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I’m getting checks in the mail now from Linkshare, Azoogle, Commission Junction and soon from Kowabunga. How do I handle these checks as far as income?
This question comes from Greg Hoffman, the Marketing Gorilla. First, let me preface everything by saying that I am not a tax expert or an accountant by any means.
I would urge you to get an accountant to handle all of your financial affairs, so you don’t take any missteps when it comes to your tax obligations.
I’ve been turning over my affiliate earnings to an account for as long as I can remember. Not only does it reduce some stress, but it allows me to concentrate in areas where I can build my business.
Anyhow, in the past when I was managing independent affiliate programs, we would issue a 1099 form to affiliates who earned $600 or more in a year.
I am not sure if that has changed in the past few years, because all affiliate programs I’ve managed in recent years were on Commission Junction, and they handle the affiliate commission payments.
As an affiliate, when you get the 1099 form to chronicle your earnings, it doesn’t include any withholding. In other words, you receive your affiliate commissions in full with no taxes removed in advance.
So those funds are taxable, assuming you are in a bracket where you have to pay taxes. Again, consult with an accountant.
All of those affiliate earnings need to be claimed. Otherwise, you will be hearing from the IRS at some point, and it won’t be a birthday card.
Look at it this way. It’s a good thing if you’re making enough in affiliate marketing that you need to pay taxes. OK, maybe not a good thing, but you’re earning, and that’s good.
15 responses so far ↓
1 Rick Lea // Feb 8, 2008 at 12:49 pm
Hi,
Here is my thoughts on ways to reduce your taxes
2 BrianF // Feb 8, 2008 at 2:01 pm
My father is an accountant and has helped me in the past with this very issue. I offer you these words of advice:
1. When you receive any money via Internet earnings (affiliate earnings, advertisement earnings, etc.), put a certain % of it straight into an account that earns interest. You will need this money to pay taxed on your earnings. The % you decide to put away should be whatever your tax bracket is.
2. Save all receipts on all expenditures. That means office supplies, computer needs, internet costs, phone costs … anything that can be filed as business related, keep evidence and you will be able to deduct those costs.
Think of what you are doing on the Internet as a Business. You are accountable for everything you earn and spend, and if you keep track of it throughout the year you will save a lot of hassle come April.
3 Tom Beaton // Feb 8, 2008 at 8:54 pm
Great advice as tax return time rapidly approaches. Taxes can be a bit confusing but its pays off to be on top of things!
4 Wes Mahler // Feb 9, 2008 at 8:06 am
Lol Shawn, “have fun paying your taxes.”
5 Chad Bordeaux // Feb 10, 2008 at 12:24 am
Greg,
It is also important for me to point out that it is not necessary for you to get a 1099 for the money to be taxable. Even if an affiliate pays you $5, it should be included in income on your tax return.
In addition, when setting money aside for your taxes, be sure to set enough aside for your Federal Income Tax (based on your effective tax rate, your “self-employment tax” (15.3%), and any applicable state and local taxes. Depending upon where you live and your income level, this could be anywhere from 20% to 50% of your income when all added up.
The self-employment tax if in lium of Social Security and Medicare taxes and is equal to the employee and employer portion of Social Security and Medicare.
If you begin generating significant income, there are many strategies that you can envoke to reduce the taxes. Feel free to contact me if you have further questions. I would be happy to help. I am a CPA.
Thanks,
Chad
6 Chad Bordeaux // Feb 10, 2008 at 12:26 am
Greg,
Also wanted to point out that the tax is owed only on your income after you deduct your expenses - not on what your Revenue is.
Thanks,
Chad
7 Juned // Feb 15, 2008 at 7:31 am
nice thought of saving money.
8 kevin // Mar 1, 2008 at 2:06 pm
Main I hate the irs. Have you ever heard of the fair tax? I want to drop some kung fu on the irs.
9 Shawn Collins // Mar 1, 2008 at 2:12 pm
Hey Kevin -
I’m a fan of the fair tax, as well as Steve Forbes’
Flat Tax Plan.
I don’t expect to see anything resembling either of those with the current Presidential candidates.
10 Natalie // Jul 23, 2008 at 6:35 am
I was wondering how you go about witholding tax and paying SE tax etc if you happen to earn over $600 in affiliate earnings online, ie who do you pay it to as there are state and federal taxes to consider.
Thanks in advance!
11 Shawn Collins // Jul 23, 2008 at 8:50 am
Hi Natalie -
I hire an accountant to guide me on all tax issues and pay quarterly estimated tax payments.
12 Natalie // Jul 23, 2008 at 3:13 pm
Hi thanks for your reply! Can you recommend any accountants or accounting firms in CA that are reasonably priced for advice as I’ve never had to hire one before.
13 Shawn Collins // Jul 23, 2008 at 3:15 pm
Sorry, but I have no idea about accountants outside of my area.
14 Chad Bordeaux // Jul 23, 2008 at 3:19 pm
My firm is in North and South Carolina but we service customers all over. If you detinately want someone in California, go to PASBA.org (Professional Association of Small Business Accountants) and search for an accountant in your area. I have met most of the members through the years and the group as a whole networks considerably to ensure they everyone stays on top of things.
15 Natalie // Jul 23, 2008 at 3:25 pm
Thanks very much Shawn and Chad. Wow your replies are so quick.
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