[EDIT]
While I do have 1 source saying that adult content is acceptable, please be cautious about what you do and how open you are about this matter when buying/selling! I'm trying to find out more, so keep an eye out for future journals on this matter.
An update journal about my plan on this topic.

This is all written from the point of view of an artist/seller from the United States.

So there is a ton of information flying around about Paypal right now, and not a lot of sources to go with it. Now, I’m not claiming to be a Paypal rep and have all the answers, but! I did take some time to look for the facts, and even made a call to an actual employee to get as much cleared up as I could. The rep and I went over the User Agreement a bit, I asked about the $2500 fee, and about adult content in general. Here’s all the information I have, as credible as I can make it.

The Quick Summary
•The $2500 fee is not actually new, and has been in effect for years
•You will probably never have to worry about this fee, unless you are dodging seller fees
•Adult artworks are okay to sell on Paypal under specific circumstances (more on this in a future journal post)
•Be discrete with your transactions for maximum safety; don’t link to your galleries
•A guide to addresses, shipping and Paypal is below, because Paypal sucks at this

Read the rest of this for the explanations and important details, please. Arm yourselves with knowledge

The $2500 Fee
First off, this fee seems to have been around since before the update coming on July 1st.

Here is a forum post from 2008 complaining about the exact same issue that’s causing so much panic currently.

Additionally, here is the current Acceptable Use Policy. If you go to section 10.3, you’ll see the bit about the $2500 fee for violating the User Agreement or Acceptable Use Policy. At the top of this page, it states that this AUP is active until June 30th, and then links to the revised version (which will activate July 1st), on a separate page. This verifies that the fee is not an update, but has been with us the entire time.

While I was on the phone with the representative, I asked what sorts of violations this fee can apply to, specifically. Ultimately, it is up to the discretion of Paypal itself to choose, but the basics of it are that it applies to the Prohibited Activities section of this page.

I’d like to specifically point out that this fee applies to people who try to avoid Paypal fees. This is something you should really not be doing. Customers, you are not helping the artist when you send money as a “gift” instead of “good and services”, it can really get the artist into a lot of trouble. And artists, this fee is your responsibility as someone doing business online. Whether you pay it or whether you include the fee in your commission cost is up to you, but it needs to get paid. Be responsible.

However, the scariest bit is that part about “(f) items that are considered obscene” and “(h) certain sexually oriented materials or services” right? So, I asked about that as well.

Selling Adult Artwork & Objects with Paypal
IMPORTANT UPDATE (May 17th, 2015)
I've been delving into the matter of Paypal and adult content even further, and have discovered that it is allowed, but only in specific circumstances. I'm going to keep talking with various sources to get as many details about this as possible, but for now, just remember to be safe and keep your payments vague.

We all fret over being reported to Paypal for selling furry porn. I know I do, at least. But somehow, you can buy obscene objects and sexual materials on Ebay, which is affiliated with Paypal. You can even buy a Bad Dragon dildo with Paypal. So what’s the deal?

I asked the representative in very plain words, “Why can you buy dildos with Paypal?” After a bout of laughter, she explained that while they don’t prefer people use Paypal for these services, it is acceptable. The main point of this prohibition is to keep people from paying for physical sex (a.k.a. prostitution) using Paypal’s services.

To clarify, I asked “If an artist sells a comic book that contains a sex scene, would that be acceptable?” Her answer is that this is completely fine, no hesitation in her voice. I’m considering emailing Paypal as well, so I have this in writing, but as of now, I can tell you that this has been confirmed first hand by myself to be the case. No hearsay or rumors, just a straight up phone call.

That being said, for those artists who draw adult rated cub art, I would still be careful with what you do and say on the Paypal site/invoices.

An additional note on the vagueness of “obscene” content and “certain sexually oriented” things. Yes, this does mean that Paypal can choose what to consider obscene on a case by case basis. But in my personal opinion, I don’t think this is something we need to worry this hard about. This is mostly to protect Paypal if, say, someone found a loophole to pay a call girl without technically violating the TOS, so they can still get this shit out of their site before they face legal repercussions. Selling adult artwork isn’t dangerous to Paypal as a company unless you do something really stupid and make it dangerous for them (like selling straight up human child porn drawings; that might not be such a hot idea, even if they are drawings). In short, don’t worry so hard, I think.

Treading Lightly With Paypal
Now that we’re all on the same page with the fees and the adult content, let’s talk about being careful. Adult art is allowed on Paypal, but that doesn’t mean we should all start linking to our feral art and toon porn every time we pay or get paid. Being discreet can only be your friend in this world of freelance furry art.

