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  1. #1
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    All:

    I'm going to run my new affiliate program on my own (at least initially). What’s the best source of information for the tax implications and requirements of paying affiliates?

    Rick

  2. #2
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    Great question, I too would like to know.

  3. #3
    Chick with Brains Tracy's Avatar
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    The tax implication would be that if you pay somebody a commission for affiliate referrals, you deduct it as an expense against your income.

    If you pay any one individual more than $600 in a calendar year you must file a form 1099-MISC. If you pay a corporation, it is not necessary to file form 1099-MISC.

    Naturally, you should obtain a Form W-9 (Request for Taxpayer Identification Number and Certification) from everybody you do business with so that you can file your Form 1099-MISC, if necessary.

    A good place to start learning would be the Small Business section of the IRS website:

    http://www.irs.gov/businesses/small/index.html

    ---
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  4. #4
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    What if only a dozen or so affiliates hit $600 a year, should i stop payments until they provide me with a W-9?

  5. #5
    Chick with Brains Tracy's Avatar
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    Read the Instructions under "Purpose of this Form." At the bottom of the W-9 on this page (this is a PDF file): http://www.irs.gov/pub/irs-pdf/fw9.pdf.

    Persons making certain payments to you must under certain conditions withhold and pay to the IRS 30% of such payments ... This is called "backup withholding." Payments may be subject to backup withholding include ... nonemployee pay* ... You will not be subject to backup withholding on payments you receive if you give the requestor your correct TIN, make the proper certifications and report all your taxable [income] on your tax return.

    *Affiliate commissions would be non-employee pay

    If it were me, I would make it policy to collect a W-9 from everybody I do business with. Don't wait until they are close to the $600 mark to start worrying about collecting forms. Quote the fact that you will have to withhold 30% of what is owed to them if anybody gives you any grief about filling out the form. If they want to get paid, they'll fill out the form.

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  6. #6
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    Thanks, very good information, i'll have to read up on that page.

  7. #7
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    Great information, thanks! I'll digest this and see if there are any more questions.

  8. #8
    I like traffic lights
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    >Naturally, you should obtain a Form W-9 (Request
    >for Taxpayer Identification Number and
    >Certification) from everybody you do business
    >with

    Shouldn't that be "every U.S. based entity" ???

  9. #9
    Chick with Brains Tracy's Avatar
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    I'm not absolutely sure. I know that I never filled out one for Performics. I just supplied them with my Federal ID number because I conduct business as a corporation. I read somewhere that they won't pay individuals until they get the signed W-9, but they've never required one from me.

    I guess the safest thing to do is go to the IRS site and read the specific rules and regulations for what you are doing. Everybody's situation is different.

    ---
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  10. #10
    ABW Ambassador Ron Bechdolt's Avatar
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    Tracy,

    I read where you said you are incorporated. Can you provide us with a little information on how that all works or is set up. I know there are lots of details, but in the briefest sense, what are the benifts of incorporating.

    Ron - 7 Days A Week Marketing

    Every day is a chance to learn something new and a opportunity to teach someone else.

  11. #11
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    <BLOCKQUOTE class="ip-ubbcode-quote"><font size="-1">quote:</font><HR>Originally posted by Joe Gardner:
    What if only a dozen or so affiliates hit $600 a year, should i stop payments until they provide me with a W-9?<HR></BLOCKQUOTE>

    This is what LinkShare does. Trust me. I know.

    Michael

  12. #12
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    Thanks Michael, I know i recived a few "W-9" requests last year as i reached the $600 mark. I think i'll go that same route.

    Once an affiliate hits $500, send out a W-9, if they dont send it back, dont send the next check!

    BTW, is it me, or are there a LOT of affiliates and affiliate managers in Utah?

  13. #13
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    <BLOCKQUOTE class="ip-ubbcode-quote"><font size="-1">quote:</font><HR>Originally posted by Joe Gardner:
    BTW, is it me, or are there a LOT of affiliates and affiliate managers in Utah? <HR></BLOCKQUOTE>

    That's what I was thinking! Where are you located?

    Michael

  14. #14
    Chick with Brains Tracy's Avatar
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    Hi 7-days,

    In my case, I was already operating a business out of my home prior to getting involved in affiliate marketing. I do bulk mailings (snail mail not email SPAM) for businesses in my area. Since I already had the corporation set up, I just continued to use it when I started setting up my affiliate accounts.

    Every State is different so you need to learn the rules in your State. I have the added benefit of having worked for several years as a legal secretary many, many moons ago. I am also a full-charge bookkeeper, so I know a lot of stuff I have to do from that experience. I also had previously owned and operated a business.

