or not. Just keep in mind there IS the possibility of getting audited someday and then you will have to deal with it - and obviously the more you make and avoid paying taxes for, the more troublesome it could be if that does happen.
Once you hit that threshold, paypal will prepare a 1099-K for you. They don't always physically send it to you, but you can always access it through paypal (it's a drop-down that has stuff like statements, tax forms, etc).
As a heads up, I would expect to be paying ~30% of what you made back in taxes (it sucks ass, I know). If you are expecting to pay more than 2k in taxes each year, you need to start doing quarterly taxes (ever few months you have to send a check for a quarter of what you're expected to pay, then you cover the rest of it or get a refund if you paid more than you made at the end of the tax year). If you end up needing to go this route, I would honestly recommend going to a local and credited tax professional in your area. They will likely prepare everything for you -- including the vouchers you'll need to send with quarterly taxes. I've personally found turbotax too confusing to use on my own for something like that, and have heard chains such as H&R block are full of people who know the basics but could easily screw up your taxes for more complex cases cuz they only get basic training and likely won't know the full ins and outs. Of course a local specialist would be a lot more expensive (it cost me ~$250 for my guy), but part of that is tax deductible next year.
4) Since you mentioned it - chargebacks suck major ass but they're very rare if you're smart with who you do business with. I've been selling online for a good.... 7+ years now? I've only had chargeback experiences twice. It is definitely smart to try and keep some spare change in your paypal just to be safe, I think. And most chargeback issues I see come from people using credit cards irresponsibly (either cuz they belong to their parents, or they spend too much too fast and the bank thinks it's stolen or something), but luckily I think a lot of times those people will work hard to try and get payments back to artists. Word of caution, though, accepting chargebacks does have a $20 fine on top of the money being charged back.
Copyright is an extremely complex topic that is honestly hard to keep straight and you'll almost always hear conflicting information. Best adivce I can give? Keep a strong and clear ToS of what you want your terms to be, remember most of the community works on trust and mutual respect, and so finally just don't be a dick. As an artist, you should ALWAYS retain ownership rights to your art so state this clearly in your ToS (aka the ability to say you created this art and demand credit for it). Commercial rights, as well, are often retained by the artists (aka the ability to let your commissioner make profit off or your art). But even if the law is in your favor, don't take advantage of this. For example -- I retain all commercial rights to my artwork and explicitly state so, so if I wanted I could technically go sell prints or merch of all art I do commission or otherwise. But obviously doing so without a heads up and/or asking if commissioners are okay with that first, is very rude and WILL end with you losing customers. So just be respectful and remember you are running a business but that your customers are also important, and likely you won't run into many problems!
Can't really think of anything else to add, but yeah, hopefully that helps you out!! Good luck! *___*/
Krawark Thanks for linking that page, that helps a lot!!
Jotaku Thanks so much for this post, this is SUPER helpful and explains pretty much everything I needed to know! I'll be sure to keep track of how much I make, and if I end up making that much money then, hey, having to pay 30% back in taxes isn't too bad since that's still 70% more money than I'd have otherwise!
I'll stick with my default account for now and maybe look into Premier if it becomes apparent that I can make enough money for it to be worth it, make sure I have a strong TOS, and look into invoices but not worry about it too much if it turns out sending them is really difficult for some reason. Thanks for your help, everyone, and as usual any other advice or questions from other people are still welcome!