The only tax forms I have any experience filling out would be a 1040, a Schedule C, and Schedule SE. There are atleast 2 questions at the moment that would be helpful to me to clarify, feel free to address or ignore any issue you wish:
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EIN - There are a number of internet affiliate programs that I would like to join but many ask for a tax id number. Needless to say I would prefer not to use my Social Security number, so I assume I would want to get an EIN.
How long does it take to get an EIN? Does it in any way change the way I would need to do my taxes at the end of the year (the way I fill out a Schedule C or 1040, or if there are other forms that would have to be done as well)?
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1099s
There are a number of websites/businesses that I have wanted to make but they would have involved paying people commissions/etc. For instance an ad broker website (like Google Adwords/Adsense). The only thing that prevented me from doing so thus far would be my uncertianty reguarding IRS regulations related to paying people commissions.
Many affiliate websites do not require tax IDs, many do. I'm a bit foggy about the requirements.
So my questions reguarding this issue would be:§ 6041. Information at source
(a) Payments of $600 or more
All persons engaged in a trade or business and making payment in the course of such trade or business to another person, of rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable gains, profits, and income (other than payments to which section 6042 (a)(1), 6044 (a)(1), 6047 (e), 6049 (a), or 6050N (a) applies, and other than payments with respect to which a statement is required under the authority of section 6042 (a)(2), 6044 (a)(2), or 6045), of $600 or more in any taxable year, or, in the case of such payments made by the United States, the officers or employees of the United States having information as to such payments and required to make returns in regard thereto by the regulations hereinafter provided for, shall render a true and accurate return to the Secretary, under such regulations and in such form and manner and to such extent as may be prescribed by the Secretary, setting forth the amount of such gains, profits, and income, and the name and address of the recipient of such payment.
1) If none of the affiliates make more than $600 in a calender year a 1099 wouldn't be required for any of them and it would just be a matter of claiming the payments as a business expense on a Schedule C. Correct or incorrect?
2) Is it required to obtain a tax ID/issue a 1099 only for those affiliates who have earned $600 or more? Any affiliates who earn less than $600 in a year I wouldn't have to collect any information from?
One affiliate program withheld a certain percentage of the check until I provided a tax ID number, despite the check being only for $40 or so. Others will happily pay (atleast up to $600) without asking for a tax ID or withholding taxes from the payments. Who is right?
3) Naturally, asking affiliates for their tax ID number up front is an option, but it also would cut down on the number of potential affiliates (due to the fact not everyone has an EIN and many are uncomfortable giving their SSN). Also on the issue of international affiliates, to my understanding 1099s aren't required to be issued for non US residents/citizens living abroad. If commissions are paid via PayPal (which in my case they probally would be) how am I to be sure that someone who says they are an international affiliate isn't really a US citizen lying to prevent a 1099 being filed on them? (more precisely, what steps, if any would the IRS expect me to take to verify the accuracy of the information provided to me?).
Programming the website and paying the affiliates by PayPal is the easy part, being sure what the IRS wants is the part that confuses me a bit.
Also there are a number of online sites (some multi-million dollar businesses) that I am positive make payments exceeding $600 in a year to people and do not require any tax ID information. An example of this would be websites that act as an auction service for virtual items in online games, some of these websites buy and sell "virtual currencies" in various online games (such as gold in World of Warcraft [WoW]). People buying "WoW gold" pay the company directly, and those selling "WoW gold" receive payments directly from the company, very often in excess of $600 without asking for any tax id information or issuing 1099s. Are such companies in violation of the law or is there a reason this rule wouldn't apply to such a business?
Possible answer to my own question (that could be wrong):
In the above example, those payments wouldn't be classified as "rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments" and cannot be proven by the payer to be "other fixed or determinable gains, profits, and income" (since the "WoW gold" they sold could have been purchased by them earlier for the same price). Therefore they wouldn't be required to issue 1099s(?)
Also, would the type of business described (buying/selling "WoW gold) above be considered a "currency exchange"? (a currency exchange would be subject to other regulations I doubt most of these businesses would be in compliance with).
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I would generally use a 3rd party affiliate site (like clickbank), let them make the payments and deal with the regulations, but a better understanding of the requirements involved would probally be helpful for future reference. Thanks in advance for any information/opinions you can provide.