Legal Question in Tax Law in California

Who pays taxes when splitting an ad sale with a contractor?

I do not own a company, nor sole-proprietorship, but I do own a website. I have agreed with an independant contractor to close an advertisement sale for me for 50% of the profits. The advertiser will pay me $3000 directly. I will then pay my ''hired'' contractor.

I offered to pay her 50% of the profits ''after taxes'' because I thought that I would have to declare the full $3000 on my taxes.

The contactor is insisting that I pay her half of the $3000 and says that she will declare the taxes for her $1500 with her 1099.

How does this work? I don't want to end up paying taxes on $3000 while only getting $1500 worth of the sale.

Please help me if you can.

Asked on 10/29/04, 11:51 pm

1 Answer from Attorneys

Ken Koenen Koenen & Tokunaga, P.C.

Re: Who pays taxes when splitting an ad sale with a contractor?

First of all, make sure she is an "independent contractor" and not an employee in the eyes of the California EDD.

If she is an independent contractor, you need to get her social security number (and should have a written agreement indicating her independent contractor status). Then you can pay her $1500. You would issue a 1099 to her (like a W-2) showing that you paid her $1500, and send a copy to IRS. You then report the $3000, but deduct the $1500.

By the way, if you have a product that you sell you DO own a company, and unless it is incorporated or in an LLC or partnership, you ARE a sole proprietor.

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Answered on 10/30/04, 1:34 pm

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