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  1. #1
    Newbie -CJAFF-'s Avatar
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    Question US Taxes - Favorable Solutions?
    For those high volume US affiliates, do you have any recommendations in regards to taxes? It seems like self-employment (SE) is a killer - is running the affiliate program as a S-Corporation more favorable? Anyone have any experence with offshore?

  2. #2
    Super Dawg Member Phil Kaufman aka AffiliateHound's Avatar
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    Hi -CJ- and welcome to ABestWeb. Get personal with the search button - there are many, many discussions on tax liability and business entity options.
    Since June 10, 2012 a vegan aarf but still writing the Hound Dawg Sports Blog
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  3. #3
    Newbie -CJAFF-'s Avatar
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    Sorry... I think I found some help here: http://forum.abestweb.com/showthread...&highlight=tax

    Anyone use offshore?

  4. #4
    ABW Ambassador Joshua's Avatar
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    Quote Originally Posted by -CJ-
    For those high volume US affiliates, do you have any recommendations in regards to taxes? It seems like self-employment (SE) is a killer - is running the affiliate program as a S-Corporation more favorable? Anyone have any experence with offshore?
    Talk to a tax professional, but an s-corp, or an LLC elected to be taxed as an s-corp could save you money, as long as you are earning more than what the IRS considers a "reasonable salary" for your job & industry.

    As for offshore, don't start screwing with the government to avoid paying taxes... Do you really want to risk losing it all (jail time & fines) if you're caught doing something improper?

  5. #5
    AM Navigator Geno Prussakov's Avatar
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    S-Corp will allow you to avoid the double taxation that you get into when incorporating as a C-Corp (on corporate and personal levels), but I don't think you can accummulate capital (without paying taxes) in your bank account for long when running an S-Corp... Also, S-Corp is only an option for US citizens (which I presume you are, as your question was aimed at "US affiliates").

    Geno

  6. #6
    Chick with Brains Tracy's Avatar
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    Actually, you don't accumulate capital in an S-Corporation. You report the net income on the S-Corporation on your income tax return each year as Dividends. Any funds retained by the Corporation can been drawn out as "Previously Taxed Income," as you paid the taxes on it already with your annual income tax return.

    But it really does work out in your favor to have an S-Corporation that pays you a paycheck versus filing Schedule C and reporting your income and expenses that way. For example. Say you Gross $50,000 in a calendar year with deductible expenses of $15,000, netting your $35,000 for the year.

    You have to report your net income of $35,000 on Schedule SE (Self-Employment) and pay the FICA and Medicare with your personal income tax return. Since you have no employer to pay the second half that's 12.4% FICA ($4,340) and 2.9% Medicare ($1,015). You do get to deduct half of each when figuring your adjusted gross income.

    So, you have to send IRS $4,340 plus $1,015 or $5,355. Then you pay income tax on your adjusted gross $35,000 - $2,677.50 SE Tax = $32,322.50 adjusted gross income.

    Now, let's look at those same figures for an S-Corporation, only this time you pay yourself $25,000. You still have the $15,000 expenses.

    Your paychecks total $25,000 less 6.2% FICA ($1,550) and 1.45% Medicare ($362.50). For a net check of $23,087.50. Naturally, you would also have federal withholdings, but I'm leaving that out so we can calculate your adjusted gross income to determine how much taxes you owe.

    So, the Corporation made $50,000 less $15,000 less $25,000 payroll less $1,912.50 payroll taxes. The corporation pays the other half of the FICA and Medicare. So the corporation has a net income of $8,087.50. The corporation does have an additional expense of having to pay an Annual Fee to the State it was organized in. In my state of Florida it is $150 per year. So, $8,087.50 - $150.00 = $7,937.50 net income for the corporation, for which you receive a Schedule K-1 and report on Schedule E of your taxes.

    In this case, you report $25,000 salary from the corporation and $7,937.50 for an adjusted gross income of $32,937.50 on your 1040.

    So filing schedule C you have to send IRS $5,355 plus whatever taxes you owe on $32,322.50. Based on a single person the 2007 tables work out to $4,504.38 taxes plus $5,355 SE taxes = $9,859.38. Actually, you should have been making quarterly deposits during the year.

