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I needed a quick influx of cash into my paypal account to make several purchases on ebay. Since I didn’t have enough cash immediately available in my paypal account I used one of my personal credit cards and my paypal credit swiper to “make a sale” from me to my paypal account using the Paypal Here app. Paypal (and the subsequent 1099) consider this a sale, but technically it was a personal infusion of cash for business purposes. I guess I could have just used my credit card on paypal to make the purchase, but I didn’t (also used as an experiment). I’ve read that self made loans/cash infusions into your business can be excluded.
I know, I know, I know, I should have a CPA, but I don’t at this time. Does anyone know if this type of transaction could be claimed as a personal business loan (to myself) and can be deducted/excluded on taxes?
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As always, I would check with a valid CPA for proper treatment for taxes, but here is my take.
You are already deducting the purchase of the goods on your taxes (eventually, through COGS. Beginning Inventory + Purchases (this transaction) – Ending Inventory = Cost of Goods Sold). So the money you “loaned” yourself is deductible due to the nature of the expense.
As per your 1099, I would keep a note of this “loan” amount for your 2017 taxes, and make sure that you DO NOT include this amount as “Revenue” for your business. We use Quicken for our business, and our Revenue on our P&L never ties to the 1099, since we have sales on other platforms, cash, etc. 1099 is just to let you know what they are reporting to the Feds.
The only extra cost that could be deducted is any interest on the loan (since it is a business loan, it is a business expense). You won’t have that here.
This is from my thoughts as an accountant, and I do our taxes myself, but I am by no means a tax expert, these are just my thoughts. Again, check with a pro to be sure. And if you do, let me know if I missed anything (as I still like this type of stuff!).
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Thank you for the quick reply T-Satt. A follow-up question if I may. I understand that you are not a tax expert and I obviously don’t hold you to anything.
Let’s say my paypal 1099 reports $21,000, but I know that $1000 of that is my “loan.” I’m using Turbotax Home&Business and under Business Income where it asks for 1099K income, would I put in $21000 which is on my 1099 and then deduct that $1000 out under expenses or would I report only $20,000 on the line for Business Income. You mentioned to NOT report it as revenue. I’m not sure how to go about not reporting it as such. Either put in the amount lower than what is on the 1099 or take it out elsewhere. Thank you again for your advice.
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Thank you again. I did this in 2016, so it did show up in the month breakdown on the 1099. I’m sure paypal would think i’m skirting fees or something, and they got their fees anyway. But I’m more concerned with the IRS thinking I’m under reporting my sales/revenue. If needed my paypal report showing the transaction from ME to popeye’s postcards and my credit card statement showing a “purchase” by me from popeye’s postcards would hopefully make it clear that I gave the money to me, myself and I.
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Agree. You only have an issue if they decide to audit that part of your taxes, and if you keep the paper trail, you are good.
We use our P&L out of PayPal as our info for the 1065 (we are set up as an LLC, so we go through the 1065 and the K-1 to our 1040), so we never tie to the 1099. The IRS just use this to make sure that you aren’t underreporting income, and since they have to take into account adjustments, discounts, etc., your total revenue line will not match anyway. And if you sell on other platforms, cash sale, etc, you won’t match.
Below for the full scoop (be careful not to operate heavy machinery while reading)
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from a non-accountant who does all our bookkeeping:
if you generated a sale, even if it was to yourself, paypal sees it as income and therefore will put it on your 1099, as you saw. you would be able to deduct your paypal fees and any credit card interest, and if you spent that $1000 on merchandise, COGS eventually. that’s my understanding. so it seems to be a wash in the end.
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