Popular small business tax questions, answered.

May 19 2021 | PayPal editorial staff

Aaron Berson, manager and cloud accounting ecosystem curator at accounting firm EisnerAmper, offers his insights on common small business tax questions.
Please note: The information in this article does not constitute tax advice and should not be relied on as such. You should always obtain independent, professional accounting, tax, financial, and legal advice before engaging in any transaction.

Taxes. Just the word may be enough to raise your blood pressure, especially if you’re busy running your business and would rather serve customers or brainstorm new products than deal with tax paperwork. But having some insight into the world of taxes may help alleviate some of the stress. 
 
Q. Can I deduct business expenses if I have no income?
A. I recommend that my clients deduct all of their expenses. Here’s how I explain this to them: If you have more expenses than income – which can be common when you’re just starting your business – you have a net operating loss (NOL). This loss may be able to be used to offset taxes from other income (such as any W-2 employee income that you earn) depending on your business type, or it may be possible to carry it over into future tax years, which could also help you save when you do have income. Keep in mind that rules for NOLs have changed with 2017’s new federal tax bill, so check with your financial advisor to see how the changes might affect you.
 
Q. Can I take deductions for business expenses even if I don’t have the receipts?
A. It’s possible, although if you are audited by tax authorities, you’ll have to produce documentation for the expenses you’re claiming. In general, for travel, entertainment, and auto expenses, you don’t need receipts if the expense is less than $75 (see this IRS publication for more details about the rules for deducting and documenting these expenses). So, if you forget to save the receipts for a business lunch here or there, or a gas fill-up, you may still be able to take the deduction. However, it’s a good practice to keep receipts for everything to do with your business.
 
Q. What’s the difference between being “self-employed” and being a “sole proprietor”?
A. As we tell our clients, there’s often no difference from a tax standpoint. Self-employment just means that you work for yourself, whether it’s as a freelancer or as a business owner. A sole proprietor is the sole owner of a business and is liable for its debts. However, a sole proprietorship is not a legal entity (the way an LLC is). Income from sole proprietorships is simply reported on Schedule C of your personal tax return – with no need for a separate tax return.
 
Q. Can I file taxes as a business if I don’t have a business license?
A. Technically, yes – you shouldn’t need a business license to file your taxes. But I’d note that many states require that businesses be licensed, which means that operating without a business license could lead to legal issues separate from taxes. That said, you may not need a business license to file taxes on Schedule C of your personal tax return if you don’t have a formal name or business entity depending on your state.
 
Q. Does my business need to become a legal entity like an LLC or an S-Corp?
A. There are a lot of things to take into consideration when deciding what type of legal entity to create for your business. Creating an LLC can offer valuable legal protections, such as separating personal and business property (a lawyer can help you determine if this makes sense for your business). You may have to pay extra local taxes to operate as an LLC, but there are advantages as well, including the ability to open a bank account under the business’s name.
 
Here are some basic differences among the ways you can structure your business:
  • Sole proprietor or LLC (limited liability company): These are known as “flow-through entities,” meaning the income flows to you as the owner and is reported on your personal income tax return and taxed at your personal rate. The new 2017 tax law provides for up to a 20% exclusion of this type of income if you meet certain requirements – ask your accountant about this.
  • C-Corporation: A C-Corp is a legal entity that stands on its own, meaning it pays its own taxes. This can create double taxation if income is taken out by any owners in certain ways, such as dividends.
  • S-Corporation: This is a legal entity like a C-Corp; but for taxation purposes, S-Corps act as flow-through entities. S-Corps are not recognized in all jurisdictions, and some jurisdictions treat them like C-Corps. For example, In New York City S-Corps are treated as C-Corps and must pay corporate taxes.
 
Q. What income tax forms do I need to file for my business?
A. Each state has its own forms for different business types. For federal income taxes, here’s a brief list of the IRS forms needed for various business types:
  • If you are the sole owner of an LLC or operating as a sole proprietor, you will need to file a Schedule C, which is part of your personal 1040 filing.
  • If you are self-employed via an LLC with any other business owners, you will need to file a form 1065. There are also forms that you need to attach to your personal tax return as well.
  • If you have a corporation (C-Corp or S-Corp), you will need to file a Form 1120 or 1120S.  In addition, you may need to also file additional forms with your personal tax return too.
  • You may need to file 1099s for any subcontractors that are paid over $600 per year, or W2s for employees.
 
