Many people wonder if they should include the income they receive through PayPal on their tax returns.  It is commonly thought that these funds are “hidden” and therefore do not need to be disclosed to the taxman. Unfortunately this is not true. Taxation laws are different throughout the world, but the one thing that is constant is that no matter what country you pay taxes to it is the government that collects them.  You should never underestimate the power of a federal tax collector to uncover financial information. If you are subject to a formal tax audit the person conducting it will need access to all of your records of income and expenses, and will most likely be able to obtain all of your  income information through the courts if necessary. The penalties in most countries for tax evasion are generally far more severe than the amount of tax owing. If you are in doubt about what income to declare or have questions it’s wise to check with your accountant or a local tax expert before you submit your tax return. In many cases you will be able to  also declare any expenses you incurred (like transaction fees, eBay charges, etc) to offset your declared income, which will lower the amount of tax you will have to pay. By way of disclaimer, we are not taxation experts and laws do vary in each country. In North America, for instance,  it just is not worth the risk of not declaring income received via PayPal on your income tax return. This is especially true when there is a large amount of money or many transactions involved.