Situation: there is an online social network that raises money from online ads, like the Google AdSense ones. It pays its best users 50% of the revenue that comes from those ads; this is a commitment stated in the T&C, not just a random gift or prize. - Will the company have to pay taxes for this payment? Can it deduct them? What are the thresholds? - And as for the individual, must he/she pay taxes for this income? If he/she decides to use it for charity purposes, can he/she deduct them? This example applies for a US-based, legitimate and audited company. Thanks for your help!
1. You should have an accountant give you advise. 2. If you pay out money in excess of certain thresholds, you will need to file a 1099 for each person or entity you sent money to. 3. You do have to be concerned with the effect on your customers, each of their tax situations are different. Some may have to pay taxes on it, some may not. It does not matter if they direct that money to charity. They still need to report the income, whether they also have a valid charitable deduction is a separate issue. 4. You probably can deduct the money paid out as an expense, but again, you need to consult with your accountant.