YPN Partnerships - Be Careful

[dshah]

Lot of people who enter such partnership don't realize that the person whose account is being used is subject to up to 30-40% tax on YPN revenue (because its reported on that persons SSN).

So the owner of YPN account ends up getting only 10-20% - which is not very worthwhile.

[chris20492002]

?? so they charge people 50% of what they make.

OMG and here I thought they were getting charged 10-20%.

[dshah]

Yepp...In fact sometimes naive publishers who has YPN accounts enter such partnerships for upto 10-20% share. Not realizing that they will be paying 30-40% tax on total amount credited to their account - thus paying money out of their own pocket.

[JoaT]

dshah, based on what I believe you are suggesting - that would only be true if you are doing business personally without any legally formed company. An efficiently setup business pays taxes on Net Profit, not Gross Revenue.

If you have a painting business and you earn $100 for painting a car, but spend $50 on supplies, then with an efficient setup you are taxed on $50, not $100.

If you have a YPN business and you earn $100, but spend $50 paying your advertising partner, then with an efficient setup you are taxed on $50, not $100.

This is not legal or tax advice, but any competent accountant can make these arrangements. If you don't have any accountant, then you probably shouldn't be in business

[sundaybrew]

Yes - I agree this is true.....Its called deductions

Originally Posted by JoaT

dshah, based on what I believe you are suggesting - that would only be true if you are doing business personally without any legally formed company. An efficiently setup business pays taxes on Net Profit, not Gross Revenue.

If you have a painting business and you earn $100 for painting a car, but spend $50 on supplies, then with an efficient setup you are taxed on $50, not $100.

If you have a YPN business and you earn $100, but spend $50 paying your advertising partner, then with an efficient setup you are taxed on $50, not $100.

This is not legal or tax advice, but any competent accountant can make these arrangements. If you don't have any accountant, then you probably shouldn't be in business

[karagold]

yes this is definately true. Also, the cost of your internet, computer, portion of electricity... anything that costs you money in order to make the money that you are paying taxes on can be deducted. a corporation has a much wider variety of deduction options available to them than an individual. if you are making good money, a corp is the only way to go. as for the % the government wants, this depends on your tax bracket which depends on how much you make in a year from all sources of revenue. a competent accountant could explain this further and in more detail. if you have any questions, you should consult an accountant.

[SamOwen]

I had to pay %15 this year.

[mediology]

I have soooo many right offs but I still put away 25% of my net profit before deductions each month.
At the end of the tax year, after deductions are taken I have a nice little chunk in savings. I then take this chunk and reinvest it.

I can't believe someone is getting hit 30-40% of their revenue! That's insane! It would be impossible for most businesses to survive.

[Lordy]

The maximum tax rate is 35% (USA).

That is only if you earn over $168,000 or above in a year.

http://www.moneychimp.com/features/tax_brackets.htm

[mediology]

Yeah but that's not on your revenue from YPN unless you are doing something drastically wrong with your accounting.
If you have absolutely 0 overhead then you would pay taxes on 100% of your revenue which is impossibe.
If you spent anything on advertising, Internet connection, computer, printer, paper, hosting, programming, design, etc etc. that would be deducted before taxes. So paying 35% on net profit.

[Eliteworx]

There are those of us who know how to get around paying 33.3% in tax's. And in order to do so must be making a 6 figure income.

And no you don't pay 30-40% of what your YPN makes just because its reported to the IRS. You claim X amount in business expenses, the % that you pay the individual. Then you go to deductions, and if your smart, pay pennies in tax's.

For instance, I work from home, my toilet paper gets written off.

[dshah]

Most of what is said above applies very well when someone holding YPN account filing tax as business and not individual.

When it comes to individual its lot difficult to put all these expenses to cut short your taxes (or may be I have no idea about it - gotta see tax guy)

Could anyone of you suggest if there are better ways to report expenses when filing as individual.

[JoaT]

I would just see a CPA, speculation here is probably just going to be confusing since stuff works different at least on the state level nationwide.

You will probably end up forming a legal company to pay less taxes.

[karagold]

you can file your income under self employed. you pay a self employment tax and it allows for some deductions. talk to a cpa. a corp is the only way to go if you are making money.

i write off my toilet paper too. lol. if you are making big bucks, think about multiple corps. this reduces your net revenue per corp and increases your deduction options.

jmo

[d16man]

basically, the non-ypn owner in the partnership gets tax free income, while the one with YPN has to pay taxes on the whole amount....not to mention its against TOS...

[NashTax]

Thanks for that, I wondered about this. I've had alot of offers to 'partner' with people but as always, I turn them down.

-- Ben

[karagold]

Originally Posted by d16man

basically, the non-ypn owner in the partnership gets tax free income, while the one with YPN has to pay taxes on the whole amount....not to mention its against TOS...

thats not true if the ypn holder is smart. if the ypn holder has a corp, he could pay the partner for a legitimate service rendered. that partner would need to furnish an invoice of some kind for your records. but, at the end of the year, you could deduct that expense from your gross income as a legitimate business expense. it would be his/her responsibility to claim that income, which has nothing to do with you. so many ways, so little time.

jmo

[d16man]

Originally Posted by karagold

thats not true if the ypn holder is smart. if the ypn holder has a corp, he could pay the partner for a legitimate service rendered. that partner would need to furnish an invoice of some kind for your records. but, at the end of the year, you could deduct that expense from your gross income as a legitimate business expense. it would be his/her responsibility to claim that income, which has nothing to do with you. so many ways, so little time.

jmo

but I wonder how many people with YPN actually have a Corp? I doubt very few...I bet most of us are all the same, we own websites which we claim as a business...and nothing more. JMO though...

[karagold]

im not in that category. you are probuably right though. a majority are probuably listed as personal accounts.

[mediology]

I would imagine that a lot of the people with websites have formed LLC's or corporations assuming it is a business and not a hobby.
If you are making more than $xx,xxx per month I highly suggest forming an LLC if you are in the US.

As far as the taxes there are several ways around it but to be safe I would definitely try and get a percentage of the sites revenue and put it a side until tax time.

When one of my companies was audited by IRS a few years ago I was very happy that I had always kept pretty good books and didnt buck the system. Of course they found a few things but in the end it only cost me $1500!!! They spent TONS of time at my main office and seriously they must have been pissed off! It must have cost them $5000 plus to audit me.

Anyway keep good books and Incorporate or start an LLC if you are serious about your business(an it is actually making money).