Need Advice on paying taxes when doing a JV!

[Mjordan]

I'm doing a joint venture with someone where we share the money 50/50. It's all under my SSN and the money all comes to my bank account. So I wire him his cut weekly.

I'm from the US, he's from China. Were making a good bit of money and if I have to pay taxes on 100% of it then that would leave me with not too much left I would think. We have it set up to where it's basically like I'm paying him for "advertising" or like he's giving me a service for my business.

I heard that all I need to do is get an invoice from him for each payment I send so that only 50% of the income is taxable. Problem, he doesn't pay taxes somehow and doesn't want to send me invoices because he's scared something could happen to where he would have to start paying taxes. It's just a single dude too, so no company or anything.

So what exactly do I need to do so that I will only have to pay taxes on my part of the money?

Also things such as hosting, domains, money spent on adwords ads, etc... can I write these off as business expenses and not pay taxes on that amount of money?

 

[Delboy2424]

if he doesnt pay taxes that is not your issue - you need to minimise your own tax liability jv or not and only way is showing his half as a cost to you for services rendered I doubt there would be any comeback for him providing an invoice as he is not even in the same country and as such does not fall under the same taxation rules....

Any associated expense with making your business can be used as a cost against sales...so yes, in answer to your question justifiable costs can be offset - if you use b/band 50/50 ie personal/business just make sure you claim only fair value.

imo - no invoice no jv if you are worried about your tax which you seem to be...

 

[bizhobby]

No offense, but if he doesn't want to send invoices, why should you send him the money. Simple as that. That really should be more his problem than yours.

More to the point, you are the only one seeing the invoices if he wants to avoid paying taxes in China, that is entirely his decision. Nobody is forcing him to send the invoices to people there.

Sounds like the dude is too paranoid. Perhaps he can send them encrypted to you or something.

 

[bizhobby]

By the way when you send the money do you do wire?
Doesn't the wire itself constitute a receipt you can include as an expense?

And also I would highly suggest you create an entity like S-Corp so it is completely separate account and then all expenses from that account are clearly business expenses. (Then you can pay yourself a salary and the rest of the profits can be distributed as dividends)

I am not a lawyer, nor accountant, but that makes the most sense to me as a business. Best is to talk to an accountant really. They are usually free the first time.

Cheers!

 

[Mjordan]

imo - no invoice no jv if you are worried about your tax which you seem to be...

What do you mean by this?

No offense, but if he doesn't want to send invoices, why should you send him the money. Simple as that. That really should be more his problem than yours.

More to the point, you are the only one seeing the invoices if he wants to avoid paying taxes in China, that is entirely his decision. Nobody is forcing him to send the invoices to people there.

Sounds like the dude is too paranoid. Perhaps he can send them encrypted to you or something.

Because without him I don't make money, and without me he doesn't make money. So see I can't just not send him the money because then I wouldn't make anymore lol. And yeah that's what I tried to explain that I would be the only one seeing them, it's not like he has to report to his government too.

Yes I do wire him the money so I have those records of the wires. I never thought about the s-corp stuff. I think I need to talk to you on chat lol, I'll hit you up with a PM.

What I'm really confused about I guess is how exactly will the government know that those wire transfers were business related? I've never even made enough (as an IM'er) to even have to file taxes until this year, so I don't really have a clue about it all. Do they just take my word that the 100k I transfered throughout the year was business expenses and I shouldn't be taxed on it? Even if I have personal invoices and the statements with the wire transfers, how do I prove that it was all business related?

 

[bizhobby]

One way you can handle this is by having a contract in place signed by both parties.

In the contract you specify how payment is/will be made.

But honestly your partner is weird if he won't even send you an invoice.
What you could do is send an email asking a question like "Have you received the payment for ***service*** on ***date***?" And his response can be your proof.

I've had receipts that I lost for my business before and my accountant said that the fact that I have the bank account statement is enough to show that the expense is there. But it was a more specific item like buying an executive desk & chair from Office Space. (Which I clearly still do have in possession, so there is no question as to whether it was a business expense)

Also another thing you could do is put a note in the Wire itself. But really you need to talk to an accountant. Because what you could also do is setup an S-Corp and have him be a 50% shareholder in that entity, then you can distribute the payments after tax. Tell him that if he can't produce a receipt he'll get the money after they are taxed.

In fact I'm not sure if it is a joint venture whether you can just send the money as a "payment". Because if you were paying for services, that would be fine I've done it many times. But here you are distributing profits from a business venture.

It's really tricky I guess. Honestly pay $200 for a consultation with an accountant. Ask people you trust for references to a good one.

 

[Delboy2424]

Do you know his full details - genuine ones?

If so, a workaround could be that you raise an invoice on his behalf that supports your payments to him.

Make sure your invoice is detailed for services rendered during period "x" for the sum of "x" he doesnt need to know otherwise to be honest - the only issue for either of you will be if you get enquired into.

Make sure his details are on his invoice then file - the only issue you will have is if the IRS investigate you at your end for international transfers and given the sums you mentioned then you have to make sure you are clean - make sure your invoices tie up exactly to the payments you are making.

