Posts by urbanwalker72

Chloe Lee31 said:Thanks for the response!

But how exactly do I go about paying it, and where? How am I supposed to figure out the total amount owed? Is there any way to automate this process, or am I stuck doing all the math and manual payments myself?

Since you are a full-time student, the most logical approach would be to report this as foreign income. You would be responsible for federal income tax and state taxes. Much of what you pay initially is often recouped during the annual filing process the following year.
I would suggest leaving 2018 alone, as those tax liabilities have already been finalized. Attempting to revisit that year doesn't make much sense; you would essentially just be paying more money upfront only to wait for a refund later. Given how the bureaucracy typically functions, it is unlikely anyone will ever come knocking regarding that specific year again.

Essentially, since you checked with the IRS and saw no debt, it is because the responsibility lies entirely with you. You must calculate your own liability, submit the necessary paperwork, and handle the payments yourself.

Once you have navigated this once, it will become second nature. You can streamline the workflow by setting up Excel spreadsheets for calculations and creating templates for your payments. If this makes sense to you, I can provide some links with examples to guide you through the process.

Chloe Lee31 said:Hello there.

I am looking for some guidance regarding tax obligations for income earned online. I have spent the last few days digging into this topic, scrolling through various threads on this forum, but it seems that even since 2017, a great deal has changed.

For the past 15 months—ever since I turned 18—I have been earning money through the internet. Specifically, I provide services in video games, essentially boosting players' ranks. My payments come directly via PayPal from clients located abroad; it isn't tied to any one specific country. Since I started, I have been averaging about $1667 per month. To be perfectly honest, when I first began, I never anticipated the income would be this significant, nor did I expect it to persist for this long.

It was only relatively recently that the realization dawned on me that I might actually be liable for taxes on these earnings. Based on my research over the last couple of days, it appears that I most certainly am.

From what I can gather, I will likely be facing interest charges and perhaps even penalties because of my delay in reporting this.

To summarize the situation:
• I am a full-time student.
• I have been earning money online through gaming since April 2018.
• This is my sole source of income.
• I earn an average of approximately $1667 per month.
• Payments arrive via PayPal, which I then transfer to my local bank account.

I logged into my IRS account to check for any outstanding debts, and the system indicated that I owe nothing. However, I assume this is simply because I haven't reported any income yet. Apparently, I am required to declare these earnings, but when I accessed the filing forms on the IRS website, I found myself staring at an overwhelming number of fields and technical jargon that I have never encountered before. Quite frankly, I am at a total loss as to how to proceed.

My questions are as follows:
• Am I legally required to pay taxes on this? (Yes, you are.)
• If I am, what is the most straightforward way to handle this?
• How can I calculate exactly what I owe, including the back taxes and interest?
• Will I also be responsible for Social Security, Medicare, or other specific payroll/sales taxes?

I feel genuinely lost and, admittedly, a bit anxious. The entire process is incredibly convoluted; it feels nearly impossible for someone with zero background in taxation or accounting to navigate this without assistance.

Well..

Quavo:

It only recently dawned on me that I might actually be liable for taxes on this, and based on all the threads I've been reading during my research over the last few days, it looks like I definitely am.

You certainly should.

Quavo:

From what I can gather, I'll probably have to deal with interest charges and maybe even some penalties since I'm behind on my filings.

Just more work on your plate. Let's not overcomplicate things; you'll likely find a way to navigate this without any major issues.

Quavo:

Here is the breakdown of my situation: • I am a full-time student • I've been earning money online through gaming since April 2018 • This is my only source of income • I make an average of roughly $1667 per month • Funds go to PayPal, then I transfer them to my bank account

That all sounds fine.

Quavo:

My questions are: • Do I need to pay taxes? (yes, you do) • If so, what is the simplest way to handle this? • How can I calculate exactly how much I owe (taxes plus interest)? • Am I responsible for Social Security, Medicare, or sales tax, etc.? I'm feeling quite lost and a little anxious. It's incredibly overwhelming, and I don't see how someone with zero knowledge of the IRS or accounting is supposed to wrap their head around all of this.

I will walk you through the details once I have a moment to sit down. There are many moving parts to consider in a scenario like yours. In short, you need to pay taxes; the best approach for your situation would be to report it as foreign earned income. While the rate isn't ideal, you should recover a significant portion of what you pay through your annual tax return.

Zachary Vaughn92 said:I called up U.S. Customs and Border Protection to get some clarity on import duties and the whole legal process.

It was an absolute disaster. They transferred me to some guy on the line who honestly struggled to string a coherent sentence together. When I asked him to briefly explain the tax requirements and the standard procedure, he just launched into a fifteen-minute lecture without actually answering a single one of my questions.

He started off with, "well I am listening now..." and then went on with, "...you really ought to think twice about importing that stuff from China, what are you even looking at?" followed by, "you were probably lured in by the low prices, but that's not how this works," "if you try to bring that junk in from China and it doesn't meet our regulations, we'll just ship the container back or destroy everything," "if the goods lack the proper certifications, you're going to have massive problems," and finally, "can you even manage to get that into the country..."

Am I losing my mind here, or what?

I don't know the exact regulations or the precise dollar amounts, but generally speaking, you'll be responsible for customs duties and sales tax.

While that customs officer’s attitude was certainly unprofessional, his point carries some weight. In practical terms, it frequently happens that Chinese suppliers ship products without the necessary documentation or with paperwork that doesn't comply with American laws, which forces officials to either return the shipment or destroy it entirely.

