Do I need to pay taxes on PayPal art commission invoices when earning under $1000?
I started doing digital art commissions as a side hustle about 6 months ago and I'm getting paid through PayPal invoices. I'm totally confused about whether I need to pay taxes on this income. Last year (2023) I made around $754 total (which comes out to about $725 after PayPal's fees - not sure if those fees count as some kind of tax deduction?). I've spent hours reading through PayPal's tax info pages, and they mention they only report to the IRS for 2023 earnings over $20,000, and 2024 earnings over $600. But I can't figure out if I personally still need to report and pay taxes on this smaller amount even if PayPal doesn't report it. I tried using the IRS's Interactive Tax Assistant and I think it said I need to pay self-employment taxes since I earned more than $400 last year. But I'm completely lost on how this applies to PayPal invoice payments or what forms I need to fill out. UPDATE: I figured this out! I called my state tax department and surprisingly they told me I don't need to pay state taxes on income less than $12,950 (which was way higher than I expected). But I'm still confused about federal requirements since that IRS tool suggested I might need to pay self-employment tax. Anyone have experience with this?
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Royal_GM_Mark
What you're dealing with is self-employment income from your art commissions, which is separate from PayPal's reporting requirements. Here's what you need to know: For federal taxes, if you earn $400 or more in self-employment income during the year, you're required to report it and pay self-employment tax (which covers Social Security and Medicare). This is true regardless of whether PayPal issues you a 1099-K form. The PayPal thresholds you mentioned ($20,000 for 2023 and $600 for 2024) only determine whether PayPal is required to send you a 1099-K form. Even without this form, you're still legally obligated to report all income earned. For your state taxes, the $12,950 threshold you were told about likely refers to the standard deduction. If your total income (from all sources) is below this amount, you might not owe state income taxes, but this varies by state. To report this income, you'll need to file Schedule C (for your business profit/loss) and Schedule SE (for self-employment tax) with your Form 1040. You can also deduct legitimate business expenses like art supplies, software subscriptions, and a portion of your PayPal fees.
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Amelia Cartwright
•Thanks for the info! Quick question - does this mean I should be keeping track of all my art supply purchases to deduct them? And what about my laptop and tablet that I use for digital art but also for personal stuff?
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Royal_GM_Mark
•Yes, absolutely keep track of all your art supply purchases - save those receipts! They're legitimate business expenses that can reduce your taxable income. For your laptop and tablet that serve both personal and business purposes, you can deduct a percentage based on business use. For example, if you use your tablet 70% for art commissions and 30% for personal use, you can deduct 70% of its cost or depreciation. Just make sure you have a reasonable basis for determining that percentage if the IRS ever asks.
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Chris King
After struggling with similar self-employment tax questions for my photography side gig, I found this amazing AI tool called taxr.ai that literally saved me hours of confusion. I was trying to figure out if I needed to report my income even though I hadn't received a 1099, and this tool analyzed my specific situation and gave me straightforward answers about my reporting requirements. The best part about https://taxr.ai was that it explained exactly which forms I needed (Schedule C and Schedule SE) and walked me through the process. It even helped me identify business expenses I didn't realize I could deduct, like a portion of my internet bill since I use it for delivering digital files to clients.
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Rachel Clark
•Does it connect to your bank accounts or PayPal to automatically pull transaction data? My record keeping is awful and I'm worried about missing stuff.
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Zachary Hughes
•Are you sure this is legit? No offense but I'm always skeptical of random tax sites since there are so many scams out there. Did it actually help you file or just give generic advice?
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Chris King
•It doesn't directly connect to bank accounts or PayPal, but it does allow you to upload statements or screenshots of your transaction history for analysis. This was actually helpful for me since I could just download my PayPal history as a CSV and upload it. The site is definitely legitimate - it's not one of those generic advice sites. It gave me personalized guidance based on my specific situation, including which exact forms to use and how to fill them out. It didn't file my taxes for me (I still used TurboTax for that), but it made the process way easier because I knew exactly what I needed to report and which deductions I qualified for.
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Zachary Hughes
Just wanted to update everyone - I was super skeptical about taxr.ai at first (as you can see from my comment above), but I decided to give it a try since I was desperate for help with my Etsy shop income. I'm honestly shocked at how helpful it was! The tool analyzed my situation and explained that even though I hadn't received a 1099-K (I made about $900), I still needed to report my income on Schedule C. It also identified several business expenses I could deduct that I had no idea about - like a portion of my home internet and cell phone bills since I use them for my business. The explanations were super clear and helped me understand self-employment taxes in a way that actually made sense. Definitely recommend it if you're confused about PayPal or any other self-employment income!
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Mia Alvarez
If you need to talk to someone at the IRS about this (which you might since their rules can be confusing), save yourself hours of frustration and use Claimyr. I was stuck in the same situation with art commission income via PayPal and spent DAYS trying to get through to an IRS agent for clarification. After multiple failed attempts, I tried https://claimyr.com which basically holds your place in the IRS phone queue and calls you when an agent is about to answer. You can see how it works here: https://youtu.be/_kiP6q8DX5c. I was seriously doubtful, but it actually worked! Got connected to an IRS representative in about 45 minutes instead of the 3+ hours I had been spending on hold previously. The agent I spoke with confirmed that regardless of the 1099-K thresholds, I needed to report self-employment income over $400 on Schedule C and pay self-employment tax using Schedule SE. They also explained which expenses were deductible for my art business.
