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Individual making Adsense income. Want to scale up, get partners, start LLC. Need advice

Discussion in 'Business & Tax Advice' started by DPatel304, Jul 18, 2013.

  1. DPatel304

    DPatel304 Regular Member

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    Right now, I pay for marketing every month, which earns me traffic and I earn a small amount of profit. I'm looking to scale this up and acquire some partners. I will pay to bring traffic to these partners' websites, they'll get paid from their Adsense account, and give me a cut every month. I have no idea what this will mean as far as taxes are concerned. I know, on my Adsense account, I'll get a 1099 (I believe) at the end of the year, and I believe, since I'm in Texas, I'll get taxed around 23% for federal income tax. I'm not sure how it'll work when I have around five partners who are all giving me a cut every month and I'm paying for their traffic.


    This is based on very little research, but I was thinking for forming an LLC, opening a bank account for the LLC and all of my transactions for the business will occur through this account. Anytime a partner pays me, they will most likely pay through Paypal, then I'll transfer from Paypal to my bank account and back out to my contact who will do the marketing. I guess my question is, is this a good plan, and I want to know what exactly will I be taxed on. I'm hoping that I can deduct the money I pay for marketing as a 'business expense' so that I just am taxed on the profits. Also, if I decide to purchase other things using that account (such as a new laptop), could I also write it off as a business expense? Any help would be greatly appreciated.
     
  2. officialgt

    officialgt Regular Member

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    1 could look into the method
     
  3. DPatel304

    DPatel304 Regular Member

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    What?
     
  4. reallife

    reallife Jr. VIP Jr. VIP

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    Yes and yes.
     
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  5. punky

    punky Registered Member

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    Whatever you earn digitally, keep it digital and what ever you profits are. Only withdraw them after paying every one
     
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  6. DPatel304

    DPatel304 Regular Member

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    Great.. thanks for the helpful responses.

    Is there a way I could find out what exactly I could write off as a business expense?
     
  7. TextBoss

    TextBoss Jr. VIP Jr. VIP Premium Member

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    There is a sheet that the IRS provides that helps you divide your business expenses, into advertising, software, etc. This might be available from H&R Block.
     
  8. lloughry

    lloughry Regular Member

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    You can write off everything if you do it right. (Not really but just about)

    You should probably plan higher that 23%. If we had a partnership like you proposed I would send you a 1099 for the money I sent you over the course of the year and you would have to count that as gross income, and subtract from that your expenses. PM me your skype details and I will gladly jump on and chat with you about it
     
  9. burnett4congress

    burnett4congress Jr. VIP Jr. VIP Premium Member

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    If you plan on doing any serious money, yes set up a corporation or company of some type. Business income goes in, business expenses go out. What's left is your taxable profit for the year.

    Just to be clear: Do not form a partnership with these people. Have their company pay your company. You will be working together, but not as a partnership.

    Texas has no state income tax, so you don't have to worry about that. You will have filing fees every year though.

    If you do go the LLC route, I generally recommend filing a 2553 form so that it is taxed as an S-corp, but like all tax matters will depend on your individual situation. Otherwise you'll be subject to self-employment taxes.
     
  10. qwidjib0

    qwidjib0 Newbie

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    As somebody that's been lucky enough to run 3 fairly large companies now with various partnership arrangements, it's not as scary as it seems at first, really. An LLC is usually a pretty good way to manage such an arrangement. When dealing with partners, I'd pay special attention to an Operating Agreement as well in case it gets sticky (which is all part of it, unfortunately; if you mess around with partners long enough, it's going to happen sooner or later).

    You should track your expenses in a dedicated business account if you can. Outright.com is pretty fantastic for helping you keep that stuff categorized for tax time.

    All that said, you may just be really over-thinking this as well. Having 5 business partners creates a lot of potential for problems. Something in the way of a simple well-spelled-out profit sharing agreement may be all you want to do.
     
  11. Hunter777

    Hunter777 Newbie

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    The LLC taxed as the S corp is the way to go. LLC gives you the best asset protection - charging order protection and less difficult to pierce the veil because you failed some BS requirement. LLCs can generally be taxed however you want - S Corp election gives you pass through income treatment (declared on form K-1 for your individual taxes) and most importantly, you can deduct self employment taxes which cuts the amount you have to pay to Uncle Sam. New Mexico is the jurisdiction I have formed LLCs in the past as it is (1) cheap, (2) best anonymity, and (3) great law. If the income is not earned in New Mexico, then it is not subject to NM income taxes. Nevada LLCs are a rip off now - between licensing and fees...they have screwed that state up for entity formations.

    Actually you can write off nearly anything if you make sure you follow IRS documentation guidelines. In fact I know someone in the network marketing business who legally pays no taxes (IRS even audited them and found nothing wrong with their deductions) because they structure their entire lives as business expenses. Remember certain things like business meals can only be partially deducted, and if I remember right the same party always has to pay for them to be deductible - these are the types of rules you need to be mindful of. Generally it is better to get advice from tax attorneys than accountants, because tax attorneys know precisely what the law is and what you can get away with (especially if they have a history of litigating with the IRS), and accountants tend to be much more conservative. Former IRS attorney Scott Estill has a great course for those looking into getting the most out of your US business.

    For those who live outside the US - International Business Corporations in a tax free zone like Nevis or Belize - best of all in my opinion.
     
  12. tomapleaf

    tomapleaf Newbie

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    You can pretty much argue that any expense slighlty related to the business can be written off as a 'business expense' (for example, the portion of your house that your office is in - this amount of rent/mortgage can be writtten off).
     
  13. lukaGardel

    lukaGardel Newbie

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    I am interested in doing this. Currently have 2 Adsense accounts.
     
  14. GrahamCrackers

    GrahamCrackers BANNED BANNED

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    Keep ALL your receipts.