How to Pay Affiliates and Meet Minimum IRS Tax Records
How to Pay Affiliates and Meet Minimum IRS Tax Records
As an online business owner, you will need to pay your affiliates. When you pay affiliates, it comes with increased tax responsibility and of course, paperwork. One good place to start is with the official IRS site. Despite the bad rap the IRS gets, it does put out some helpful information each year.
Business or Hobby
The IRS has a guide titled "Business or Hobby? Answer Has Tax Implications." It can help you determine if you need to pay business taxes, apply for an EIN and other general information. It is highly recommended you read this article. In fact, they are starting a new series on July 7th.
Basically, it boils down to: Does it make a profit or is it expected to make a profit?
Taxes and the Affiliate Marketer
The vast majority of affiliate marketers are not in it for a full time job. They see it as an easy way to make some extra money. However, just because it is a profitable hobby for them, it does not exempt them from paying taxes. It is no different from a commissioned salesperson.
Therefore, affiliate companies are required to send out a 1099-MISC to the IRS regarding the income paid to affiliates and send the 1099-MISC to the affiliate. Affiliates are to report their income on a 1040 Schedule C.
Businesses expecting to send out 1099-MISC will need to collect a W9 for all independent contractors (affiliates). The W9 will need to be filled out and signed by the independent contractor. The IRS does accept digital signatures; therefore it can be done electronically. The IRS recommends companies keeping the W9 and 1099 for all contractors for at least four (4) years.
Small Business Checklist
Do You Need an EIN (Employer Identification Number)?
oMost small business with no employees will not need an EIN. Their social security number will work.
Do You Need a DBS (Doing Business As)?
oIf you plan on operating your business under your name, you do not need a DBA. However, if you want to use another name, then you may need to register your trade name with the state and local government.
Sole Proprietorship or LLC?
oMost small businesses will be a sole proprietorship. However, some people like to protect themselves and their assets in case they are sued. In this case, small businesses like to form an LLC. Note: Most states will enforce a business tax on an LLC.
Home Office Zoning Laws
oMany people working from their home will skip the home office zoning laws. However, you do need to check with your city because you may need a permit. Just because your work is done entirely online does not exempt you from the zoning laws.
How to Pay an Affiliate Overview
All affiliates need to fill out and sign a W9.
You are required to send any affiliate making $600 or more a 1099-MISC by January 31.
You need to keep all W9s and 1099s for a minimum of four (4) years
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