Overseas partner

How to handle money made?

[Dalgar]

Hey. I've been developing websites with a friend from Austria for a couple of years now (I'm from the US). We got started in the advertising realm last year, and now face a dilemma.

Our policy in the past has been for me to pay for our expenses and receive the checks. I simply figure out the profit, and send him 50%. This has worked fine, because we haven't really made any significant money yet.

However, I fully expect us to increase our profits greatly in the next year. I'm concerned with our current partnership structure, because I end up paying income taxes on 100% of our income, even though I only actually get 50% of that.

Does anyone have experience with this? How should we work things?

I've researched registering a DBA and creating a business checking account. Would that be a good choice? We could open a checking account with both of our names on it, but that is difficult to do at many US banks if he is not present. I don't know if we could register the DBA with both of us either. I don't think our income is enough currently to really justify a LLC.

What are my other options?

[wantfieldh]

If he is okay with you handling his 50% share of the profit before, he should be okay with you handling his 30% share of the profit now.

I mean.. its only reasonable that you take a higher cut due to tax and from you handling the finances here. I am sure if you just talk to him, he will understand. I don't know about responsibility distribution, but profit distribution should at least be done a post-income tax basis.

Its very important to have these things clear and written on paper.. especially if you guys are friends.

[internet ventures]

Could he not bill you for 50% of the profit, you could deduct his 50% off your tax return as its a cost. Tax people would then just think you have outsourced services from this guy in Austria.

Surely he would then be liable to pay any taxes due in his country and you would be liable to pay yours. minus the 50% profit that the Austria guy has charged you for his services.

Otherwise this guy in Austria may be getting taxed twice, once from your country and then again when he actualy recieves the money in Austria.

[submitx]

Yes t he last guy is correct. If you just write him checks for 50%, then you can write it off as labor, so you don't have to pay taxes on that. Just write all the checks to him before end of your tax period. If it is a corportaion, then any profits left at the end of the year gets divided 50-50 and each individual is responsible in paying his own taxes.

I am not sure what the requirments of a US corporation are, but most likely you can have a foreign person as a share holder.