Clickbank and taxes

by Dan Maloney 17 replies
Clickbank says if I make $600 or more it's a good idea to get a EIN for tax reporting. I was about to go ahead and do it via the IRS online application, but I have a few questions.

1) Does owning an EIN mean I have a business? If I want a business later (probably an LLC I suppose) can I use my new EIN? I googled for "how to start a business", and most of what I found seemed pretty involved. I could not find a simple guide like "You need X, Y, Z to be considered a business." I live in Florida.

2) Does clickbank take out taxes? They say I get sent a 1099. I couldn't figure out if that meant taxes were taken out already or if I have to figure out this kind of stuff myself (???)

Thanks for any help.
#main internet marketing discussion forum #clickbank #taxes
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  • Profile picture of the author Elmer Hurlstone
    I can answer part of your question.

    A 1099 is simply a statement of earnings. If you earn over $600 within a calender year they are obligated by law to report the earnings via the 1099 to the US IRS. They also send you a copy for your records. Uncle Sam really wants to know how much you're earning.

    As to transferring or redesignating the EIN perhaps that question is answered on the IRS site.

    Elmer
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    • Profile picture of the author Steven Wagenheim
      Clickbank does not take out taxes. You are responsible for reporting all
      your Clickbank income. Oh, and they do not send 1099s either.
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      • Profile picture of the author KonaGirl
        If you make over $600 Clickbank will report it to the IRS, but up to now I have never received a 1099 from them. I just print out a copy of my earnings and keep on file and then I pay my taxes quarterly on what I have earned to make it easier.

        If you can not afford an attorney or a CPA for legal advice, the best advice was to visit the IRS site to get what information you can there and also call their 800 number with any questions you cannot get answered on the site.

        Five years ago when I 1st got my business license (EIN), they gave you a book with a lot of information in it. Rather that getting your license on line you may what to go to your local county office and see what they have there for you.

        Oh, BTW a 1099 is a statement of earnings for independent contractors. As an independent (self-employed) you are responsible for reporting all of your taxes and paying them and your social security payments accordingly. If you are not yet making $600, don't bother with the IRS quagmire until you have to.

        Hope that helps.

        Aloha,
        June
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        • Profile picture of the author Dan Maloney
          Thanks guys. Coming from the J.O.B. world I'm not as familiar with payment systems that don't take out taxes for you. Is there any way I can estimate what taxes I'll owe up front (based on the 1099) so I don't have any suprises come April 15? I might do something like put a regular portion of the income into a seperate account (to pay taxes with) so I don't think I have more money then I actually have.

          How do you guys handle this?
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          • Profile picture of the author Dan Grossman
            You don't need an EIN if you're not a business or you're being paid as an individual. Just give them your social security number if they need it for a W9.

            You will be responsible for reporting *all* earned income no matter where it's earned or how much it is come tax time. You should know what tax bracket you're in based on your earnings last year, taking into account any changes in your salary this year. If you know you'll be in the 25% bracket for example, then put away at least 25% of those earnings. You'll pay a little more than that since you have to pay the self-employment tax on top of the income tax.

            Keep records of everything you earn online, just like you keep copies of your W2s, for at least 3 years in case of audit. They will want to see proof of all your revenue numbers, and will charge back taxes, interest and penalties if you didn't report correctly.

            I've been audited and had to print hundreds of pages of receipts for my online income to prove the numbers I reported were accurate (to the penny, and they were!).
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        • Profile picture of the author Michael Oksa
          Oh, BTW a 1099 is a statement of earnings for independent contractors. As an independent (self-employed) you are responsible for reporting all of your taxes and paying them and your social security payments accordingly. If you are not yet making $600, don't bother with the IRS quagmire until you have to.
          Just to clarify a point. You have to report ALL of your income to the IRS. The $600 figure only applies to a 1099. If you earn $500 from someone, then you must report that income, the only difference is that there won't be a 1099 involved.

          ~Michael
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          • Profile picture of the author Dan Grossman
            And don't forget you'll also need to fill out a Schedule SE this year to pay self-employment tax on those earnings, which covers the social security tax you'd normally have taken out of your paycheck (with your boss paying half... you pay both halves when you're self employed).
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            • Profile picture of the author Niche Marketing
              Clickbank does send out 1099's. I've gotten them for the last 8 years.

              I'm not sure how some people don't get them unless they don't make
              over $600 per year per account.

              Brian
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              • Profile picture of the author ChrisJacobson
                Or if they live in Canada.
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              • Profile picture of the author Chris Lockwood
                Originally Posted by Niche Marketing View Post

                Clickbank does send out 1099's. I've gotten them for the last 8 years.

                I'm not sure how some people don't get them unless they don't make
                over $600 per year per account.
                1099s are usually not sent to corporations, just individuals. I've never received a 1099 from Clickbank.
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                • Profile picture of the author LB
                  At the risk of giving the answer that no one ever wants to hear...talk to an accountant- and probably a lawyer too.

                  That's the only way to be sure.
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                  • Profile picture of the author Chris Lockwood
                    Originally Posted by LB View Post

                    At the risk of giving the answer that no one ever wants to hear...talk to an accountant- and probably a lawyer too.

