Payments to site users

[MPinelli]

My new project plans to pay members for their services.

how do i go about following laws for tax purposes? what do i need to do?

assume ur a member of my site, and u earned $100. i pay you through paypal, at what point am i responsible for taxes if at all?

I'm searching on google for info, but struggling.

 

[DNjet]

the first $400 is ok, after that you need a tax ID form from them or your stuck paying the income tax on it, you will need to file a 1099 for every member earning over that.

 

[MPinelli]

what about users overseas?

so i would need them to fill out a tax ID form.....is a faxed copy good enough or it needs to be snail mailed? do i need a copy of their soc sec card?

and the 1099 is filled out by me??

 

[DNjet]

yes the 1099 is filled out by you because it is the only way of claiming it is NOT your income , but rather someone elses and they want to know who, there is a foriegn tax form it is different , some of the parking companies have them listed, maybe you can reference

http://www.imonetize.com/members/tax-info.php

 

[MPinelli]

interesting link........

thanks for the info.

 

[DNjet]

just did a quick look on google , it might be $600 and not $400 , but your best to consult a accountant.

 

[MPinelli]

aside from that, do you recommend anything else as far as a newb going into payments to users from a website?

like any "watch outs" or "be careful of"?

 

[DNjet]

without all details of the plan etc..etc.. its very hard to comment, but you can be sure that scammers will try to pick your pocket when money is involved.

 

[MPinelli]

haha true.

 

[Domagon]

My view is ignore the tax issues for now, and instead focus on fraud prevention ... as another poster pointed out, scammers will look to take advantage of your service.

In regards to taxes, you will need to obtain W9s for your records (and potentially W8s for those outside of U.S.) for those earning $600 or more in a calendar year ... and in addition mail out 1099 MISC to those people as well for their taxes; you will need to include the 1099 data with your tax return...

In all honesty, this is not a do it yourself situation - you should hire an experienced CPA accountant if and when your service grows to the level that some members are earning $600+ per year.

On a related note, if your service starts this year, one thing to do is just limit member earnings to $599 and/or defer the remainder above that level to next year ... to be clear, regardless of the amount, the members are reponsible for paying tax on their earnings, but limiting / deferring payouts basically gives you an extra year to get the W9s / 1099s accounting in place.

Ron

 

[MPinelli]

Ron excellent post, i thank you.

if i do get users over $600 i definitely will consult an CPA. right now i just want to know what I'm getting into, i have some experience with payrolls and taxes and i have an accounting/economics degree and I'm fairly educated in the lingo

the last thing i want is some tax issue on my hands. in my eyes and experience with the field I'm entering, i don't see why getting users earning pretty large figures is out of the question. my only apprehensions are my tracking of revenue and payments.....as i haven't worked with those kind of programs

and as far as scammers im doing the best i can to hold them at bay, but we all know that its just something i have to work into my business plan as a loss.

im working with a couple of DRM companies right now.......thats going to be my next post probably. Which DRM companies are the best to go with.

 

[copper]

Excellent Thread!
I need all these info. as my programmers are getting near completing the project which will use affiliate marketing :-D

 

[Domagon]

If the total gross revenue involved (before any payouts, etc) is several thousand dollars or less in a year, then in my view don't sweat it ... just report the net, which will presumably be a much smaller amount due to payouts, etc, as miscellaneous income and go from there ... you'll likely pay more tax this way, but you'll save money and time in tax preparation.

Affiliates themselves aren't the only worry ... you also have to do fraud screening of customers themselves ... that's very challenging when dealing with intangible goods - you mention DRM, so I assume you intend to sell content / software, etc through an affiliate program.

Even if the production cost is $0, refunding one's money can easily put such a transaction into the negative ... especially if many customer orders turn out to be fruadulent; PayPal "locks" accounts for too many complaints, credit card chargeback fines (some 3rd party processors will pass those fees along), etc.

I'd suggest limiting affiliates (and also customers) to various select countries (ie. U.S., Canada, U.K., etc) along with manually verifying each affiliate ... that will take time and cost some money, but should help forestall many problems starting out ... in short, ramp up the business slowly.

Ron

 

[MPinelli]

the project i have in mind....verifying "affiliates" will be done. so thats cool.....as far as the customers, how do you recommend verifying them? obviously register for an account.......but how can i verify, lets say, their paypal account?

I will take your suggestion for just US, Canada, and UK......are there any other countries that would be "legit"? Austrailia?

I'm glad you found my thread b/c u are giving me that insight i've been looking for.

 

[Steen]

the project i have in mind....verifying "affiliates" will be done. so thats cool.....as far as the customers, how do you recommend verifying them? obviously register for an account.......but how can i verify, lets say, their paypal account?

I will take your suggestion for just US, Canada, and UK......are there any other countries that would be "legit"? Austrailia?

I'm glad you found my thread b/c u are giving me that insight i've been looking for.

If you have a merchant account or plan on accepting PayPal you can ask them for an initial $1 deposit to verify their identities. You would make sure the names on the credit cards or PayPal accounts are identical to those that they provided you when signing up.