The more you know about the taxes that affect your business, the more prepared you’ll feel when filing deadlines approach.
 
For other tips on running your business, visit the PayPal Business Resource Center often – you’ll find articles on payment processing, selling internationally, and marketing, among many other topics.
 
Aaron Berson is a manager in EisnerAmper’s Private Business Services group. He serves a diverse client base from startups to mid-sized companies. His expertise includes financial statement preparation, tax preparation, and accounting system implementation and training as well as app ecosystem curation and education.

 
This article is a general summary of certain U.S. Federal income tax laws and regulations relating to small businesses and is provided for informational purposes only. Neither PayPal nor EisnerAmper LLP represent or warrant that the guidance given in this article is complete, appropriate for any particular business purpose or use, or an accurate description of the laws that may apply to any particular taxpayer.

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Frequently asked questions.

You can buy a range of accessories that work with the PayPal Zettle app from the Zettle shop. We offer printers, cash drawers, barcode scanners, card reader stands, iPad stands and more. 

Get hardware for your business

You have the right to cancel your hardware purchase, without providing any reason, within 30 days from the day the card reader is delivered to you.  

The easiest way to cancel your hardware purchase is to use the following cancelation form. Don’t forget to include the completed form in the package when you send back your hardware.

Tips:

  • It’s up to you to pay any cost of the return shipping. 
  • You’re responsible for the product until PayPal Zettle receives it. We recommend shipping options that include tracking.
  • The hardware should be returned unused, in its original packaging with any accessories.
  • Once we’ve received your returned items, the refunded money is returned to the card used for the original purchase within 30 days.
  • It’s not possible to return and receive a refund for any Apple products purchased from us.

How do I receive a Sales Tax exemption on my order?

PayPal will refund sales tax on purchases to eligible Sales Tax exempt organizations with a properly completed exemption certificate or other acceptable proof of exempt status in the state where the items will be shipped.

Once you have completed your device purchase, please forward the confirmation email and a valid Sales and Use Tax Exemption Certificate to taxexempt@paypal.com. Please ensure the name of the purchaser matches the Certificate and all applicable fields are completed. Once your organization's Sales and Use Tax exemption has been verified, PayPal will refund all applicable taxes to your organization’s PayPal account. After approval, future orders will not be charged sales tax when the order is settled (it may appear on order confirmations), provided valid proof of exemption is on file for the state(s) where the items will be shipped. 


You'll be notified via email once your tax exempt request has been approved. It may take up to 3-5 business days.

Warranty

All of the items available at the store have a one-year warranty, except the printers, which have a four-year warranty.

Star Micronics

Star Micronics printers come with a four-year warranty and with a one-year warranty on all other products such as their cash drawer. Get support here.

Socket Mobile

Socket Mobile provides us with a small and easy-to-use Bluetooth barcode scanner. It comes with a one-year warranty. Get support here.

The product library is where you can add custom images, update prices, add taxes, and create discounts.  

Once you’ve set up your library and started selling, you can measure the health of your business through reports that track valuable data such as top-selling products and sales stats. 

You can set up your product library directly in the PayPal Zettle app or by logging in to your PayPal Zettle account, where you can complete more advanced tasks like importing from spreadsheets and bulk updating products and variants.

Your product library online


Log in to your PayPal Zettle account and you’ll find all of your products under the Products tab. From here you can add a new product, import, or export to and from spreadsheets and edit existing products.

Sorting columns

By clicking on the column name, you can change the default sorting of the list. By default, all products are sorted alphabetically by product name. To view products in the opposite order (example, from z to a), click the header. By clicking again, you’ll go back to the default.  

Clicking on the columns to change the order of your products doesn’t change the way your products are displayed in the PayPal Zettle app. 

Quick-edit mode

By moving your mouse over a product, a pen and trash can icon appear at the end of the row. To edit the product information, click the pen icon, edit directly in the fields, and click on checkmark or press enter to save. 

To edit multiple products, click the pen icon for each row and tab through the fields. This is useful if prices need updating on multiple products.  

