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Tax question for splitting payments with business partner

by Derek_Thomas
6 replies
Dear Warriors,

I know this is not the best place to receive tax advice, but perhaps someone has some wisdom to share with me that might at least point me in the right direction.

Here's my situation/question: I'm running a service with a business partner, and we're using JVZoo to split the payments. Customer pays into my PayPal account and JVZoo sends my business partner his cut automatically from my account.

RE taxes, doesn't this mean if (for example) $1,000 comes into my account, I'm paying taxes on the entire $1,000 even though I'm immediately sending $500 to my partner? Sure I can claim that $500 as a business expense, but does that really offset the taxes I'd pay on the initial $1,000?

Hope that makes sense. I'm researching this myself and will consult a professional opinion, but maybe someone here could share some insight with me.

Thanks,
Derek

P.S. - USA here.
#business #partner #payments #question #splitting #tax
  • Profile picture of the author wesawu
    How is your partnership structured? No one can answer that question given the information you have provided. Are you set up as an LLC with both of you as members? Are you the only member of the LLC? Is the "partnership" just an understanding between you two? If you can provide more info you should get some real information.
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    • Profile picture of the author Derek_Thomas
      Originally Posted by wesawu View Post

      How is your partnership structured? No one can answer that question given the information you have provided. Are you set up as an LLC with both of you as members? Are you the only member of the LLC? Is the "partnership" just an understanding between you two? If you can provide more info you should get some real information.
      Apologies if this wasn't "real" information. This is a new venture for me so I'm not even sure of the right questions to ask, much less the answers to them.

      The partnership is as simple as an understanding between us, no LLC.

      Derek
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      • Profile picture of the author tamo42
        Originally Posted by Derek_Thomas View Post

        Apologies if this wasn't "real" information. This is a new venture for me so I'm not even sure of the right questions to ask, much less the answers to them.

        The partnership is as simple as an understanding between us, no LLC.

        Derek
        You're in a partnership then. Without a partnership agreement, the net income will be split 50/50. On your taxes, you will be reporting this on your Schedule C. Sadly, this means that you will be paying 15.3% self-employment taxes.

        You are basically in the worst legal and tax position. You are liable for anything your partner does. He hits someone with his car, gets sued for $10,000,000? Surprise, your money is up for grabs too!

        If you want to split your income in different ratios, you're probably going to want an LLC with 2 S corps as owners. With the LLC you can apportion income however you like, and with the S corp the income will be treated as passive income. But everyone's tax situation is different.

        If you need some specific help, send me a PM.
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  • Profile picture of the author Danny Cutts
    I have complicated tax issues as I have fingers in many pies and what the tax man may see as not something I cant claim back it may well be something that is for my business...

    What I am trying to say is get an accountant and get what your paying for and that is advice :-)

    Danny
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    • Profile picture of the author Derek_Thomas
      Originally Posted by Danny Cutts View Post

      I have complicated tax issues as I have fingers in many pies and what the tax man may see as not something I cant claim back it may well be something that is for my business...

      What I am trying to say is get an accountant and get what your paying for and that is advice :-)

      Danny
      Thanks. I agree I need an accountant and will be speaking with one shortly. I totally get that to be very important.

      I was just wondering if anyone had similar circumstances and would care to share their experiences.

      Maybe that's the best anyone can say to me ... see an accountant. But maybe someone has an idea that might help simplify matters...perhaps a better way to split payments where the full amount doesn't go into my account? I don't know. Just thought I'd ask.

      Derek
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  • Profile picture of the author startupbizking
    I am a tax business owner as well as an accountant. Your liability as outlined in this particular scenario is limited solely to taxation. Simply issue him a 1099 for services rendered and duct his pay for your AGI (Adjusted Gross Income). Simple yet effective...
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