My question revolves around what is considered income and what is taxable. I will have a site where people can sell prints for a price they determine and they get to keep a percentage of the selling price. When someone uploads a print, they determine how much it will sell for. They get to keep whatever the price they choose minus (15% + cost of shipping / printing). In most cases, it'll be more than half the cost of the print that goes into their pockets. I'm going to set the payment system up similar to Google Adsense... so they get paid monthly if they've sold X amount of dollars in prints. Now, Because I'm going to have (lets say 80% of the total cost assuming 20% is going to printing and shipping and will be deducted automatically when its' getting printed and shipped) 80% of the cost of the print sitting in my company bank account for a minimum of a month, what is considered income? In reality, only 15% of that is true income, the rest is simply someone elses money that I'm holding for a short amount of time. I'm not sure if anyone here will really be able to answer that and I'm going to talk to a lawyer eventually, but I wanted to have at least a little bit of an idea so I could get some questions ready and stuff.
Are you in the US? If so, the money paid to the artist/poster will be reported as expenses to be deducted from the gross revenue to get to the taxable revenue. In short, the money you pay to the artist will not be considered taxable income. However, if you leave the money in a bank account that gains interest, you will pay taxes on any interest you earn. Be aware that if you are requiring they meet a certain threshold before you cut a check you may be required by law to maintain a balance large enough to pay off any outstanding balances owed to artists even if they have not met that threshold. It may not be 100%, but it will be a substantial portion.
It would indeed be in the US. Someone on another forum mentioned having to fill out at 1099 form. I'm still not sure if this would be the case since they're not really a contractor or freelancer. As far as keeping enough to pay off all outstanding balances, that wouldn't be an issue as our company doesn't really spend money (aside from hosting, buying domains, etc) We have other websites and revenue income that cover those costs. I think I really just need a lawyer to tell me exactly what this money would be classified as.
I recommend creating a list of all of your questions and go down to your local CPA. Ask as fast as your can and write down the answers as fast as your can because they charge a lot per hour. The place I went to was $120/hour. Luckily it only took 1/2 hr so it was $60. Better yet tape record the Q&A with them and get out of their office as fast as you can That's what I plan on doing next time so maybe it will only be 15 minutes Best of luck!
Cafepress.com has a similar service. They file a 1099 for every person that earns more than $600 in a year through them. I found that by going to the help section and searching for taxes.
Ah, that's cool. I was trying to think of sites that did something similar so I could try to find out how htey did it... but cafepress completely skipped my mind. Thanks!