To delete a product, click the trash can icon.

Bulk assign and bulk delete

Bulk assign: Assign categories to products in your list by selecting a few products, press the action menu and choose add category. This will trigger a pop-up in which you can either assign from an existing category or add a new one.  

Bulk delete: By selecting multiple products, you can delete them all at once by clicking the red trash can icon. This action cannot be undone and the products are permanently deleted.  

The product library in the PayPal Zettle app


In the PayPal Zettle app, you’ll find all your products under the Sell tab. From here, you can organize your products to ring up sales quickly, add new products, and edit existing ones.

List or grid view?

The product library can be displayed in a few different ways. You can either view the library as a grid (if you’re using an iPad, you can change the size of your grid by using the icon above it) or you can swipe to the left and view your library as a list with a search bar above it. 

Organizing your products in folders

You can speed up sales by grouping products together, this should help you to find them easier in the app. This can be done in the iOS app by dragging products over each other, and in the Android app by visiting the product detail page. 

Adding products


In the PayPal Zettle app

Go to Sell and begin by clicking the Edit button, followed by the + sign to the right. Choose whether you’d like to add a “Product” or “Discount.” When you choose “Product," enter the name, price, category, variants (if needed), and a photo. 

Adding products in bulk

If you want to add many products (for example if you receive a large number of products from one supplier, or if you want to import products from another platform), you can bulk add them into your product library online by uploading an Excel file with the details. You can add up to 2,000 products at a time and repeat the process as you add more products. 

When importing products in bulk, you can also import inventory values.
  • Setting prices: When you create a new product in the library, you can choose to either set a fixed price or a price based on a custom unit like pounds or hours. 
  • Price per unit: Set a fixed price or price per unit for each of your products/services. You can also leave the price field empty and manually enter the amount each time you add it to a shopping cart.
  • Custom unit: You can set your own price based on a custom unit such as pounds, hours, or any other unit you’d like. Enter the unit of the product (for example, pounds) and the price per unit. When you add a product to a shopping cart, enter the number of pounds sold and the price will be calculated automatically.

Setting up categories

When you create a new product or when you’re editing an existing product, you can decide which category you want to place it in.  Adding products to a specific category is useful because you can then filter your sales reports to show how different categories sold by week, month, or year or season. 

Currently, categories aren’t visible in the PayPal Zettle app and can only be added and viewed online.

Adding and assigning categories

Whether you’re creating a new product or editing an existing one, categories can be assigned in two ways:  
  • In bulk - in the product list, you can choose a group of products that you’d like to assign the same category. For example, if you have different ceramic pots, you can add them to the “ceramics” category so that you can compare them with your “porcelain” pieces at the end of the month.
  • Single - each product has a detail page. Here you can add a category to each specific product by typing in the “Category” field and clicking add new.

You can always choose and assign from previously created categories too. 

Important to keep in mind while categorizing products

Think about how you’d like to organize your products into categories beforehand. You can’t remove a category completely, but you can always create new ones.  New categories won’t show up in your reports until you’ve made a few sales.

To remove a category: Click the x and remember to save. This action will leave the product uncategorized – meaning it will show up without a category in your reports. 

Adding variants

You can add multiple variants to a product that comes in more than one option, such as size, color, and style. You can add up to 3 options per product. Each combination of options makes a variant. A product can have up to 100 variants in total. 

For example, you’re selling a T-shirt that comes in two options: size and color. The size option has 3 values: small, medium, large. The color values are: black and white. So, a variant example for this product is T-shirt, small, black. 

In the PayPal Zettle app:
  1. From the library, tap Edit and the + button in the right-hand corner.  
  2. Add a product name. If you fill in price and/or cost price, these values are automatically applied to all variants. You don’t need to fill in the barcode, in stock or SKU fields, as these values are added per variant. 
  3. Scroll to the section labeled "Variants" and tap Add variants.
  4. Tap Add option to add your first option.
  5. Now you can add values for your option. Tap Done on the keyboard or tap + to add the option value. Repeat this step until you’ve added all values. Tap Save
  6. Repeat step 4 and 5 until you’ve added all options to your product.  
  7. Tap Save. You’ll now see all product variants in the list.  
  8. Tap on a variant to edit values such as barcode, in stock and SKU. 