    Basically, all I did was go to the bookstore and purchase a book on how to incorporate in my state. Back when I was a legal secretary, the process was more involved and complicated. Articles of Incorporation were long and complicated. Now, it's a one-page boiler plate.

    So, I called the office of the Secretary of State, reserved my corporation name, sent in the Articles of Incorporation (copied from the book I purchased), and within 10 days I received a certificate back.

    I applied for a Federal Employer ID Number with the IRS, and sales tax number with the State of Florida, purchased a Rubber Stamp Corporate Seal, and opened a Corporate Bank Account (that's what I needed the seal for).

    Once I received my Federal ID number, I filed for Sub-Chapter S status with IRS. At my current income level this is the more benefical tax method to use.

    A C Corporation earns income, deducts expenses, and pays taxes on the net income to IRS. Then it pays dividends to the stockholders, who pay taxes on the dividends.

    On the other hand, an S Corporation, does not pay taxes directly to IRS. It files a corporate tax return (by March 15), but issues a Schedule K-1 form to each stockholder for their share of the income (losses). In my case the stockholders are my husband and me. We declare the income on our personal taxes, much like you would declare a Form 1099-Misc; however, we don't get hit with the Self-Employment side of the social security taxes.

    The S Corporation allows you to enjoy the benefits of a corporation, which most people would say is the limited liability side of it (unless somebody is able to pierce the veil), but we do not pay double taxes like C Corporation. Our S Corporation's income falls through to our personal taxes.

    Other benefits to me is are:

    (1) simplifies record keeping. I keep a double-entry bookkeeping system for the corporation and all income and expenses are recorded there. All assets are maintained on the books, and depreciation is claimed.

    (2) I have one room in my house set up strickly for the business. The corporation writes me a check each month to pay the rent for the room. This is a deduction for the corporation, but income for me personally, which I declare. However, for the percentage of the house the room takes up I deduct that percentage of the utilities & maintenance of the house, depreciation (I love depreciation) on part of the house, and again, no social security taxes are paid on that.

    (3) Mileage! Every time I use my automobile for corporation business, I record the odometer reading in a notebook. The corporation writes me a check each month to reimburse me for my mileage expense. At 36.5 cents per mile in 2002, it adds up. This is a reimbursement of a personal expense, so I get to keep the money, the corporation gets to deduct it as an expense against income. I don't have to report it on my income taxes because it is reimbursing me for use of my car.

    (4) The corporation pays me a salary. For this I get double hit on the social security because the corporation has to pay the other half, but it's deductible against the income. And I don't have to pay myself near as much as I would if I wasn't getting the rent and the mileage reimbursement.

    I think those are the major points. Just go to your bookstore (or Amazon) and find a good book on how to incorporate in your state. There are some good ones that tell you everything you need to know about starting a business. There's also a lot of great information at the IRS site too.

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  15. #15
    Chick with Brains Tracy's Avatar
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    I forgot to add, that I do have to pay a $150 to my state each year to keep the corporation active. In my State, because it is an S Corporation, there are no income taxes; however, this may not be true in other states.

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  16. #16
    ABW Ambassador DesignerWiz's Avatar
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    Great & Helpful info Tracy.

    DesignerWiz.com Team
    http://DesignerWiz.com

  17. #17
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    Yes, thank you so very much! It looks like i have a few calls to make to get going.

    Michael, I'm in Lehi.

  18. #18
    ABW Ambassador Ron Bechdolt's Avatar
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    Tracy,

    Thanks for all that helpful information. One more question, if I may? Does a corporation also protect you from lawsuits? If some big company decided to sue me for copyright infringment or something, is it true they can only sue the corpration and not me, thus proctecting my personal assets?

    I plan on doing eveything on the up and up, but had heard this is one of the benifits of incorporation.

    Ron - 7 Days A Week Marketing

    Every day is a chance to learn something new and a opportunity to teach someone else.

  19. #19
    Chick with Brains Tracy's Avatar
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    Not necessarily. Theoretically, a corporation is an entity unto itself. One of the reasons many incorporate is to limit their personal liability. For instance. I own my house, and rent one room of it to the corporation. If somebody were to sue my corporation, they could only take the assets of the corporation. My house would be safe because the corporation doesn't own it, I do.

    However, there are ways to hold the stockholders, officers and/or directors of a corporation personally liable for the deeds of the corporation. The term often used is "piercing the corporate veil."

    Check out this page for a better understanding:
    Piercing the Corporate Veil.

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