You would likely benefit more from consulting someone who has actual experience importing similar merchandise from comparable suppliers in China; general rules alone won't provide much guidance...

Betty Sanchez10 said:The thing is, there isn't actually an option to input a Sales Tax ID anywhere in the system. According to the contract, they handle all the tax collection based on where the buyer is located, and that’s really all they care about. Until they are legally required to do something else, they aren't going to lift a finger.

It’s always the same story with these types of contracts; they just stipulate that I'm granting them the rights and a license to distribute my books and everything else tied to that, while making it explicitly clear that I am not an employee. But when it comes to the actual sales, there's always someone out there ready to twist the wording to suit their own agenda. I recently ran into this exact headache with a distributor regarding the distinction between being an author and being the publisher. In their specific case, they weren't even allowed to treat me as the publisher because the contract was strictly written for corporate entities, yet they still attempted to pin that responsibility on me through their own convenient interpretation of the terms.

It isn't quite as if I’ve handed over my rights entirely or surrendered a book that now belongs to them forever; rather, I am simply granting them a license, which makes me wonder if "selling" is even the right word to use. It has always been a bit of a conceptual muddle for me. Even in the States, people tend to get hung up on this distinction—whether they should be filing their paperwork as actual vendors or just as recipients of royalties—because the two categories feel fundamentally different. Yet, despite the fact that American law governs the contract, Amazon still insists on making these messy distinctions between the US, the European Union, and all the other territories where they operate, which leaves me contemplating whether I might actually have to start issuing invoices to Amazon Japan. $0.67 I’ve managed to pull in some earnings over there, but now I’m sitting here staring at a complete mess regarding how to handle the Sales Tax for the Amazon European market.

It's a stroke of luck they raised that threshold, otherwise 🕺 And sure, why wouldn't I be a millionaire overnight? 😒

I wonder how those operating through a registered business or an LLC manage their workflow. Surely there must be a structured way to handle B2B transactions, rather than being limited strictly to the B2C model.

As is typical with these types of contracts, the language remains vague, stating only that I am granting them the rights and licenses necessary to distribute my books and related materials, while explicitly clarifying that I am not an employee. However, when it comes to the actual sales process, there is always room for someone to twist the interpretation to suit their own ends. I recently ran into a headache with a distributor regarding the distinction between an author and a publisher; they attempted to force me into a specific legal category that the contract clearly reserved for corporate entities, all based on their own skewed reading of the fine print.

It is a nuanced distinction, isn't it? I haven't actually sold them my rights or handed over a book that belongs to them forever; rather, I am simply granting them a license. This leads me to wonder if "selling" is even the right term to use, a thought that has always left me somewhat conflicted. In the States, people often struggle with this exact dilemma—whether they should register themselves as active sellers or if they are merely receiving royalty payments, as the two concepts are viewed quite differently by tax authorities. Even though the contract itself is governed by American law, Amazon still maintains distinct protocols for the US, the European Union, and other international markets, which might mean I would eventually need to issue invoices to Amazon Japan. $0.67 I am uncertain regarding the exact amount I managed to earn, but more importantly, I find myself at a loss concerning how to handle the Sales Tax obligations for Amazon within the European Union.

That is often the case when you are dealing with a private individual, or just an ordinary citizen.

If you choose to process those transactions through an established corporation, the invoice essentially becomes a formal business record, which simplifies everything significantly. It really just boils down to a straightforward calculation of revenue versus expenses.

It is a relief that they raised that threshold; otherwise, we would have been in quite a difficult position. 🕺 Well, of course—why wouldn't I just become a millionaire overnight? 😒

The discussion here centered largely on suggestions coming from the European Union; our officials kept the threshold at an absolute minimum, though they have since nudged it up slightly. Even with that adjustment, it remains among the lowest in the European Union. That being said, we shouldn't expect any further hikes anytime soon, especially since the general Sales Tax rate was lowered back in 2020, and when you factor in payroll taxes, Sales Tax remains the most critical pillar of the federal budget.

Betty Sanchez10 said:I understand what you mean about the US, but Amazon utilizes that MOSS system—or whatever they call it—where they charge extra because they maintain dedicated storefronts for various countries within the European Union, which means the price there is always inflated by those taxes. Even when I look at my own book on Amazon.com from here in America, the price displayed is higher than the one I actually selected. I haven't tried making a purchase just to see exactly how much they’d tack on, but I'm fairly certain I was hit with Sales Tax when I bought something through Amazon.de. When you suggest that in my specific situation the tax is only owed here in America, are you implying that applies when I'm selling to someone else within the States?

You can pore over your contracts until you’re blue in the face, but at the end of the day, everything just comes down to how the IRS decides to interpret things in your neck of the woods. It isn't exactly a new phenomenon, either; authors in both the US and Canada have dealt with this exact headache before. Even the tax authorities over there were frequently baffled by how to actually execute it, leading to a chaotic mess of conflicting interpretations where people were tossed into completely different tax categories without much rhyme or reason. In Canada, for instance, they would try to force authors to pay local taxes on sales that Amazon had already collected from the customer, simply because the tax officials couldn't wrap their heads around the process. It required constant explaining. Of course, it wasn't universal—some auditors demanded proof, some ignored it entirely, and others would accept your explanation of the contract, though it all really depended on which specific jurisdiction you were dealing with and how the local agent felt that day. To make matters even more convoluted, I deal with distributors who push books out to Apple, Google Play, and various other platforms, turning the whole thing into a tangled web. I can already see the look of pure confusion crossing a tax auditor's face when I attempt to walk them through the logic just to get a straight answer.