You may also need to have an audit of transactions you have made - ie what you are doing as you will be asked to provide explanation of this if IRS ask, transferring money is not enough - if not, you could be found guilty very quickly of money laundering in their eyes as you are dealing with the same person, foreign country and can not support your payments...tread carefully and above board if the sums are very large....

oh and dont forget - he might get investigated at his end so make sure you have everything auditable if you need to

 

[supamanjon]

1099 his part to him

 

[Delboy2424]

Because what you could also do is setup an S-Corp and have him be a 50% shareholder in that entity, then you can distribute the payments after tax. Tell him that if he can't produce a receipt he'll get the money after they are taxed.

This itself would lead to international tax disclosures needing to be made at both ends for statutory returns and I doubt a shareholder for a US business living in china who wont give an invoice would do this..

In fact I'm not sure if it is a joint venture whether you can just send the money as a "payment". Because if you were paying for services, that would be fine I've done it many times. But here you are distributing profits from a business venture.

This is seen as a cost to the OP - he is a sole trader at this point and there is no official metion of a JV so it is a cost to him for services rendered.

It's really tricky I guess. Honestly pay $200 for a consultation with an accountant. Ask people you trust for references to a good one.

Ask the right qualified people on here (ahem) and you wont need to pay anything!!!

 

[Mjordan]

One way you can handle this is by having a contract in place signed by both parties.

In the contract you specify how payment is/will be made.

But honestly your partner is weird if he won't even send you an invoice.
What you could do is send an email asking a question like "Have you received the payment for ***service*** on ***date***?" And his response can be your proof.

I've had receipts that I lost for my business before and my accountant said that the fact that I have the bank account statement is enough to show that the expense is there. But it was a more specific item like buying an executive desk & chair from Office Space. (Which I clearly still do have in possession, so there is no question as to whether it was a business expense)

Also another thing you could do is put a note in the Wire itself. But really you need to talk to an accountant. Because what you could also do is setup an S-Corp and have him be a 50% shareholder in that entity, then you can distribute the payments after tax. Tell him that if he can't produce a receipt he'll get the money after they are taxed.

In fact I'm not sure if it is a joint venture whether you can just send the money as a "payment". Because if you were paying for services, that would be fine I've done it many times. But here you are distributing profits from a business venture.

It's really tricky I guess. Honestly pay $200 for a consultation with an accountant. Ask people you trust for references to a good one.

Yeah I might just have to get an accountant/tax consultant or whatever to figure all this out and make sure I don't get in trouble. This money is all made in a CPA network, if that makes any difference?

Do you know his full details - genuine ones?

If so, a workaround could be that you raise an invoice on his behalf that supports your payments to him.

Make sure your invoice is detailed for services rendered during period "x" for the sum of "x" he doesnt need to know otherwise to be honest - the only issue for either of you will be if you get enquired into.

Make sure his details are on his invoice then file - the only issue you will have is if the IRS investigate you at your end for international transfers and given the sums you mentioned then you have to make sure you are clean - make sure your invoices tie up exactly to the payments you are making.

You may also need to have an audit of transactions you have made - ie what you are doing as you will be asked to provide explanation of this if IRS ask, transferring money is not enough - if not, you could be found guilty very quickly of money laundering in their eyes as you are dealing with the same person, foreign country and can not support your payments...tread carefully and above board if the sums are very large....

oh and dont forget - he might get investigated at his end so make sure you have everything auditable if you need to

I do not know his full details, but I should be able to get them. Since he is in China the bank details might not even be his or his real details. That's another thing, I already thought about just making the invoices myself. I'm just worried because these are quite large sums of money being sent international, and I have no history previous to this, in terms of filing taxes or anything. All of this money is being made legitimately through a CPA network also, so it should be fairly straightforward to prove what we are doing.

Keep it coming guys, thanks so much you two for all the help I never expected I'd get this in depth help from asking on here! rep and thanks given to both!

 

[Delboy2424]

All of this money is being made legitimately through a CPA network also, so it should be fairly straightforward to prove what we are doing.

thats the issue - as far as irs is conerned there is no "we" only "you" - you need to implicate him either as a supplier of services to you or you seriously will get pulled....speak with him then let us know - if he is as concerned as you about the loss of $$$ then I am sure he will give you what you need to file in US - dont worry about his end...

 

[Total Noob]

if its any considerable amount of money dont listen to this guy

Ask the right qualified people on here (ahem) and you wont need to pay anything!!!

and get some real advice

 

[Delboy2424]

if its any considerable amount of money dont listen to this guy

Ask the right qualified people on here (ahem) and you wont need to pay anything!!!

and get some real advice

Not pay tax at all on transactions worth $000's - wow IRS will have a field day... but then maybe you could advise OP on how he does this instead of ripping others.....would be interested to know.....

 

[bizhobby]

Not pay tax at all on transactions worth $000's - wow IRS will have a field day... but then maybe you could advise OP on how he does this instead of ripping others.....would be interested to know.....

