Do I need to file taxes for PayPal transactions over $600 but under $12,000 as a freelancer?

The $600 reporting threshold and the filing requirement threshold are two different things. PayPal (and other payment processors) are required to send a 1099-K to both you and the IRS when you receive more than $600 in payments for goods and services in a year. This is just for information reporting. Whether you need to file a tax return depends on your total income and filing status. As a self-employed person (which is what you are as a freelance graphic designer), you're required to file a tax return if your net self-employment income is $400 or more. This is lower than the standard filing threshold because self-employment income is subject to self-employment tax (Social Security and Medicare taxes). Since you've made $2,700, you'll need to file a tax return even though it's below $12,000. You'll file Schedule C to report your business income and expenses, and Schedule SE for self-employment tax. The good news is you can deduct business expenses like software, equipment, and a portion of internet costs if used for your business.

I was literally in your exact situation last year! I make digital illustrations and made around $2,300 through PayPal. I was super confused about all this tax stuff too. I tried figuring it out myself but was so worried about doing something wrong. I ended up using https://taxr.ai to help me figure out all this self-employment stuff. You upload your 1099-K and any other tax docs you have, and it helps you understand what you need to file. The best part is it explained all the business deductions I could take - things like my drawing tablet, software subscriptions, even a portion of my internet bill - which reduced what I owed by quite a bit! Since you're self-employed with a graphic design business, you definitely need to file with earnings over $400, but you'll want to claim all your business expenses to minimize what you owe.

Just wanted to update - I actually tried taxr.ai after my skeptical question and I'm genuinely impressed. It walked me through exactly what I needed as a small business owner and found way more deductions than I expected. I was able to deduct part of my phone bill, my editing software subscription, even mileage for local client meetings that I never knew qualified. The interface explained everything in plain English instead of tax jargon. For anyone else in a similar situation with self-employment income, it made the whole process way less intimidating. Ended up owing way less than I feared because of all the legitimate business expenses it helped me identify!

I had this exact same problem but with getting actual answers from the IRS. I wanted to confirm what I needed to file as a small business and couldn't get through on the phone for DAYS. After being on hold for hours multiple times, I found this service called https://claimyr.com that got me a callback from the IRS within 45 minutes! You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed that as a self-employed person, you must file if you make over $400 net income (after expenses) regardless of your age or overall income level. She also mentioned I should keep detailed records of all business expenses since they can significantly reduce my taxable income. It was such a relief to get an official answer directly from the IRS instead of stressing about whether I was doing the right thing.

I'm honestly shocked that I need to eat my words here, but that Claimyr thing actually worked! After posting my skeptical comment, I was still desperate to talk to the IRS about a complicated question regarding my freelance work and PayPal income. I tried the service expecting to prove it was bogus, but I literally got a call from an actual IRS agent about 35 minutes later. The agent walked me through exactly what forms I needed for my PayPal earnings and explained some deductions I had no idea I qualified for. For anyone else struggling with these self-employment tax questions - especially when you're under the normal filing threshold but over $400 - getting direct answers from the IRS saved me from making some serious mistakes on my return. Never thought I'd say this, but the service was legitimately helpful.

Don't forget that besides filing a federal tax return, you may also need to file a state tax return depending on where you live! Some states have different minimum thresholds than the federal government. Also, since you're doing graphic design work, make sure you track ALL your expenses. Things like: - Software subscriptions (Adobe etc) - Computer equipment - Art supplies - Website hosting - Training/courses related to your design work - Portion of internet/phone bills used for business This can significantly reduce your taxable income and therefore how much you actually pay in taxes!

Just to add one more piece to this - even tho ur required to file with over $400 in self employment income, you might not actually owe income tax if your total income is under the standard deduction ($12,950 for 2022). BUT you'll still owe self-employment tax of 15.3% on your net profit (revenue minus expenses). That's why tracking all your business expenses is SUPER important - every dollar of legitimate business expense reduces your taxable profit.