Making Payments to Your Own Fake Business
Apr 30, 2020, 7:35 pm
#1
Original Poster
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Making Payments to Your Own Fake Business
Assuming it made financial sense after accounting for payment processing fees, are there legal/tax/other reasons not to do this? I would be paying myself as a sole proprietor...so would I owe tax on the large amount I'm running through? Or not, because I never actually made a profit?
Apr 30, 2020, 8:58 pm
#3
Join Date: Jun 2015
Posts: 1,727
Assuming it made financial sense after accounting for payment processing fees, are there legal/tax/other reasons not to do this? I would be paying myself as a sole proprietor...so would I owe tax on the large amount I'm running through? Or not, because I never actually made a profit?
Oh wait...that sounds like certain airlines!
May 1, 2020, 6:06 pm
#9
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May 2, 2020, 1:39 am
#12
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May 2, 2020, 11:07 am
#13
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May 2, 2020, 4:01 pm
#14
Join Date: May 2009
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Money laundering jokes aside, I think the OP was just poorly worded. The "fake business" is probably just a DBA created for getting access to business credit cards, as many people do here. As far as "paying himself" I am guessing he's probably thinking along the lines of getting a Square account or similar and trying to run his own cards through it, if he can find one where the miles/points payout is higher than the processing costs, and that there is the problem. Very unlikely will you be able to get rewards that are higher than your processing costs, resulting in the whole thing not being worthwhile and the tax question being moot.
May 2, 2020, 4:54 pm
#15
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To OP's question - yes.
Merchant services audit clients for misuse and/or abuse of the use of the processing service periodically. If you have a legitimate business, and you pass through a few "fake" transactions for rewards, they may not be able to detect. But if you open one solely for that, they will catch them in no time.
Also - if you do this frequently, even you can go under the merchant services' radar, you won't with IRS. Merchant services are required to file and send you a Form 1099-K for what you have processed. It does not mean what processed are income. Still when IRS sees a high amount, you will be asked to explain it when you don't file any necessary schedules or returns related to what processed.
Even IRS accepts your explanation, still IRS can tax the reward earned as income (as you are doing that for profits rather than as a hobby). And IRS can add penalties and interests on the unreported income.
Don't forget - most people won't handle IRS on their own. They hire an accountant or tax lawyer. That costs. Self employment tax is about 15%. When you add everything up, you may end up pay more for your troubles than the reward you earn.
Merchant services audit clients for misuse and/or abuse of the use of the processing service periodically. If you have a legitimate business, and you pass through a few "fake" transactions for rewards, they may not be able to detect. But if you open one solely for that, they will catch them in no time.
Also - if you do this frequently, even you can go under the merchant services' radar, you won't with IRS. Merchant services are required to file and send you a Form 1099-K for what you have processed. It does not mean what processed are income. Still when IRS sees a high amount, you will be asked to explain it when you don't file any necessary schedules or returns related to what processed.
Even IRS accepts your explanation, still IRS can tax the reward earned as income (as you are doing that for profits rather than as a hobby). And IRS can add penalties and interests on the unreported income.
Don't forget - most people won't handle IRS on their own. They hire an accountant or tax lawyer. That costs. Self employment tax is about 15%. When you add everything up, you may end up pay more for your troubles than the reward you earn.
