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1. When taxes are due, how does the owner of an affiliate program record the expense of paying out commissions to its affiliates? Are there certain forms that need to be filled out?
I'll bet it also depends on what type of business your affiliates are running (individual, corporation, etc).
You really ought to get professional tax advice from on CPA on this, or read a lot at [irs.gov...]
To cover yourself, you'll need to have each affiliate (US, not sure about how to handle foreign affiliates) fill in a W-9. At the end of the year any affiliate that has received $600 or more will have to be sent a 1099-Misc. You'll submit your copies of the 1099s along with a 1096 Transmittal (summary sheet) to the IRS. Note that while the law lets you skip anyone not earning $600, the gov really expects you to file a 1099 on all amounts paid.
Disclaimer: I'm not a CPA or tax preparer.
The best way to handle this, is hold any payment that would put you over the $600 threshold until you receive the w9 from the affiate. However, be sure you put this in your affiliate agreement and give them time to send it to you before you would have to hold a payment.
Drastic, do you (or anyone) have a copy of an affiliate agreement that talks about remitting the w-9 agreement before the check is sent?