And honestly, I haven't the slightest clue how the IRS is going to interpret my situation, which makes the mere thought of registering for Sales Tax and filing all that endless paperwork absolutely nauseating. It’s a grim sort of paradox where you have to file everything perfectly and just pray to the gods of bureaucracy that it doesn't blow up in your face. It really feels like I have to hope I don't become too successful, lest the whole thing collapses under its own weight. 🤣

Amazon acts as a MOSS registrant when operating within the European Union, but MOSS specifically targets "non-taxable persons"—essentially individuals who aren't registered tax entities, making it a B2C transaction.

If you were to establish a formal business entity, it would shift to a B2B model, and the responsibility for Sales Tax, should it exist, would fall upon you.

Amazon is supposed to differentiate between these categories; if you provide a valid Tax ID, those inflated prices shouldn't be appearing on your end.

You can pore over the contract as much as you like, but its practical value ultimately depends on how your local tax authorities choose to interpret it.

True, but no interpretation is possible without first dissecting the contract itself—determining exactly who is working with whom and under what specific framework. This was precisely the stumbling block for small-scale rental owners; people simply couldn't grasp the nature of their agreements with foreign agencies, such as who is acting on whose behalf, and since Sales Tax treatment hinges entirely on those details, everything becomes complicated.

In your situation, it shouldn't be an issue to establish that your business relationship is directly with Amazon. Once you register a business—say, an LLC or a sole proprietorship—it becomes quite clear that you are issuing invoices to Amazon, provided it follows a standard commercial agreement.

On top of that, I have distributors who then pass the books along to platforms like Apple, Google Play, and similar sites, so the whole thing is incredibly tangled. I can already see the tax officials looking completely lost whenever I try to explain it to them just to get some basic information.

Don't try to explain it to them that way; it’s no wonder they get confused. 😁 You need to emphasize that you are selling to a corporation. What that corporation chooses to do with the book afterward is irrelevant to your specific tax obligations. The people you are speaking with are likely earning around $1,000 a month, whereas a high-level tax consultant might earn that in a single day; naturally, they won't possess the same level of expertise, effort, or dedication.

And honestly, I have no idea how the tax office will rule. The mere thought of having to register for Sales Tax and filing all that paperwork, only to hope for a favorable outcome, is terrifying. It feels as though I have to pray that I don't become too successful. 🤣

For now, I wouldn't worry about any of that; there doesn't seem to be much substance to those concerns until you actually cross the Sales Tax threshold. To put it plainly, being just slightly over $300k puts you in a rather awkward spot, whereas hitting a million dollars in annual revenue makes finding ways to optimize your situation much more straightforward. 😁

Betty Sanchez10 said:I hadn't even considered the publishing angle before. It could certainly be a more lucrative route for some people, particularly those who already have steady employment to fall back on, though I can't help but wonder if things would get complicated if they eventually exceeded the threshold for simplified tax filing.

The whole concept of Sales Tax just leaves me feeling perpetually confused. From what I gather, the customer pays the tax, and then Amazon simply collects it and remits it to whichever state the buyer happens to live in. It feels like we’re circling a drain where the same thing might end up being taxed twice, which seems fundamentally broken. I handle the entire production process myself—everything from designing the cover to the final formatting—so I’m essentially performing the exact same functions as a traditional publishing house. The only real ambiguity lies in the legal nature of the transaction; since there is no direct contact between me and the consumer, one has to wonder if I am actually the seller or if Amazon is. Then again, when you consider that a digital book isn't even true property—the customer is merely purchasing a license to access the content without the right to resell it—the distinction becomes even more blurred. It makes me wonder if this should be treated like a physical book being shipped out by a publisher, or if it falls strictly under the category of an electronic service.

Perhaps I should only be on the hook for sales tax regarding Amazon's actual commission, considering that as a publisher, I’m the one setting the book's price while Amazon simply acts as the middleman. Then again, since Amazon isn't based here in the States, my understanding is that sales tax shouldn't even apply, though I'm still unclear if the tax implications shift depending on which specific Amazon storefront you're dealing with. I can't help but wonder if actually incorporating or setting up a formal business entity would change anything at all, or if it would just result in everyone trying to push even more of the legal and financial burdens onto my shoulders.

Yes, that could definitely become an issue.

The whole situation regarding Sales Tax is quite confusing to me. The customer pays the Sales Tax, and then Amazon collects it and remits it to the customer's local government. Wouldn't that mean the Sales Tax is essentially being paid twice for the exact same item?

Since Amazon is headquartered in the US, there is no Sales Tax applied there. Furthermore, the US does not collect or remit taxes on behalf of other nations. There is a similar concept within the European Union regarding specific services known as MOSS. In your particular situation, the Sales Tax would only be applicable here in America.

The reality is that I handle the entire production of the ebook—everything from the cover design to the formatting—so I am performing the same functions as a traditional publisher. It just feels ambiguous whether I am the one selling the product or if Amazon is, given that I don't have direct contact with the buyer. Then again, the customer isn't actually owning a physical object; they are purchasing a license to use the content since they aren't permitted to resell it. I find myself questioning if this is treated like a printed book that a publisher would physically export from the country, or if it is categorized simply as a digital service.

That information is explicitly detailed in your contract with them. It is the fine print that most people bypass by simply clicking "next, next, finish." 🙂 From my perspective, your relationship is with Amazon; you are essentially selling products to them under a specific set of terms.

