Paypal and U.S. Checks and Israel Income Tax

As I mentioned in my previous post, the Tax Authority advisor, Meni, and I discussed Paypal yesterday.

Meni had never heard of Paypal. So I filled him in a bit on that, and on my business model. Some of you may (and all of you should) have a similar model.

I have a website through which I offfer a service (http://www.holycityprayer.com; the service being membership in our organization. Among other benefits, we pray for our members in the Holy City of Jerusalem). Most members pay through Paypal. Some others pay by US Dollar personal checks.

In principal, you must give your customers an official receipt from your receipt book at the instant of the transaction, that is, the moment you get the cash or check and your customer gets the service or product.

However, in my model, I don’t get the money; [my account in] Paypal does.  Then, every so often (when my partner and I decide to do a distribution), I move some of that money from Paypal into my US bank account. When I want some of that money, I write myself a check and go to the local gas station 9who has a Change [foreign exchange desk] and get cash.

Some of my customers make very small payments (as little as $7 a month) and I am not interested in such frequent bookkeeping.

I suggested the following solution and meni said it’s ok:

When I transfer funds from my Paypal account, I will issue HolyCityPrayer.com a receipt for “services rendered <date of last transfer> to <date of current transfer>.” This will not be more frequent than once a month, and the internal accounting and clicks I have to do are so relatively complex and manifold, that writing a single receipt in my receipt-book will not add significant effort. And when I cash customers’ personal checks, I can also issue my receipt to HCP – my customers abroad hardly care about this Hebrew scrap of paper.

I’d love to hear your comments about this.