I think he meant to quote you, so you took your own writing out of context
Because you meant it as in "don't have to pay $200 for an accountant"...
and now you thought he meant don't pay with respect to taxes...

 

[tb0n3]

I am not sure the amount of money we are talking about, but the IRS does monitor transactions over a certain threshold. You have two options:

1)Roll the dice and plead ignorance if the IRS comes a calling. Not recommended, but a highly used strategy. You can expense the amount you pay on your Schedule C as marketing expense.

2)You need to get the guy to fill out the foreign equivalent of a W-9 and send him a 1099. I think the form he would need to complete for you is a W-8ECI.

Either way, I recommend find a good tax person in your local area if you are doing a significant amount of business. They will save you thousands compared to the $400-800 you'll spend on your return.

 

[Mjordan]

Yeah guys this is high $xx,xxx amount of money if not more. I wire 4 figures to him weekly. So it's not small money at all is why I'm so worried. And the dude is so paranoid that if he fills out anything and sends it to me that he will be caught for not paying taxes where he lives or something.

So this is serious, I will without a doubt be looked at and audited if I don't get this shit straight and credible documents and everything.

Dellboy2424 I've PM'd you.

 

[rgcme33]

You need to get across to him that USA and China will not be in communication about money and taxes. What happens at each country, only pertains to money in that country.
Whether he rendered you goods, or services from China, he owes no taxes in the USA, and the USA will not be sending tax forms to China.

If its really a concern, just leave him out of it. Send him the money, and make yourself a reciept for his services. You will have no worries since you will have sent the money overseas, with proof, to an acct unrelated to you, and you will have a receipt (generated by you, for his services) to back this up.

It really is that simple. He doesn't need to know or to do anything except recieve his money. The bookkeeping is up to you.

If i am wrong someone please correct me.

 

[Mjordan]

You need to get across to him that USA and China will not be in communication about money and taxes. What happens at each country, only pertains to money in that country.
Whether he rendered you goods, or services from China, he owes no taxes in the USA, and the USA will not be sending tax forms to China.

If its really a concern, just leave him out of it. Send him the money, and make yourself a reciept for his services. You will have no worries since you will have sent the money overseas, with proof, to an acct unrelated to you, and you will have a receipt (generated by you, for his services) to back this up.

It really is that simple. He doesn't need to know or to do anything except recieve his money. The bookkeeping is up to you.

If i am wrong someone please correct me.

Ok that's what I was thinking. I just wasn't sure there was a reason that I shouldn't make "fake" invoices. Now I just need to get his real info I guess. I just know that I'm gonna get pulled from the group and looked at. Cause this money started coming fast, it's a LOT of money being transacted every week, and I live in a mediocre income town where I'm making more in a few months then 80% of the people make in a year.

Any more advice guys?

 

[coderjeff]

I don't think it matters too much whether you have invoices or not. You can show where the money went. The real question is how your JV is structured and what you are paying him for. A foreign person can be subject to U.S. taxes on income that is considered to be U.S. income. Tax treaties with specific countries can make a difference on how the IRS treats this.

If you are sending him a share of what is considered U.S. income, then it's possible that the IRS could say that you should be withholding taxes and come back after you for them. If you are paying him for performing services for you in his country, then it should be a simple business expense for you and he wouldn't be subject to U.S. taxes.

If you are dealing with significant amounts, you would be foolish not to talk to a good tax accountant. Anytime you start paying significant amounts to an individual, the IRS is prone to take a close look to see if you are treating someone as a partner or a contractor when the IRS considers them to be an employee.

Take a look at IRS Publication 515 (Withholding of Tax on Foreign Entities) to see what you could be subject to if your JV was considered to be a partnership with U.S. income that you were paying to a foreign individual.

 

[Mjordan]

I don't think it matters too much whether you have invoices or not. You can show where the money went. The real question is how your JV is structured and what you are paying him for. A foreign person can be subject to U.S. taxes on income that is considered to be U.S. income. Tax treaties with specific countries can make a difference on how the IRS treats this.

If you are sending him a share of what is considered U.S. income, then it's possible that the IRS could say that you should be withholding taxes and come back after you for them. If you are paying him for performing services for you in his country, then it should be a simple business expense for you and he wouldn't be subject to U.S. taxes.

If you are dealing with significant amounts, you would be foolish not to talk to a good tax accountant. Anytime you start paying significant amounts to an individual, the IRS is prone to take a close look to see if you are treating someone as a partner or a contractor when the IRS considers them to be an employee.

Take a look at IRS Publication 515 (Withholding of Tax on Foreign Entities) to see what you could be subject to if your JV was considered to be a partnership with U.S. income that you were paying to a foreign individual.

Yeah I'm definitely going to to have to get a tax accountant for sure I've decided. It's too risky if I don't. The way that I look at it is he is providing advertising services for me, but if they were to just look at it I think it would definitely look more like he is just sharing US income which would then be taxable. So how could I structure it to make it look more like services provided?