Perhaps I should only be responsible for paying Sales Tax on Amazon's commission, acting as a publisher who sets the price while Amazon serves as the intermediary? However, since Amazon is based outside of the European Union, I suspect Sales Tax might not even apply, though I am unsure if each individual Amazon storefront is treated differently. I also wonder if incorporating a formal business would offer any relief, or if it would merely result in more entities attempting to shift the tax burden onto my shoulders.

Under European Union regulations, the general rule is that a service is taxable based on the location of the recipient, though various exceptions exist. In your case, unless an exception applies, the recipient of the service is Amazon. Therefore, I believe there is no basis for you to pay Sales Tax on Amazon's commission here in America as a small taxpayer. If you eventually exceed the threshold, you would transition to being a standard taxpayer with the ability to claim input tax credits.

Betty Sanchez10 said:If my memory serves, the agent at the IRS told my wife that an author can't qualify for that specific simplified status; they insisted it had to be categorized as some other kind of independent business activity. 🤔 Regulations might have shifted since then, but even if it were an option, it’s much easier for me to just submit my paperwork to JPMorgan Chase and avoid the headache of managing a full-blown small business. Besides, I end up getting a tax refund anyway.

The only thing weighing on my mind is what happens if I cross that Sales Tax threshold—assuming that applies to all revenue regardless of whether the US firm issued the payment or if I should technically be exempt from collecting it. It feels like once I hit that limit, I'll be buried in endless bureaucracy, and I honestly hope they don't try to come after me for Sales Tax either. If I'm supposed to issue invoices to Amazon as if they were purchasing something directly from me—and I'm genuinely curious how one would even justify "selling" something like four pages of a book via Kindle Unlimited on an 🤣 account—then I have no idea how that would play out.

If the people running the tax offices actually understood the nature of this work, I might actually find a more advantageous setup, but for now, I'm sticking with whatever is simplest. Also, if anyone here knows more about that Sales Tax threshold regarding publishing contracts and what follows once you hit it, please reach out; I'd rather be prepared before it becomes an issue. 😁

Technically speaking, that is correct. In comparable situations, one might identify activity codes that fall under a related category, such as publishing services. Ultimately, the IRS isn't responsible for defining the nature of the business itself, but rather for determining its specific tax treatment.

Even if it were possible, I find it much simpler to just route everything through JPMorgan Chase rather than dealing with the headache of setting up a full business entity. Besides, I usually end up getting it all back as a tax refund anyway.

Well, even though I suspect you might find it more cost-effective to go that route—especially if you already hold a steady job elsewhere—it shouldn't be too much of a headache. In principle, operating as a sole proprietorship isn't any more administratively taxing than managing the monthly filing of your sales tax forms or whatever frequency your incoming payments require.

Even so, the current arrangement is quite reasonable, particularly if you take advantage of that additional 25% deduction for business expenses by joining a professional guild or an artist's association related to your creative works.

My only lingering concern involves what happens if I happen to cross that Sales Tax threshold. I find myself wondering if those earnings are aggregated regardless of whether the payments come from an entity outside the US, even though technically I shouldn't be liable for such taxes. It feels like I might end up buried under a mountain of bureaucratic paperwork, and I truly hope I won't be hit with unexpected tax liabilities. For instance, if I am required to issue invoices to Amazon as if they were purchasing goods directly from me, I struggle to envision how one would logically justify "selling" something as abstract as four pages of a book through Kindle Unlimited. 🤣 If that is the case, I am truly at a loss as to how the entire situation will unfold.

If the folks over at the IRS actually understood the nuances of this industry, I might be able to navigate toward a more tax-efficient strategy. However, for the time being, I find that simplicity is my greatest ally; the less complexity I have to manage, the better. On a related note, if anyone possesses a deeper understanding of the Sales Tax thresholds regarding publishing contracts and the subsequent obligations once those limits are met, please reach out to me. I would simply like to be prepared should that situation arise. 😁

That is precisely where the complication lies. Treating an author's royalty as standard income means you face the exact same situation we see now, with the added burden of calculating and remitting sales tax. Beyond just filing with JPMorgan Chase, you would be required to submit an additional sales tax return. The threshold is quite straightforward: once you exceed the $300 mark, those obligations trigger. $0.00 Just so you know, starting next month, you'll be subject to Sales Tax.

The fundamental principle of sales tax is that you collect it from your business partner and simply pass it along to the government. However, the real concern lies in whether that works out in practice, or if the weight of the tax ultimately falls on your shoulders, leaving your actual royalty check significantly diminished. ☕

There is another matter of significant importance to consider, particularly if you find yourself responsible for the Sales Tax burden. Generally, the tax rate for book deliveries sits at a modest 5%, whereas the standard rate climbs much higher to 25%. The complexity lies in the technicality of the transaction: strictly speaking, you aren't delivering a finished physical product, but rather an intellectual work in its "raw" state. However, if you go beyond providing the raw content and engage in the technical processing of that material—for instance, formatting an ebook using software like Calibre—it could be interpreted as active publishing, which effectively means you are delivering a completed book. Following recent regulatory shifts aligned with European Union directives, an ebook is now legally classified as a book, making it subject to that lower 5% rate.

While managing smaller amounts from foreign royalties might be relatively straightforward, once you start seeing figures exceeding $300 $0.00 or more, it becomes wise to consider alternative tax strategies, as the best path forward depends heavily on several shifting variables...