In your PayPal Zettle account:
  1. In the Variant section of the product page, click Add option
  2. Enter a name for the first option (the order in which you set up the options will be how they’re displayed in your POS app and online store).
  3. Fill in option values. Separate the values with a comma or by pressing enter. 
  4. To add more options, click Add option. You can add up to 3 options per product. 
  5. A list with your variants appears below and you can fill in attributes such as price, barcode, stock, and SKU. If you’ve entered these attributes on product details, they’ll be pre-filled on the variant level. 
If you can't see all the fields available, click the 3 vertical dots in the right corner of the table and choose "show all fields."

For products that don’t have any variants, pricing, stock, and SKU are shown on product details. Once you have added variants, these attributes are editable on variant-level, instead of product-level. 

Bulk-editing variants

If you want to edit many variants at once (for example, changing the price of many variants in one go), follow these steps: 

In the PayPal Zettle app:
  1. From the library, tap Edit and tap the product you want to edit.  
  2. In the variant section, tap Edit
  3. Choose the variants you want to make changes to. You can also choose multiple variants at once by tapping the filter button.  
  4. Apply the change and tap Save.

In your PayPal Zettle account:

In the ‘Variant details’ section of the product page, choose the checkboxes of the variants you want to edit. You can also choose multiple variants at once from the top-left checkbox dropdown. 
  1. Choose the action that you want to apply in the “Actions” dropdown. 
  2. Apply the change and click Save.

Adding products to the cart and using discounts can only be done in the PayPal Zettle app.

Adding to cart

Tap on a product in your library to add it to the cart. Once a product has been added to the cart, you can tap on the product to:
  • Increase the amount of that product.
  • Add a comment about that specific product, which can also be done when selling a product with a custom amount price.
  • Add a discount to that the product. 

Adding a discount: from your product library, click Edit and + in the right-hand corner. Choose “Discount," enter either a percentage or a fixed amount, and give it a name.

Using a discount

You can apply a discount to individual items or all items in the shopping cart. Go into the cart, tap the Discount button, and choose either a percentage or fixed amount. You can also apply a discount to specific products in the cart by tapping on the item and editing the “Discount” field.

Importing and exporting your products


If you’re editing or adding a lot of new product information to PayPal Zettle, we recommend importing the changes by uploading an Excel or CSV file. This can be especially useful when transferring information from another system, or when setting up your store. 

To get started, log in to your PayPal Zettle account online and go to Products.

If you have an empty product library:
  • Download the template file by clicking Import and finding the link to Download the template file.  
  • Once you’ve downloaded the template file, open it in the preferred software (Excel or Numbers, for example).
  • The template file contains a number of columns with headers such as Name, Price & Stock amount.  

Important - if you're importing your products and intend to collect tax:

If you want to collect tax on your products, we recommend setting up your most common tax rates before starting the import. If you have an empty product library and haven’t added any tax rates yet, the template file won’t include tax rates – meaning that the import will happen without taxes enabled on the products. You’ll then have to add tax rates manually to each product later.

We recommend setting up taxes first and then downloading the template file. 

Adding information to the Excel file:

Once you’ve set up your taxes (if necessary) and downloaded the template file, it’s time to start adding your product information. The template file makes it possible for our system to understand the information you’ve added and populate your product library accordingly.  

Important note: Don’t edit the headers or the structure of the file; only add information below in the relevant rows. There’s an identifier in the sheet (ID); please don’t edit or delete this information either, as this makes it possible for us to import the data you’re adding. 

The template file contains a number of columns; below each column are empty cells. In these cells, you can add the relevant information. If there are columns that you don’t wish to fill out, leave them empty. The only column that is mandatory for an import is the name of the product.  