                    That's the only way to be sure.
                    Sorry, but you don't need an accountant to tell you that all your income is taxable (if you're a US citizen, at least), except anything specifically exempted by law.
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  • Profile picture of the author TmSmith
    Ok, here is what the IRS has to say about an EIN.

    “An Employer Identification Number (EIN) is also known as a Federal Tax Identification Number, and is used to identify a business entity”

    Now a business entity would be an LLC, Corporation, S Corporation, there are some others that I can’t think of right now also. A corporation is a separate entity from the owner as far as taxes and liability are concerned. When you do form an LLC you will need an EIN. You could also run your business as a Sole Proprietor in which you use you Social Security Number just as you would for your regular taxes; except you will need to fill out a 1040 Schedule C with your taxes to document your revenue and expenses.

    Which to Choose?

    A corporation helps protect your personal asset in the event your business goes bankrupt or get sued or something like that. Pros are the protection the con is the initial set can be very confusing without a lawyer to help set it all up, it is also expense.

    A sole proprietor is easy to set up, I am not certain on all states but I also live in Florida and the only thing you would need is a DBA (Doing Business As), and you only need this if you want to open a checking account in your business name. This is good idea as it keeps your business money separate from your personal money, the IRS likes that. Now the con is that you are responsible for all the liability of your business personally.

    Once you start making a good amount of money you are probably going to want to set up a corporation of some type.

    As far as a 1099 is concerned there are NO taxes taken out, it just documents what click bank paid you. This is reported to the IRS from click bank so you will need to claim it and pay any taxes on your profit (revenue-expenses, 1099 would be revenue). You can deduct some of your house expenses with a home office expense.

    You can do your taxes on your own if you are willing to do a lot of reading , the best way is to use Tax Cut, Turbo Tax or something like that as they make it a lot easier than trying to fill out all the forms your self. You could also hire an accountant.
    I did my business taxes last year myself for the first time and made it through alright, no IRS audit

    I hope this helps let me know if you have any questions,
    Tommy
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  • Profile picture of the author kristinecpa
    Great thread... I just want to add a couple of points that I think will help:

    1. Sole proprietors are not required to have an EIN, but I think it's a good idea, especially with all of the identity theft that occurs these days. If you have an EIN, then you don't have to give out your SSN every time you join a new affiliate program, etc. You can apply for an EIN for free at the IRS website. Here's the direct link: Apply for an Employer Identification Number (EIN) Online

    2. A couple of people already mentioned this, but it's important enough to repeat: all of your income is taxable, regardless of whether you get a 1099 or not. You should receive a 1099 if you earn $600 or more from a company (such as eBay, ClickBank, or anyone that you provide a service for), but even if you don't receive a 1099, that doesn't mean you don't have to report the income. The good news is that you can deduct business expenses against your business income.

    Finally, I second LB's advice to talk to an accountant. A good tax professional can save you hundreds or even thousands in taxes... a good tax professional is an investment, not an expense.
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  • Profile picture of the author Eric Stanley
    Yes, CB DOES send out 1099. I've gotten them for the past 2 years.
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  • Profile picture of the author Gail Sober
    If you earn over $600 within a calender year they are <b>obligated</b> by law to report the earnings via the 1099 to the US IRS.
    Just FYI, many programs do still report your earnings to the IRS whether you hit that number or not. It's best to report all earnings and not worry about it.
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  • Profile picture of the author xnelson
    This definitely is an excellent thread and I wanted to keep the 1099 conversation going, but from the other direction.

    With Jan 31st coming up (deadline to issue 1099's) especially...

    If you outsource work to a ghostwriter or graphics designer for example and they earned over the $600 in the past year from you, then it is my understanding you should issue a 1099 to them, but that leads me to a couple of questions I hope someone can help with.

    What about membership sites you might belong to where you source products for sale, like resell rights or plr? What if you belong to a membership (as opposed to a outsourced writer/designer) that creates site designs and writes sales copy for you? There are also other services such as hosting providers (among others) that are providing services to you every year and for some of those services you do end up paying more than $600.

    Should we be issuing 1099's to all of the above sources?

    I live in a small area and I've spoken with a couple of CPA's and I have learned real quick that not all CPA's are created equal or have a thorough understanding of how everything applies to our 'digital' world so I figured this would be a good place to ask.

    Another question I have is, what about providers in foreign countries? Any other form we have to issue there (don't think there is, but hey, I am asking questions, so figured I'd throw it out there lol).

    Thanks again for a great thread and thanks in advance for any suggestions.

    Xavier
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    • Profile picture of the author doylesoft
      Great thread. In years past, I hired an accountant with offices a few blocks from my home. It's not a big deal. Just an extra $100 - $200. TurboTax or Tax Cut is great. My wife loves it.

      Uncle Sam doesn't care if you are a stripper or into organized crime, he just wants his cut. Get it?

      Yeah, if you make more than $600/year from CB, make sure you have all your Ps and Qs in order and your i's dotted. Then again, I am really paranoid about stuff like that; but better safe than sorry.
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