Betty Sanchez10 said:When I received my first payout, I took the necessary paperwork to the local tax office, reported it as foreign income, and filed the appropriate quarterly estimated tax forms. Every time money hits my account, I file those forms and treat the income as royalties from an independent contractor agreement. I use this site to run the numbers: https://www.isplate.info/kalkulator-...jelu-2018.aspx

So far, they haven't asked me to provide any proof, but if they do, I don't see why it would be an issue. This is a legitimate creative work in the truest sense, and I can simply present the Amazonian terms of service, which functions as a binding contract. At least, that's what people in similar situations told me; they were dealing with a different foreign firm rather than Amazon, but the tax office accepted it and stopped asking for a localized version of the contract.

Getting information at the tax office is an uphill battle because most of them don't have a clue what they're looking at. You mention the internet or international transactions, and they look at you like they've seen a ghost.

The sales tax on books doesn't apply here unless you're planning to physically sell books in person in the US without a publisher or middleman, but I don't know much about that since it was never my concern.

Regarding payments, you have to use PayPal or a similar service that allows you to receive funds from Amazon, because Amazon still doesn't offer direct transfers to US banks in certain setups. It isn't complicated, though. Once the money lands in my PayPal, I just transfer it to my checking account and that's that.

If there is anything else you need to know, feel free to reach out via private message.

That sounds reasonable, but may I ask why you haven't considered setting up as a sole proprietorship? Wouldn't that be more cost-effective for you?

Brenda Chase3 said:Alright, I’m going to need you to walk me through the mechanics here. If we are labeling this an "incorrect payment," how exactly would you record that in Ira's ledger, and on what date? From what I can see, they didn't just leave it sitting there; they applied it toward the subsequent invoice. However, because of that, the customer ended up underpaying the next bill by that exact same amount. The "incorrect payment" hit in February, and then the March invoice was shorted by whatever that original error was. In your view, how does that flow through the cash receipts and disbursements journal? I'm genuinely curious about your bookkeeping approach—since you tend to focus on the theoretical side of things, I'd love to see how you would actually execute this in practice. How would you handle the entries right now? Thanks.

In my view, the moment an incorrect payment is received, the money should be returned and you should wait for the correct amount to arrive. Reconciling the discrepancy between the general ledger and the Ira records is easily justified by providing a bank statement showing the erroneous transaction.

If I have interpreted the situation correctly, what happened here is that a small business owner told their partner, "Sure, just pay me less next month," and the partner replied, "Fine, sounds good."

Now you are asking about the books. That conversation above represents a change in contract. Both parties agreed that one month would see an overpayment and the next an underpayment. Therefore, both invoices should be adjusted to reflect the actual payments made. Furthermore, they really ought to draft an amendment to formally document what was settled verbally.

That is the procedure if you intend to record what actually took place. If you choose to fabricate or manipulate the entries, then you can handle it however you wish.

But as I mentioned, I don't believe it is a critical issue; you could certainly handle it the way you suggested. It shouldn't result in any real consequences.

Please do not misunderstand me; I did not come here to lecture anyone on practical application. I recognize that the current method is sufficient for the circumstances we live in. It simply compels me to respond when I encounter something imprecise or illogical, as I seem to hail from a different universe where such details carry weight.

On a separate note regarding software depreciation, a colleague wants to depreciate it at a rate of 50%, but we have no idea what kind of software we are even dealing with. It is a reflexive move born of practice, purely to get the task finished as quickly as possible.

However, why not ask our colleague Nightcrawler, who specializes in this field, about the importance of precision within higher levels of finance.

Brenda Chase3 said:You’re overcomplicating the answer. I responded to my colleague based on her specific inquiry, not some "what if" hypothetical scenario. They didn't issue a refund; she clearly stated they applied the credit toward the next invoice, so that’s exactly how I framed my response. If they had actually sent cash back to a customer after five months, you wouldn't even be looking at an invoice—you'd be dealing with a misapplied payment, which you simply reconcile at year-end when filing your taxes by noting the discrepancy in your sales tax forms. That provides clear proof that the money was returned, making it a valid deduction. In her specific example, that isn't the case, which is why I pointed out the proper procedure. You don't need to dance around the truth like a politician; if you know the answer, just give the woman a straight answer. It’s not about being difficult or creating problems; I am simply explaining the correct way to handle things and how it can be rectified retroactively, which I already mentioned.
stormyviper2, you tend to give everyone vague, general answers rather than addressing the specific question at hand. I tend to be the exact opposite.

To put it plainly and clearly, this is an erroneous payment, and treating it like a down payment by calculating sales tax and such is nonsensical. It is quite bizarre.

The reasoning is straightforward: this was never a down payment, but merely a mistaken transaction. Without credible documentation to support treating it as a deposit, one only succeeds in digging a deeper hole.

Accounting should reflect reality rather than inventing narratives.

It is the most fundamental principle of bookkeeping: the recorded business transaction should, in the best possible way, mirror the actual economic event.

I say this as someone who does not work in the field, having only had to teach myself the basics to manage other aspects of my business.

Ultimately, the issue is entirely trivial. It holds no weight for the IRS, an auditor, any regulatory body, or potential investors. Since we are discussing a small business, 🤦 who truly cares...

Any debate on the matter was unnecessary, as it concerns a completely insignificant detail. She is free to proceed as you suggested, as there will be no consequences either way. It is simply imprecision that I find frustrating.