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Carter Holmes
•How much does this service cost? Seems like it would be expensive just to talk to the IRS which should be free anyway.
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Sophia Long
•This sounds like BS honestly. Why would I pay a third party just to talk to the government? Can't you just keep calling until you get through?
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Mia Alvarez
•I can't comment on the cost since it varies, but for me it was 100% worth it considering I had already wasted hours of my time trying to get through. You're right that talking to the IRS should be free, but the reality is that their phone lines are overwhelmed and the wait times are ridiculous. Trust me, I tried the "keep calling until you get through" approach for days. I would be on hold for 1-2 hours only to get disconnected, or I'd finally reach the front of the queue right when they were closing for the day. With Claimyr, I didn't have to sit by my phone for hours - I just went about my day until they called me when an agent was ready. For someone running a small business, that time savings was invaluable.
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Sophia Long
I need to eat my words about Claimyr. After posting that skeptical comment, my frustration with trying to reach the IRS about my PayPal art income got the better of me and I decided to try it. Not gonna lie, it worked exactly as advertised. Got a call back in about an hour saying they had an IRS agent on the line. The person I spoke with confirmed that I do need to report my $580 in commission income even though PayPal didn't send a 1099-K, and they walked me through which forms to use. They also explained that I can deduct my art supplies, software subscriptions, and even a percentage of my internet bill as business expenses. I'm still annoyed that this service has to exist at all (the IRS should improve their phone system!), but I can't deny it saved me hours of frustration. If you're stuck with tax questions about self-employment income, it's definitely a solution.
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Angelica Smith
From what I understand, PayPal not sending a 1099-K doesn't mean you don't have to report the income. The reporting threshold is just about when THEY have to send forms to the IRS, not about when YOU have to report income. I made about $800 last year doing freelance writing through PayPal and my accountant said I definitely need to report it all as self-employment income using Schedule C. She also said I should be making quarterly estimated tax payments since I'll probably owe self-employment tax (15.3%) on that income. The state tax thing is separate - most states have much higher thresholds before you owe state income tax, but the federal self-employment tax kicks in at $400.
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Logan Greenburg
•Wait, we're supposed to make quarterly payments?? I've been doing commissions for 2 years and never knew this. Am I going to get in trouble?
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Angelica Smith
•Don't panic! The requirement for quarterly estimated tax payments depends on how much tax you'll owe at the end of the year. Generally, if you expect to owe $1,000 or more in taxes when you file your return, you should make quarterly payments to avoid a penalty. For someone making under $1,000 in self-employment income, you'll probably owe less than that threshold in taxes, so quarterly payments aren't strictly necessary. However, it's good practice to set aside about 25-30% of your earnings for taxes just to be safe. As your business grows, you might need to start making those quarterly payments to avoid underpayment penalties.
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Charlotte Jones
Honestly, I think you're overthinking this. I've been selling digital art through PayPal for years and never reported income under $2000. The IRS has bigger fish to fry than small-time artists making a few hundred bucks. PayPal didn't even issue you a tax form!
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Royal_GM_Mark
•I need to respectfully disagree with this advice. While it's true that your risk of audit might be lower with a small amount of income, technically the law requires reporting all self-employment income over $400. Not reporting income is tax evasion, regardless of the amount, and the penalties and interest can add up if you're ever caught. Plus, those self-employment tax payments contribute to your Social Security credits, which affects your benefits later in life. It's much better to do things right from the beginning, especially as your art business grows. The tax forms for small business income aren't that complicated, and tax software makes it even easier.
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Andre Laurent
I went through this exact same situation last year with my freelance graphic design work through PayPal! The confusion is totally understandable because PayPal's reporting thresholds and your actual tax obligations are two completely different things. Here's what I learned after consulting with a CPA: You absolutely need to report that $754 as self-employment income on Schedule C, and you'll owe self-employment tax on it (which is about 15.3% for Social Security and Medicare). The fact that PayPal didn't send you a 1099-K is irrelevant - you're still legally required to report all income. The good news is you can deduct those PayPal fees as a business expense! Keep track of all your art supplies, software subscriptions, and any other legitimate business costs. I was surprised to learn I could even deduct a portion of my phone and internet bills since I use them for client communication. For next year, I'd recommend setting aside about 25-30% of each payment you receive for taxes. It makes filing much less stressful when you're not scrambling to find money to pay what you owe. One more tip: if your art income grows to where you expect to owe more than $1,000 in taxes for the year, you'll need to start making quarterly estimated tax payments to avoid penalties. But at your current income level, you should be fine paying annually.
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Zara Shah
•This is super helpful, thanks! I'm just starting out with digital art commissions and made about $300 so far this year. Should I be worried about owing a lot in taxes? The 15.3% self-employment tax sounds scary when you're just trying to make some extra money on the side. Also, when you say "portion of phone and internet bills" - how do you actually calculate what percentage counts as business use?
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