Columns explained:
  1. Name: Your product’s name. Can contain both letters and numbers. (Required) 
  1. Custom unit: If your product is sold as individual items, you can leave this column blank. Otherwise, you can enter units like g (grams), m (meters), or hrs (hours) here. Unit names can’t be longer than 4 alphabetical characters. 
  1. Taxes: The following columns about taxes reflect the rates that you’ve added in your library, so these will differ depending on the taxes you’ve created in your account. The accepted values are YES, for Yes this tax is applied or NO for No this tax doesn’t apply. If your product is Exempt, write YES under the Exempt Column and make sure that the other tax cells are empty for that product.  
  1. If you have products with different variants, you can add those directly in the file and import them by filling in the type of variant under Option 1 Name, and then fill in the values for that Option 1 under Option 1 Value. The combination of options and values will result in a list of variants. 
a. Example: If you sell a T-shirt that comes in a few different sizes & colors, you fill in the following information:  
  • Option 1 Name: Size 
  • Option 1 Value: Small, Medium, Large (each on a different row) 
  • Option 2 Name: Color 
  • Option 2 Value: Blue, Purple, Green (each on a different row)  
b. You can add up to 3 options per product and have 100 variants per product in total. 
  1. Price: The price of the item. Leave it blank if you want to enter the price at checkout or enter a numerical value. 
  1. Cost price: The price you bought the item for, enter a numerical value. 
  1. Barcode: If you have products with barcodes, you can add the barcode number to this column. Then you can scan the product in the PayPal Zettle app, enter numerical or alphabetical values.  
  1. SKU: The SKU (Stock Keeping Unit) of the variant. A SKU is the unique ID you assign to an item for inventory tracking purposes. Numerical or alphabetical values.  
  1. In stock: The stock quantity of the item. If you fill in an amount, the inventory tracking for this item is automatically turned on. After you have imported the Excel file, you’ll see the new stock balance in the Inventory tab. Enter a numerical value. 
  1. Variant ID: When adding new variants, leave this column blank. The ID is automatically generated and it is our way of knowing if a variant is already in your product library.  
  1. Product ID: When adding new products, leave this column blank. The ID is automatically generated and it’s our way of knowing if a product is already in your product library. 

Important note: Don’t remove, rename, or reorder the columns or the headers, as this will make the import fail. Don’t change the Product ID or Variant ID either as we use these details to update existing products in your library, if you have them. 

If you sell products online:

The downloaded Excel file will look different if you sell online. This is because, with online sales, more product information is available to you in PayPal Zettle so your file will include all the above fields, as well as these additional ones:  
 
  1. Visible online: Write YES if you want to sell the product online and in your store. Write NO if you only want to sell the product from your point-of-sale app. 
  2. SEO title: Add a descriptive title for your product. The title will display as a link in search engine results. We recommend a title that is 70 characters or less. 
  3. SEO description: This meta description is the short snippet of text that shows up under the title in search engine results. Make sure that each product has a unique and compelling description to maximize clicks. Max. 320 characters. 
  4. Shipping weight in grams: If you’re configuring real-time or weight-based shipping rates, the product weight is required. Otherwise, leave this blank. 
Once you’ve added the information you need, you can follow the same steps below to upload the document.

If you have an online store with any of our partners, you can seamlessly integrate your two libraries and avoid making manual updates.

Uploading the file:

Once you’ve added all the information to the file, save it in either.xsxl (excel) or .csv (universal) and drag it into the upload area of the modal. You can also click Upload from computer to choose a file from your hard drive. 

Important note: We can only accept 2,000 rows in the file, per upload. If you exceed this number of rows in your file, please upload your library in batches of 2,000.  

Review your upload:

Once the loading finishes, you’ll get a preview of the changes we’ve detected in the file. This step may include errors that need correction. If that is the case, follow these steps:  
 
  1. Click Upload another file; this will take you back to the previous step.
  2. Open your file on your computer and correct the mistakes in the sheet.
  3. Make sure you’re using the correct values for the column – for example Price can only contain numbers (numerical values).  
  4. Save the file.
  5. Upload again by either dragging and dropping the file in the modal, or clicking Upload from computer
If there are no errors in the file or on the server, the file is uploaded and instead you’ll get a preview of the changes in your file.  

If everything looks good, click Import. This may take a few minutes.