Brenda Chase3 said:A tax obligation doesn't trigger if the payment was a mistake and the funds are actually returned. The issue here is that they didn't treat this as a mistaken payment to be refunded; instead, they kept the cash and applied it as a credit toward the next invoice. That’s a fundamental distinction, and you can't treat those two scenarios the same way under accounting rules. If they had simply issued a refund immediately, we would be right back where you suggested. But since they held onto the money, there needs to be formal documentation explaining exactly why the customer wasn't reimbursed.

As I previously noted, correcting this now is a much more complicated endeavor. It is essentially a compounding error—you simply cannot hold onto those funds. On the other hand, one might argue that since books aren't necessarily closed every single day, perhaps she can just issue a refund once she notices the discrepancy; after all, it isn't a crime, is it? Though, surely, a significant amount of time shouldn't have elapsed.

What is the expected course of action for the IRS in a situation like this—are they going to go after her aggressively? 😁 In theory, she could still rectify the final sales tax filing for the year.

Brenda Chase3 said:Just to add a bit more clarity here: if you're operating as a sole proprietor, you're paying sales tax based on when you actually collect the payment. If you haven't seen a refund hit your account, it means you've successfully collected revenue without having issued a corresponding invoice—whether that’s a final bill or a deposit receipt.

If someone overpaid by mistake and you didn't catch it immediately, but you did return it once discovered, would that count as a collection?😁

Or would it be classified as an erroneous payment that falls outside the scope of sales tax?

Imagine a scenario where a slightly larger sum was deposited in error. In such a case, it would be wiser to focus on the core reality of the matter: the fundamental nature of the transaction was an incorrect payment.

Brenda Chase3 said:The textbook way to handle this would be to issue a deposit invoice—since, effectively, that's what it is—which gives you a credit to apply. This happens quite often, and if a deposit invoice isn't issued, most accountants simply treat the extra funds as a payment applied to the following month. In your specific case, you would just record that difference paid in February as being applied on March 1st.
Strictly speaking, my first suggestion is the most accurate because you would technically owe sales tax on that advance payment as of February.
That said, in everyday practice, most firms don't make a big deal out of using the second method when these things pop up.

But what is the rationale behind that? Shouldn't accounting entries serve as a true reflection of the actual business transaction? Why label it an advance if that wasn't the original intent? It seems more logical to treat it for what it truly is: an erroneous payment. Even though several months have passed, shouldn't the correct procedure have been to refund the entire incorrect amount and then have the client resubmit the exact payment required?

Where does the notion come from that a tax liability is triggered simply because someone made a clerical error during a transfer? 😁

Establishing a prepayment requires some form of documentation, such as a formal quote, a pro forma invoice, or a similar instrument, none of which seem to exist here. If I am interpreting the situation correctly, there is merely a service contract for monthly consulting fees. There is no mention of an advance, nor any documented reason to trigger a sales tax assessment. One cannot arbitrarily classify this as an advance for a future invoice if that wasn't the intent and if there is no paper trail to support it.

I am certainly not an expert in this field, so I cannot speak to how these matters are typically smoothed over in the industry, but the current logic appears inconsistent and likely inaccurate.

wanderingmoose59 said:Hey everyone,

With the business climate getting so messy and taxes hitting crazy levels, I’ve been thinking about moving my company headquarters overseas (maybe somewhere like Boston, Denver, Washington, D.C., or Austin)... so I wanted to pick your brains. Anyone done this before? What’s the vibe?

Also, since the IRS now has the power to shut down websites, what do you guys think about just moving everything over to .com domains entirely to stay safe?

Just a heads up: I’m running two different businesses—an auto repair shop and a wellness studio (massages, physical therapy, etc.).

Thanks in advance!

What is your actual goal in relocating the legal headquarters of your business? If you intend to continue operating your services right here in the US, you will likely face the same tax burdens and administrative hurdles regardless of where the paperwork is filed. Simply changing the registered address won't solve your problems; it will likely just create more complexity without providing any tangible relief.
The situation with domain names is much the same.

neonsurfer13 said:What’s actually the difference between a standard promissory note and a blank one?

A standard note specifies the exact amount owed right from the start, whereas a blank note offers more flexibility by leaving the figure open to be filled in later if the debt is collected through that note; because of this, blank notes are typically issued within certain credit limits, such as $5,000, $10,000, or even up to $1,000,000.

neonsurfer13 said:I’m looking at shipping some goods worth about $40000 to this massive corporation here in the States, but they want a 60-day payment delay.
Since I haven't worked with them before, I want to be safe and get some kind of formal guarantee that I’ll actually see my money.

What kind of payment guarantee document should I be asking them for?

You might consider a promissory note, or perhaps a combination of three separate ones, such as $100,000, $10,000, and $10,000.

Generally speaking, a promissory note serves as a reliable tool for securing payment; it is an agreement where the debtor provides notarized consent allowing you to collect any outstanding debts directly from their various bank accounts, ensuring the funds are transferred straight to you.

Nathan Kelly5 said:That's completely wrong. I don't do external accounting at all; I work in-house. In fact, I don't even strictly do accounting—I handle system-wide controlling, or sometimes I basically perform management duties because the executives can't even handle basic math, let alone make decisions.

External accounting firms make excellent money. Aside from salaries, overhead is almost nonexistent. At two external firms where I worked, the profit per employee was roughly $27. That means with 10 employees, you're looking at $267 in profit. And those weren't even premium clients; I'd say the billing was actually below average.

So, there's no such thing as poor earnings, regardless of what the media reports.

I am speaking about different reasons, which I have already explained sufficiently in this thread. I am speaking from the perspective of the evolution of the accounting profession.

The others are just speaking from self-interest. It’s tragic that hairstylists and waitresses are shaping the future of accounting. People like that shouldn't have a vote!

