Has the education system in America failed me? or was I just not paying attention? Here's the deal: My friend puts his adsense code on my website. Come payment every month, he gives me the majority of the check, obviously keeping some of it for himself. I made a total of $4300 from adsense last year. Now, he's saying that I need to pay him $800 to file income tax. Google apparently sent him a 1099 form. Here's how I understand things... The line to pay taxes is $6,000. I obviously did not pass this line. However, he did pass this income line with his other job. So, he's saying he needs to pay income tax for the adsense earnings. Is there a legal deduction or write off he can make to avoid this? What do you think? What's... "legal" in this scenerio?
I am just a tax payer, not an expert, so your friend should talk to a tax professional, but this is my understanding: What your friend probably should have done is file a 1099 form for the amount he paid you (which he is probably required to do anyway, unless the money could be considered a "gift"): http://www.ehow.com/how_9185_prepare-1099-contract.html Then, on his schedule C, the amount could be listed as a "contract labor" expense", I believe : http://www.irs.gov/instructions/i1040sc/ch02.html#d0e508 There may be other ways to legally deduct this as an expense as well. If he is paying you "under the table", he is going to be responsible for the taxes on the full about. He should have told you that he'd expect you to pay the taxes on it upfront when you made the deal.
I would look at it a little differently... Your situtation. 1. You have a site that you rent space on for a fee. (that fee is a percentage of your friends adsense). Your income from that site, is that, plus whatever else you make. You also have expenses which you can deduct. Your friends situtation. 1. He pays a fee to place his code on your site. 2. He gets a 1099 saying how much google paid him. He gets to deduct his expenses and that would include the amount he pays you. 3. Is all his adsense on the 1099 from your site, or did he place that code on other sites as well? Lastly, where did he come up with the $800 figure that you owe him?
He declares the income. He declares the expenses of paying you. He pays taxes on the difference. You pay taxes on what he paid you. You don't need to pay any of his taxes.
I agree, you shouldn't have to pay his taxes if you are the one giving him the money basically for free in the first place. Maybe he should've thought ahead a little and kept some of that money for taxation.
That's what I thought we could do. Neither of us know how to do this though... So yea. And he's one of my best friends. It's a sticky situation.
I've filed Schedule C ("Profit or Loss from Business, Sole Proprietorship") using TurboTax and it was very straightforward - the program goes through each line step by step and has explanations of the terms. If your fried tries that and still doesn't understand, he should go to a tax professional. Once he learns the basics, he can do it on his own next year.
I have learned it is best to not go into business with friends or family. For me it has always ended badly.
Worst advice ever... You run a tax forum? It's not his responsibility to pay taxes earned by someone else, and there is no way the other guy is going to be at a loss after taxes. Taxes are paid on profits. Profits = Revenue - expenses Revenue = Adsense earnings Expenses = Poohbear's cut Poohbear payes taxes on his profits (less than 6k total income means zero). Other guy pays taxes on his profits (probably very little as most of the revenue went to poohbear and it doesn't sound like these guys are in a high tax bracket) Everybody is happy, including the IRS. You need to make a decision Poohbear, either this is a business or this is a friendship. Option 1: Tell him to file his taxes properly and he won't owe $800 and to go stuff himself. Option 2: Pay him $800 of your money to maintain the friendship. No matter what option that you pick, get your own adsense account and seperate friendship from business.
Yeah, he's taking a chance asking you to pay his tax liability. Keep two separate sets of books - his income and your income. He should pay his own tax out of his own income.
Nonny has given the best advice.. He needs to file Schedule C and declare the money paid to you as an expense.. Problem solved..