All points outlined by NCMedia are very similar to the UK - I just didn't break it down as well The point is that you SHOULD be treating affiliate marketing as a business because you need to show that it is a business to be able to claim business expenses. You don't want the tax man telling you it is only a hobby and you don't qualify to write-off legitimate business expenses like web hosting, domain name purchases, outsourced work etc... If you keep all receipts and treat it like a business then you WILL be able to deduct the expenses from your income and lower your tax bill. If you don't keep the receipts and don't treat it like a business, you probably won't be able to claim any business expenses and therefore face a much higher tax bill. Using example figures that NCMedia used... For example, $50k gross income and $20k expenses over a year would leave you with $30k taxable income at your tax rate. Imagine if you had $50k gross income and had paid out $20k for webhosting, outsourcing, advertising etc and not kept any receipts. You can probably figure out what would happen... Yep, you would be paying tax on $50k gross income and not $30k net income. In this example it means you would be paying 18% on an extra $20k = $3600 extra tax just because you didn't treat it like a business and didn't keep receipts etc. Golden rule is if you pay for something to do with your 'business', you keep the receipt so you can claim it as a business expense - the receipt is the proof.
Here is what I know so far from my own research: 1. In the U.S. - its NOT $400 NET as someone stated once, its anything $600 an over accumulated is when you begin paying taxes. 2. You pay a 15.3% self-employment tax! (12.1% for SOCIAL SECURITY and 2.2% goes towards Medicaid) - BUT - You only pay $92.4k in Social Security Yearly. Once you've reached this, you don't need to pay anymore into social security for that year. Medicaid continues on though. 3. Seeing how there is self-employment tax your paying in, I believe you can have "write-offs" or "deductions" as they call it. Basically, you can write off any business expense (web hosting bill, domain, internet bill ... basically anything that is used to operate your "business.") Only thing is, IDK if ClickBank's fees that you pay them for letting you use their system is considered "business expense." That's all I know so far, maybe some other people can elaborate or correct any mis-leading information I presented.
I also assume that Clickbank sends out 1099 forms to US Residents at years end if they are over the $600 earnings amount. And if they send those out, that means that they've reported to the IRS that you've earned X amount of dollars. That's why they need your Tax ID or EIN # when you apply for a pub account. There's no way to get around it. Karma catches up to you and bites you in the end. Just pay your taxes and hire an accountant if you don't know what you're doing. Also, if you don't know general business, read up on it and learn the basics. That way, you've got an idea as to what is going on with your business all the time.
^^ So all we have to do is take the 1099-MISC forms sent to us from the affiliate networks to a place like Jackson Hewitt or H&R Block (or a CPA ... Certified Public Accountant) and they should be able to figure how much we owe right? Then we just pay that to the IRS...
Yep.... They will tack this onto any other money that you earned along with your day job (if you have one), figure your total amount of tax you owe with all gross income earned, deduct any taxes that you've already paid in (from your day job) from the amount you owe, and you'll either owe taxes or get a refund. Here's what I do: I (like most other people here) work a day job. While I can claim some exemptions, I let the IRS take out the maximum tax they are allowed to take out. Why? It offsets any earnings that I have through affiliate income. Since I have them take out the max, if I have no affiliate income, I should be entitled to some sort of refund (depending upon my tax bracket, of course). But if I have taxable affiliate income, taxes are taken out, thus offsetting the amount of my refund. This way, I'm closer to zero (or maybe, just maybe, a small refund). While I always put money aside anyway, this method works great for me, as I won't get hit with a huge tax bill all of a sudden. If you rake in big money as an affiliate, there is nothing worse than getting hit with a $3,000 tax bill. It's much easier to work with a smaller amount. My advice, however, is that you still meet with an accountant, as I am not one (although I do all of my own books. My accountant just verifies everything for me, and I'm usually pretty accurate). When it comes to business, it's always best to leave it up to the professionals in the end. Hope that helps!
Here is a little bit of information from $5k to $50k so you can tell what the minimum of what you'll owe is. This is based off the equation of "Affiliate income X 15.3%" $5k - $765.00 $10k - $1,530.00 $15k - $2,295.00 $20k - $3,060.00 $25k - $3,825.00 $30k - $4,590.00 $35k - $5,355.00 $40k - $6,120.00 $45k - $6,885.00 $50k - $7,650.00 That is just some rough numbers for you to consider.
I think the tax policy is different in every countries. In my country, I dont have to pay anything if I get some income from my publishers. Because in my country, there's no tax for an online job.
This looks right, but you have to know that once you get over $30k (I believe), you automatically jump into the 25% tax bracket.....
The 15.3% self-employment tax is in addition to your normal income tax rate, but they at least let you deduct the self-employment tax before you figure your income tax owed.
You may want to read your research material again. You pay income taxes on 100% of your NET earnings from self-employement. There is no exclusion of $400 or $600. It is true you will not receive a 1099 form unless your earnings exceed $599 from any single payor. You do not owe any FICA tax unless your NET income from non-farm earnings exceeds $400 NET INCOME. Then you owe 15.3% of those net earnings subject to the maximum which Canidate Obama plans on raising. Should there be anyone reading this thread that doubts the accuracy of my comments I will provide the necessay links to the IRS website to illustrate what I have posted.
Here is my revised look!! It was (I'm sure of it) at one time NOT $400, it was $600 but this was back in 2004 which was the last time I checked cause I was trying to begin my first business. This year will be the first time this all actually affects me and yes, it NOW states $400 NET earnings. Here is some corrected numbers that are mis-leading. 12.2% for Social Security and 2.9% MEDICARE - that equals to the 15.3% accurately, unlike my above statement. At the same time, you pay $94.2k in Social Security YEARLY only. Not the $92.4k I quoted. I am not getting this. What is the "normal income tax rate"? Explain this situation if you could please. I wasn't aware that you are jumped into a higher tax bracket. Mind providing the resource that provides this information? BTW, here is some more info to help you: http://www.irs.gov/businesses/small/article/0,,id=98846,00.html
So how do I prove my expenses? Send them a printout of my paypal history. Do they actually need my physical receipts or do I just say "yep I bought this deal with it". Its really confusing me.
Oh my god...I've been mucking around not paying any tax from India at all on my CB income, I've a separate bank acc. that I encash these cheques from though. Does anyone here have experience with declaring CB income in income tax?. The taxman is especially bloodthirsty in this country, as in all socialist countries and I've seen what happens to people that evade them unsuccessfully...not pretty.
I don't know, but there is a tax-education resource called "Freedom Law School." You can google them. They got an ex-IRS agent works for them, and they helped a guy in California get back over $300,000 from the state tax board.
Yeah, there's gotta be a way to stop gov. from sucking you dry. All methods of taxation are corrupt, in my opinion.
Taxmen are all vindictive little cretins that revel in being able to take down more successful people...the little guy's dream job. Well, most of what I earn goes to charity anyway...so I doubt I can be imprisoned/fined for giving stuff away for free...