For those who use Invoices:
First off, here is a screencap of what an invoice is made of, and how I personally fill mine out. I made a template for my invoices, so that every time I send one out, most of it is filled out to my liking already.
Top half
Bottom half

You’ll want something that points to who you are as an artist, so your customer knows where the invoice is coming from, but you want to avoid linking straight to your galleries. Even my TOS is linked to a google site, rather than an upload on FA. In the memo section at the very bottom of your invoice, you’ll want to write something to help you identify the customer, to make it easier on yourself later, but again, don’t link back to their gallery. Writing “Spix, FA” is smarter than “Spix, FurAffinity”, even.

The best part about invoices is that the seller has control over what gets written on the thing, and how it’s processed. You know exactly how much you’re asking from your customer, you can write your TOS on it, it’s numbered and easy to keep track of, and no one can dodge fees or write “From SexyBunny69 on FurAffinity! Thanks for the porn, tee hee!” and get you noticed in the wrong ways.

The downside to invoices is addresses. I’ll put all the information I have about addresses and Paypal in another section.

For those who pay via Goods & Services:
This method relies more heavily on the client to send the money correctly, rather than the artist. When you pay an artist, you need to pay under the “Pay for Goods and Services” section. Do not send the artist money as a gift, or as “Send Money to Friends and Family”. If Paypal find out you’re dodging fees, then that $2500 fee may become a reality for you.

The best part about this payment method is that no one needs to give out their address. If an artist you know prefers invoices, but you are uncomfortable being required to give out your address, reach out to them personally and see if they’ll take payment as Goods and Services. If you explain your situation and speak eloquently, they are much more likely to trust you to carry out the procedure correctly. This way also makes sending a tip easier, so if they’re going out of their way to not use an invoice, show them a little thanks with an extra buck.

The down side lies with miscommunication. If the buyer sends the incorrect amount of money, or sends it as a gift, now you have to refund the transaction and ask them to do it again, possibly multiple times. You also can’t add details to the payment notice, making organization more difficult by far. This is probably fine for artists who don’t do more than a few transactions at a time, but if you do several a week, you’ll probably find this a bit overwhelming.

Again, if you are a buyer and you use this method to pay your artist, be discreet! Write enough information so the artist knows who’s paying, but don’t specifically mention the full name of the website, or what you’re buying. “Spix, FA, chibi” is a good idea. “Spix @ FurAffinity, bondage slave YCH” is a poor idea.

Revealing Your Address & The Annoyance of Shipping on Paypal
This only applies to users who pay or receive payment via invoice.

As the sender of the invoice, you’ll want to double check that your address isn’t being sent on your invoice. To do this:
1. Go to Seller Preferences
2. Click Update across from Invoice Templates
3. Select the invoice template you use for art, and click Edit
4. On the invoice template page, click Edit Business Information
5. You’ll see a dropdown box labeled Address, and from there you can select for it not to be shown on any future invoices using this specific template.

As the buyer, as far as I can tell, you are obligated to put in your address, whether you are buying physical media or digital goods. If doing this makes you uncomfortable, you should try contacting the artist to see if they will work with you for an alternate means of payment, like money order, or Squareup, etc.

Additionally, sellers of intangible/digital goods have to perform an annoying extra step after being paid, to let Paypal know that nothing needs to be shipped. I’m not completely sure if this is pressing to take care of, or if you can let it slide for a long time, but I like to err on the side of caution when it comes to being noticed by Paypal for anything whatsoever.

On your main Summary page for Paypal, you’ll see all your recent transactions listed below. Once an invoice is paid, it will look like this (I’ve removed the price for privacy’s sake). What you want to do is click on Add Tracking Info, which will take you to this page. Click the drop down menu for Order Status, and you’ll see an option at the bottom named “Order Process/Service Rendered”. This is what you want to click, to tell Paypal that you don’t need to ship anything, and it can stop worrying it’s lil’ ol’ head about things. After you click it, hit save. It will show you a confirmation page which states that your customer will get an email, letting them know that their service was rendered. Your customer may contact you wondering what the heck that email is, but hopefully in time, most of the fandom will understand that annoying step (or Paypal will remove this need altogether, who knows).

That's everything I've got, as neat as I know how to make it. If you know more detailed information on any of these points, and have sources for your information, please let us all know! I want this to be the journal people can link back to with confidence to help people feel educated, whether they're worried/confused about the July 1st update, or whether they're just a new artist who doesn't know how to use Paypal in the first place. We're all in this together. Let's help each other out.