    Whereas, with the S-Corporation you'll just be paying taxes on $32,937.50 or $4,658.13 taxes. And if you figured correctly when making out your paychecks during the year, you deducted proportionately as Federal Withholding and avoided having to also make quarterly deposits.

    In the first example you payed FICA and Medicare on the entire $35,000, whereas in the second example you only paid it on $25,000.

    Was that confusing?

  7. #7
    Chick with Brains Tracy's Avatar
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    I left out the net of all this:

    On Schedule C: You keep $35,000 less $,9859.38 taxes = $25,140.62.

    Subchapter S: You keep $23,087.50 net check plus $7,937.50 net income = $31,025 less $4,658.13 taxes = $26,366.87.

    In this example, you get to keep $1,226.25 more of your money.

    Of course, there's a little more paperwork involved with an S-Corporation and you do have to file that second tax return. But, if you have enough taken out of your paychecks you don't have file quarterly personal deposits. You just have the corporation file the Quarterly 940s.

  8. #8
    ABW Ambassador newestuser's Avatar
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    Quote Originally Posted by -CJAFF-
    Anyone use offshore?
    I wouldn't. It seems to be a sorta loophole now, but:
    1. it's risky, not sure I'd trust my money at a bahamian bank, or some other place.
    2. Getting your $ out and back into the US, you'll be taxed.
    3. setting it up can be a pain, if you don't really live there.
    4. it really only would work best for the very rich ($100mil+)
    5. chances are the next president, or sometime, they'll remove that loophole.

  9. #9
    ABW Ambassador La_Valette's Avatar
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    Quote Originally Posted by newestuser
    I wouldn't. It seems to be a sorta loophole now, but:
    1. it's risky, not sure I'd trust my money at a bahamian bank, or some other place.
    2. Getting your $ out and back into the US, you'll be taxed.
    3. setting it up can be a pain, if you don't really live there.
    4. it really only would work best for the very rich ($100mil+)
    5. chances are the next president, or sometime, they'll remove that loophole.
    There is absolutely no loophole if you're a US citizen and do your taxes properly. While the offshore corporation itself is exempt from taxes if the work you did was not physically done in the US (if it was, even the offshore corp is liable for tax in the US - it's US-source income at that point and Uncle Sam has rights over it), US owners of the corporation (anyone who owns more than 10% of it) will have to pay US taxes as usual on all their earnings derived from it. If you try to leave the earnings in the corporation to avoid this, the IRS taxes you as if you had taken them out. There's a complicated set of forms - form 5471 and related schedules - that offshore corp owners are obliged to fill out every year to make sure that the IRS keeps track of what you're doing. Hideous penalties if you fail to file the forms or don't do it right.

    Bottomline: don't try this at home. You'll need a Fortune 500 accountant to keep the forms straight and won't save a penny anyway. The IRS is not dumb - they've taken care of all loopholes.

    The S-corp idea mentioned earlier in this thread is a decent one on the other hand, but involves plenty of extra admin and paperwork. If you put a monetary value on your time, as I do, you may find it's not worthwhile overall. Plus you are obliged to pay yourself a "reasonable salary" if you do the S-corp thing - the IRS is well aware that most people do S-corps to avoid paying payroll taxes, so they watch this closely.
    Kids, you tried your best and you failed miserably. The lesson is, never try. -- Homer Simpson

  10. #10
    Newbie -CJAFF-'s Avatar
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    Thanks for all your help - I'll be going the S-corp route...

  11. #11
    Moderator Nabz's Avatar
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    Taxes sucks, I pay 0% Tax

  12. #12
    AM Navigator Geno Prussakov's Avatar
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    Quote Originally Posted by Nabz
    Taxes sucks, I pay 0% Tax
    I thought taxes are what pays for the roads, army, police, etc, etc...

    G.

  13. #13
    Moderator Nabz's Avatar
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    Quote Originally Posted by Geno Prussakov
    I thought taxes are what pays for the roads, army, police, etc, etc...

