Making sure that your accounting transactions are properly recorded in your accounting program, is paramount in the business world. There is nothing the IRS likes better than finding a discrepancy in one of your tax returns. If you use Paypal to receive invoice payments, how do you account for the fee that Paypal charges for the transaction? Always start your transactions with gross amounts and net the amounts out on the final handling of the transaction.

Procedure for Quickbooks:

• Create invoice for $100.00
• Client pays $100.00 via Paypal
• Paypal deducts 1.9% of the $100.00 to give you a net of $98.10
• Record the gross payment as $100.00
• When you make your deposit, net it out to show +$100.00 and -$1.90. Assign the -$1.90 to your bank fee general ledger account.

This way, your records will match the 1099 form that you receive for tax purposes and the IRS will have no reason to double check your return.