If you are primarily focused on management accounting within such a massive organization, why does any of this concern you?

External accounting firms can be incredibly lucrative. Once you account for salaries, there are virtually no other overhead costs. At the two external firms where I worked, the profit per employee was approximately $27. This means with just ten employees, you are looking at $267 in profit. And that isn't even considering high-end clients; if anything, I would say the billing was actually below average.

I am not an expert in the field, but it certainly sounds beneficial if one can provide those services with such a high profit margin.

I am speaking regarding different reasons, which I believe I have explained sufficiently within this thread. My perspective is centered on the evolution of the accounting profession itself.

What kind of "dark" evolution are you referring to? To be blunt, it is a craft that almost anyone can master if they possess the will. It is somewhat akin to the waitressing roles you mentioned; it isn't a job that necessitates specialized higher education or highly technical skills. As a general category, accounting has clear boundaries beyond which it simply transforms into something else entirely.

I am unsure what you mean by "development," but there are many sectors within finance that are broader and significantly more demanding than standard accounting. For instance, the work you do is on a much higher level. The same applies to fraud detection, forensic accounting, financial and management consulting, auditing, and tax advisory...

It seems to me as though you envision a typical bookkeeper evolving into an investment banker handling IPOs, mergers, acquisitions, restructuring, auditing, offshore accounts, and so on.

Nathan Kelly5 said:Cut the philosophy and the sentimentality. You sound like a politician. Our party consists of hardworking, honest, and dedicated individuals.

Be honest for once—how many accountants who take money from entrepreneurs have actually read even five or six basic laws relevant to their field? I’d wager that number is less than 1%. That isn't being hardworking or honest; it’s just pure incompetence.

Don't try to sell me that story; save it for your clients. When I started working in the service industry, veterans with 30 years of experience laughed at me when I said I studied one law or regulation every month, since nobody else bothers. Within a year, they were all coming to me for advice, telling me I was on a different level.

It isn't about being on a "different level"; it's simply standard practice anywhere in the world to spend the first few years of a career getting acquainted with the regulations of the country where you intend to work.

People are lazy, including accountants, and that is the crux of the matter. They know how to send an invoice, but they don't know the first thing about taking responsibility. Just collect the cash—that seems to be the motto across the entire North America.

And then there's the selling of these pathetic stories about experience, knowledge, honesty, and diligence. It’s nauseating. Anyone can see what the accounting profession looks like here.

Explain to me what is wrong with pursuing more education? Even if it is formal training? Are you just too lazy to learn? It benefits the employees themselves—they get free education from employers, probably some time off, and they actually understand their jobs. Even if knowing everything is considered "unnecessary" (though most don't even grasp the concept).

It is also in the interest of entrepreneurs to have educated accountants; they won't go broke over the cost of a few thousand dollars in lifetime training for their staff!

The market, the state, the banks, the investors, and the citizens all benefit from it.

The only ones who don't benefit are the licensed hairdressers and waitresses. So, congratulations on your victory; who can stand against you when you hold the majority?

I wouldn't claim to be on a "different level." Rather, it is standard practice all over the world for someone fresh out of university to spend their first few years mastering the specific regulations of the country where they intend to build their career.

There is a clear hierarchy in this profession. A bookkeeper certainly doesn't grasp regulations nearly as well as an accountant, and a CPA understands them far better than both. Every CPA tends to carve out their own niche, whether that involves auditing, tax advisory, asset protection, and so on. Naturally, one can further specialize by pursuing credentials like being a CFA, CMA (which would be your path, for instance), CIA, CFE, or similar certifications.

Of course, it makes sense to study the regulations if you are engaged in the work, even if it isn't your primary career but simply a broader area of interest. My own professional path never involved practical economic experience like accounting or legal tracking, yet I still managed to teach myself to a level exceeding 90% of standard bookkeepers or IRS employees.

However, one shouldn't expect this from everyone, nor is it economically sound, as we will see below.

People are just lazy, including accountants, and that is the crux of the matter. They know how to bill you, but they don't know how to carry a minimum amount of responsibility! Just grab the cash—that’s basically the motto across the North America.

I think I am losing you a bit here. From an economic standpoint, why would a bookkeeper invest more knowledge, effort, or responsibility into their work if they are receiving the exact same price?

Are we discussing honesty and character traits, or pure economics—specifically, the ratio of input versus output? There is no economic logic in what you are suggesting.

In my view, they would be fools to work significantly harder and more responsibly for the same fee. The system allows them to operate this way, but as I already explained, I won't repeat myself.

Explain to me what is so wrong with having more education? Even if it is prescribed? Are you just too lazy to learn? This is actually beneficial for the employees themselves; they get free training from employers, probably some time off, and they actually become better at their jobs. Even if knowing everything is irrelevant (though they clearly have no idea what that term means).

It isn't how the world normally works to make licensing mandatory; people choose to get licensed because they want to. It is a matter of the market.

Nathan Kelly5 said:"Quote:"

Aren't they? It’s just a collection of political appointees. Interested. There’s nothing quite like living off the sweat and expertise of others. You know you’ve hit the jackpot when the National Association of Manufacturers and the U.S. Chamber of Commerce finally see eye to eye. It doesn't get any easier than that.

I think you realize that everyone here is simply looking out for their own interests. financial interestsAnd whose are they? Financial interests. It doesn't take much brilliance to see through this. At the very least, one should be honest with themselves and the public—both individually and as part of those bloated groups of unnecessary people—about exactly who is pulling the strings and where they're coming from. Interested. They’re talking big, but they're really just hiding behind the interests of the accounting profession. Lol.

