Do affiliates get paid before or after I pay taxes?


Old 11-12-07, 02:48 PM
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Do affiliates get paid before or after I pay taxes?

I am starting a web based business. Part of my selling strategy is to use affiliates. The affiliates link to me and get a percentage of each sale that comes from their site. Each month, I would mail out the affiliate checks.

If my service is $20, and the affiliates get $5 for a referral, I am left with $15.

Do I pay taxes on $20, or on $15?
Old 11-12-07, 02:54 PM
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If you want to pay their taxes for them then go right ahead. The correct way of doing it is to start a legitimate business, claim $20 income and $5 business expense for a net of $15. Then, be sure and have a written agreement with them clearly stating their relationship to you, and send them a 1099 at the end of the year.
Old 11-12-07, 10:30 PM
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It's always wise to consult an accountant when starting a business.
Old 11-13-07, 05:45 AM
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And use a good bookkeeping program such as Quickbooks. Very easy to do the accounting in this example in mdtaylor's description: The $20 is input as income and the $5 as a bill categorized as a business expense.

Are you going to incorporate?
Old 11-13-07, 06:00 AM
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I would add

As the others have stated the $20 is gross income but that doesn't neccesarily mean that the $15 is all profit. You only pay taxes on the profit. You've already spent $5 getting the $20 but you still have all the other business expenses that get deducted. Whatever is left is what you pay taxes on.

Don't forget your estimated tax bill is paid quarterly.

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