Exporting and editing existing products:

If you have created Products previously, the easiest way to make updates in bulk is to Export your library to a .xlsx file following these steps:  
 
  1. Go to Products.
  2. Click Export; the file should automatically start to download in your browser.  
  3. Open the file in your desired software (excel or numbers for example).
  4. Make the appropriate changes following the guidance above under the Section “Adding information to the Excel file."
  5. Save the file to your computer.
  6. Go back to your PayPal Zettle account and click Import.
  7. Drag the file to the upload area or click Upload from computer and click Upload
  8. Review the changes or correct any mistakes if needed (follow the instructions under the section “Review your upload”).
  9. Click Import if there are no mistakes to fix. 
Important note: Don’t remove, rename, or reorder the columns or the headers, as this will make the import fail. Don’t change the Product ID or Variant ID either as we use these details to update existing products in your library, if you have them. 

Good to know
  • Tax rates are applied to products and must be the same for variants.
  • Supported formats are .xls, .xlsx and .csv.
  • Folders can’t be edited using this sheet.
  • Don’t add more than one tab in the file.
All US payment processors, including PayPal, are required by the Internal Revenue Service(IRS) to provide information to the IRS about certain customers who receive payments for the sale of goods or services through PayPal. Form 1099-K and B-Notice are tax forms which are applicable to holders of accounts both within and outside the United States since it pertains to income reporting for US persons/entities.

FATCA affects account holders that are outside the United States, and it requires PayPal to collect tax documents or certifications from account holders stating whether they are US persons. This includes, but is not limited to, business entities, and some individuals that open accounts outside the United States.

Tax Form 1099-K Tips:
  • If you feel there is a discrepancy in your tax Form 1099-K, please review your reconciliation report and provide us with the transaction ID(s) in question and the justification for why the transaction is being disputed. Click Contact at the bottom of any page to call or email us.
You can also view these additional 1099-K Help Center articles:
B-Notice Tips:
  • If there are any discrepancies with your tax identification number and legal name that was used by PayPal for tax Form 1099-K reporting filing with the IRS, you may receive an IRS B-Notice
  • The B-Notice mailing will provide you with all of the additional information we need from you.
    • If you received a 1st B-Notice (which happens the first year that the IRS identifies a mismatch in tax identification number/legal name), log in to your PayPal account and follow the Alert Notification to provide the requested information. You may need to download and fill out the IRS tax Form W-9 for PayPal to review.
    • If you received a 2nd B-Notice (which happens the second consecutive year that the IRS identifies a mismatch in tax identification number/legal name), you must provide either a copy of your Social Security Card (individuals or sole proprietors) or US IRS tax Letter 147C (entities). Log in to your PayPal account, and go to the Resolution Center to upload the document.
  • The IRS does not have an online solution for requesting a tax Letter 147 C; the IRS will mail or fax the letter to you. To contact the IRS for a Letter 147C, you should call the IRS's Business and Specialty Tax line at 1-800-829-4933 between 7am and 7pm, local time, Monday through Friday. Requesting a faxed copy may be the quickest manner to get a copy of the tax Letter 147C. You can also view our tax information page for more information.
  • Fully complete and sign the relevant form and upload it by logging into your PayPal account and following the Notification prompt.
  • Why did I receive an IRS B-Notice?

FATCA Tips:
  • Only impactful for account holders outside of the United States.
  • PayPal must collect documentation such as certification of non-US status and either a tax Form W-9 for US persons or entities that are subject to US tax, or a tax Form W8BEN/W8BEN-E for non-US persons or entities that are not subject to US tax withholding and reporting.
  • Most business users who need to provide the requested information will be able to do so by logging into their PayPal account and following the notification prompts.
You can also view these additional FATCA Help Center articles:You can find more tax related information on the PayPal IRS tax website.

 
If you are asked to provide your tax identification number (TIN), such as a Social Security Number (SSN) or Employer Identification Number (EIN), to your existing account(s), we will attempt to verify the information with the IRS. If your TIN fails verification, you will need to fill out an equivalent tax Form W-9.   

If the discrepancy persist, you may receive an IRS B-Notice later in the year to help you correct the mismatch.  

Some common reasons why a TIN may fail verification include:
  • Invalid Tax Identification Number (EIN, SSN, iTIN)
  • The name that appears on your PayPal account does not match with the IRS has on file.  
  • The business name registered onto your PayPal account is different than the legal business name.
    
Tip: Minor typographical errors with the name (missing period or capitalization) in a business name would not be why there is an IRS mismatch
    
How do I change the name on my PayPal account?

 

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