    G.
    You're right, but currently in my country, there are no taxes on foreign income, and I love it, all the $$$ in my pocket

  14. #14
    Super Dawg Member Phil Kaufman aka AffiliateHound's Avatar
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    Quote Originally Posted by Nabz
    You're right, but currently in my country, there are no taxes on foreign income, and I love it, all the $$$ in my pocket
    What county and when is the next flight?
    Since June 10, 2012 a vegan aarf but still writing the Hound Dawg Sports Blog
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  15. #15
    AM Navigator Geno Prussakov's Avatar
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  16. #16
    AM Navigator Geno Prussakov's Avatar
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    Just found this:

    There is no need to disclose in your tax return foreign source income you receive after you cease to be an Australian resident. [source]

    Are you a non-resident living in Australia?

  17. #17
    ABW Ambassador La_Valette's Avatar
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    Quote Originally Posted by Nabz
    You're right, but currently in my country, there are no taxes on foreign income, and I love it, all the $$$ in my pocket
    I don't know what the laws are in your country, but you may be misinterpreting what they mean by "foreign income". Most countries I'm familiar with don't consider income to be foreign if it's generated by you doing physical work inside the country's borders, regardless of where the payor is located. So if you're in Country X doing affiliate activity in Country Y over the internet, your work in Country X would likely expose you to taxes there. Just because the money comes from Country Y doesn't mean it's foreign income. It's compensation for work done in Country X, giving Country X taxing rights. (Country Y most likely won't have taxing rights of course.)

    It's a common misconception which I see time and time again. Very few countries don't follow this sytem - mostly they're the well known tax havens like Monaco and the UAE.
    Kids, you tried your best and you failed miserably. The lesson is, never try. -- Homer Simpson

  18. #18
    Moderator Nabz's Avatar
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    They have introduced no taxes, to promote IT in the country. If the foreign income is a result of any IT Service, then you're exempted of income tax, There is a department named PSEB (google it), you've to be registered with them in order to avail no tax facility.

  19. #19
    ABW Ambassador La_Valette's Avatar
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    Quote Originally Posted by Nabz
    They have introduced no taxes, to promote IT in the country. If the foreign income is a result of any IT Service, then you're exempted of income tax, There is a department named PSEB (google it), you've to be registered with them in order to avail no tax facility.
    Like I said, I'm not claiming to be an expert on your particular country, but my point was that in general income is only considered foreign if the work involved in generating the income wasn't done locally. It's not foreign income just because you're being paid by foreigners. If the work involved in creating that income was done within a certain country's borders, then most countries wouldn't consider it foreign. Affiliate marketing is a good example...
    Kids, you tried your best and you failed miserably. The lesson is, never try. -- Homer Simpson

  20. #20
    Moderator Nabz's Avatar
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    Quote Originally Posted by La_Valette
    Like I said, I'm not claiming to be an expert on your particular country, but my point was that in general income is only considered foreign if the work involved in generating the income wasn't done locally. It's not foreign income just because you're being paid by foreigners. If the work involved in creating that income was done within a certain country's borders, then most countries wouldn't consider it foreign. Affiliate marketing is a good example...
    Got it, Thanks. As long as there are no income tax for me, I will be staying in this country. Otherwise, Australia is my favorite destination.

  21. #21
    AM Navigator Geno Prussakov's Avatar
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    Should this thread be moved out of the Commission Junction forum to a more general part of the forum?

    Geno

  22. #22
    Moderator MichaelColey's Avatar
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  23. #23
    ABW Ambassador La_Valette's Avatar
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    Quote Originally Posted by Geno Prussakov
    I thought taxes are what pays for the roads, army, police, etc, etc...

    G.
    Funny thing is that in the US, if you take the military & wars out of it, most of the things government provides like non-freeway roads, police, etc. are funded by state governments out of property and state sales/income taxes. It's never been too clear to me how all the federal taxes I pay really benefit me, even though they dwarf what I pay to the state of Texas...
    Kids, you tried your best and you failed miserably. The lesson is, never try. -- Homer Simpson

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