Suggestions on how to file taxes when running an international online business with expenses in Bitcoin

Question

So around January of this year (2018) my buddy was approached by the admins of a website and was asked to be a reseller for their products. Currently, they only support payments in cryptocurrency and had a lot of customers wanting to pay with PayPal. They state that they didn't want to deal with the hassle of charge backs and such. The admins said we could resell their products for a small increase in price and keep the profit if we were to take on the responsibilities of responding to charge backs.

My buddy did something similar to this a long time ago (using Paygol and other methods) and has a good reputation within the community, but decided to cut me in on the profits because the website needed some updating and I am a programmer.

Since I live in the United States and getting a PayPal account set up is extremely easy I opened the account in my name. We started reselling their products, and before I knew it our sales were through the roof. Since the beginning of this year my PayPal account has made $144,286 USD and is projected to end the year around $185,000 USD.

The process goes as such: every two weeks I withdraw the money from PayPal to my personal bank account, the admins tell me the amount we owe to them, I buy the equivalent in BTC and then send it to the wallet address they give me. I hold the profit, then when it gets large enough sum I wire half of it to his bank account (We split the profit 50/50). I have kept an excel spreadsheet keeping info such as how much I have sent, when I sent it, what currency I sent, how much I have made, how much my buddy has made, etc.

I am the only person involved with this project that is American (Live in Missouri). One admin is German, one is Canadian, and my buddy is Dutch. I am currently 22 years old and am a full time college student. Using this opportunity, I quit my job earlier this year so I could focus on school. I live with my parents and filed my 2017 taxes as dependent.

Personally I have made about $20,000 USD and am wondering how I would file my 2018 taxes in this case. I have saved about 30% of my earnings after doing some research, and reading that's what I should do. As the year comes to a close, I am going to have to start focusing on how to file my earnings and don't have a lot of experience doing so especially in this case. Any help would be appreciated, thank you!

Answer 1

You absolutely need to consult a professional, for two reasons:

1. You need to make sure you file and pay the correct taxes for this year and next year, making estimated tax and self-employment taxes along the way.

2. A professional will be able to advise you on how to best take advantage of this income stream. You may want to become an LLC or S-corp, or continue as a sole proprietor, for example. A tax professional will be able to help you decide.

Other considerstions include tax-deferred retirement plans, health savings, any details that need to be worked out with international business partners. The professional will make sure that not only are you paying the correct taxes, but that you are paying the least amount required and you are taking advantage of every tax law and loophole available to you. Paying an accountant will be well worth your while. Good luck on your ventures!