Those pathetic little pamphlets you call studies—is it even worth trying to debunk them? It feels like watching a task force conduct a "study" on how harmful growing grass is to a meadow. Even if every single point in your nonsensical pamphlet were easily disproven, what would actually change? Do you honestly think the accounting profession will suddenly gain some newfound vision and start speaking out against its own? financial interests?

It’s worth continuing the conversation on altruism, kindness, diligence, and integrity.

Is it really so strange that they are representing their own financial interests? 😁

Henry Edwards33 As expressed by:
We advocate for concise, unambiguous regulations and laws, ensuring consistency in how the IRS operates, reducing administrative burdens, and protecting the interests of CPAs. It seems like a positive direction to take. 😉

It seems a bit too vague, but since I am not privy to the specific details, I will refrain from commenting further.

Voluntary certification has never truly been an issue, though I personally feel it might be a futile effort under the current circumstances. If I were in a position to make decisions, I would implement a mandatory course for novice entrepreneurs, as they are the ones who most urgently need to grasp the laws governing their operations. However, that is a much broader and quite complex subject entirely.

Mandatory certification for entrepreneurs simply doesn't exist anywhere else in the world. It just isn't feasible. An entrepreneur should focus on their core business and outsource those technical requirements instead. While it is certainly in their best interest to be financially literate, they cannot realistically be expected to manage accounting themselves.

Henry Edwards33 said:Honestly, I agree with the sentiment, but trying to force this into our system is just madness.

Voluntary licensing is great in theory, but as you pointed out, it carries zero weight in our current setup. On the flip side, if we went with the proposed licensing model, it would basically mean shuttering a massive number of accounting firms overnight. Unfortunately, people haven't taken the time to really look at what that model entails—we're talking oversight from the Chamber, fixed price lists, 160 hours of mandatory annual education, and so on.

You need to build a sustainable foundation first; you don't start by trying to "polish" a broken system with licenses and fancy authorities.

Just imagine the IRS handing out certifications here. 🤣

The worst part is, I actually had the exact same thought about a year and a half ago.🙂

The focus here seems to be misdirected. Instead of what we see now, there should be an advocacy for a voluntary certification path modeled after the CPA. Such a designation would empower competent accountants with the authority to perform audits up to a certain level of complexity or revenue threshold. That is where true value lies. This shouldn't be a mandate, as it requires significant prerequisite knowledge and practical experience, but it would certainly allow certificate holders to command much higher fees for their expertise.

I actually had this exact same thought about a year and a half ago.🙂

It is hard to imagine what they would even certify, given that they lack the internal expertise to conduct the examinations themselves.🤣

It will likely be quite some time before we see the IRS handing out EA certificates.

Nathan Kelly5 said:Congratulations to the hairdressers and waitresses; you've successfully defended your incompetence and ignorance, proving your absolute determination to learn nothing at all before retirement. It clearly paid off!

My God, what a joke of a country..

🤣 I’ve already told you that getting certified isn't going to be your saving grace. I see firsthand how hard a truly talented accountant works for peanuts. Mine is incredibly knowledgeable and pulls massive hours, yet he doesn't earn anywhere near what he deserves. This is despite him having a degree from a top business school, holding his CPA and CFE credentials, and sinking countless hours and dollars into continuous education...

My point is this: the reason you can't command the fees you deserve isn't because of "waitresses and hairdressers" as you put it, but because there is zero oversight. Everything just slides by. And if everything passes without scrutiny, why would anyone bother paying for high-end accounting, tax, or financial advice?

Henry Edwards33 said:There’s nothing more pathetic than this kind of nonsense. It’s honestly shameful how you can just spit on so many skilled, honest, and brilliant professionals like that.
I, for one, am proud that we stood together and that I had the chance to meet so many capable and outstanding people along the way.

Not everyone is going to see eye to eye. While mandatory certification feels a bit absurd here, in functional countries, people pursue these credentials voluntarily if they actually intend to be serious about the profession. Without certification, you simply lack credibility. In the USA, sure, you can keep books, but if you aren't a CPA, you aren't taken seriously—who would hire you?

The gap between a certified accountant and an auditor here is far too wide, and auditors have exploited that divide to their own advantage. In the USA, a CPA has the authority to perform audits, which proves that the exam is anything but trivial.

On top of that, you have access to the CFE, CFM, CMA, and other specialized designations, plus there is the EA—a credential issued by the IRS that guarantees, from their perspective, that you are a true tax expert.

Just imagine if our version of the IRS started handing out certifications like candy... 🤣

Benjamin Phillips75 said:So, I’ve got a question about my tax refund after filing my annual return.
I was looking for a direct transfer to my checking account.
It’s been over a month—nearly two, actually—and absolutely nothing. When I call them up, they claim the transfer was rejected because of an outstanding debt (about $1,700$28). No notice, no heads-up, nothing. Fine, I went ahead and set up a payment from the refund amount toward the debt about ten days ago—maybe a little less. Today I check my statement, and the debt is still sitting there, and the money (for my subscription) hasn't moved either. ;(
Has anyone else dealt with this mess? Why on earth does it take them this long to fix their own errors?

First, you should carefully examine your online IRS portal to see the current status of your filing and check if there is an official explanation for the denial.

If everything appears to be stuck without reason, I suggest submitting a formal complaint through the IRS website; typically, that prompts a much swifter resolution.