Do I pay taxes on payments made to affiliates?

[jlowder]

I'll be starting an affiliate program for my membership site here shortly and was curious as to the tax rules regarding the payments. Since I collect the full membership fee first ($40), am I responsible for paying taxes on that full $40, even though I'm sending $9.95 of it to a person for their affiliate earnings?

Must I ask for tax ID for this? I may as well not offer a program if I'm required to ask for that..

Is an accountant the person to contact about this?

Thanks,

J

[jomaxx]

Affiliate payments are a legit business expense and you won't have to pay tax on the full amount collected. But you should definitely talk to a tax accountant with respect to what records you need to keep and what tax info you may require before paying an affiliate.

[Lil_Red]

You will need either a tax id number or SS# from affiliates in order to send 1099s out.

The best person to discuss this with would be an accountant.

[Eathan]

I'm in a similar boat.

After consulting on, and managing affiliate programs for the last couple years, I am now setting up my company to be more of a full service affiliate marketing firm, including paying affiliates on behalf of the client. So far, taxes have been the biggest question mark.

US affiliates are pretty straight forward, but international affiliates...? I'm waiting to hear back from my accountant on how best to handle them, but more questions keep coming to mind.

What about affiliates in countries where the US has no tax treaties?

Can regular commission checks be booked as a standard vendor related expense?

If you find an accountant that groks the Internet and affiliate marketing, pass along their number. ;)

[jlowder]

I think I've found my solution.

Instead of receiving the whole amount and then paying the affiliate fees, I'll have TWO Paypal subscriptions created when they join. One pays the affiliate amount to the member directly and the other goes to me. This way I don't have to deal with the tax implications of it - I'm never getting the money in the first place.

Thoughts on this?

Jason

[jomaxx]

Sounds unnecessarily complicated, plus it's a privacy concern since every new member's info will be visible to the affiiate and vice versa, plus how do you handle refunds?

[jlowder]

There's really nothing complicated to it. Setting up a recurring payment via paypal isn't that complex. I'm going to be doing one, so why not two? Having to collect tax id's, processing forms and the extra baggage that goes along with it is far more complex. Besides, it's more likely to keep people from signing up if I ask for this information. This way it's not my problem.

I won't be selling a product, but a service, so there won't be any refunds involved. If there is an issue, I can take that up on a case by case basis.

I don't see how there is going to be any question of privacy here. Someone is signing up as a result of a referral from that person to begin with. This is just like purchasing a product using paypal as the payment system - you know who you are dealing directly with.

Jason

[conroy]

jlowder your plan sounds good to me. Go for it.