Affiliate rebates -- tax deductible?

[FleshJoe]

What is the name of your state (only U.S. law)? California

My question is regarding deductability of rebates I intend to give on products that I am an affiliate for. Are these rebates tax deductible for me (e.g. accountable as promotion expenses or similar) if I am not the seller of the product but simply an affiliate? What are the requirements (e.g. do I need to make up a 1099 for each rebate)?

[LdiJ]

What is the name of your state (only U.S. law)? California

My question is regarding deductability of rebates I intend to give on products that I am an affiliate for. Are these rebates tax deductible for me (e.g. accountable as promotion expenses or similar) if I am not the seller of the product but simply an affiliate? What are the requirements (e.g. do I need to make up a 1099 for each rebate)?

I have no idea what your definition of affilate is, however, for the purposes of answering your question I am going to assume that you are a commissioned sales representative. If that is not correct, then my answer may not be correct.

Yes, rebates are legitimate business expenses. Rebates are also generally not high enough to trigger the requirement to issue a 1099.

[FleshJoe]

Let me define the terms so we're sure we're talking about the same things:

Take for instance this product (link and discussion provided for illustrative purpose only, I am in fact not an affiliate for the product):

thelistauction.com/content/index.php

Let's imagine that I'm an affiliate of this product which means that I'd send interested internet traffic to the site. The actual sale happens on the above site which I don't own or control, but I would get credited for the sales that happen off of my traffic. So I believe that this is equivalent to your description of commissioned sales representative or franchisee.

Generally these non-physical products like TheListAuction above offer around 50% commission on sales. So on a $1000 per sale product I'd make $500 commission.

Now say that on my website where I solicit the traffic to send to the product site, I offer a 100% rebate to every Nth person (lets say 1 in 5) that purchases through my link. So I'd pay out $1000 as a rebate to every fifth person that buys through my website.

The questions I have are (a) whether the money I pay out is tax deductible as a legitimate business expense, (b) can I classify it as a promotion cost (e.g. advertising) or should I use some other, better fitting classification, and (c) do I need to send out 1099s?

Thanks!

P.S. As I said above I have no affiliation with that product, I don't even know who produced it or what it is about, and I picked it at random off of an Internet Marketing forum.

[LdiJ]

Let me define the terms so we're sure we're talking about the same things:

Take for instance this product (link and discussion provided for illustrative purpose only, I am in fact not an affiliate for the product):

thelistauction.com/content/index.php

Let's imagine that I'm an affiliate of this product which means that I'd send interested internet traffic to the site. The actual sale happens on the above site which I don't own or control, but I would get credited for the sales that happen off of my traffic. So I believe that this is equivalent to your description of commissioned sales representative or franchisee.

Generally these non-physical products like TheListAuction above offer around 50% commission on sales. So on a $1000 per sale product I'd make $500 commission.

Now say that on my website where I solicit the traffic to send to the product site, I offer a 100% rebate to every Nth person (lets say 1 in 5) that purchases through my link. So I'd pay out $1000 as a rebate to every fifth person that buys through my website.

The questions I have are (a) whether the money I pay out is tax deductible as a legitimate business expense, (b) can I classify it as a promotion cost (e.g. advertising) or should I use some other, better fitting classification, and (c) do I need to send out 1099s?

Thanks!

P.S. As I said above I have no affiliation with that product, I don't even know who produced it or what it is about, and I picked it at random off of an Internet Marketing forum.

Well, I don't think that your idea is all that good of one. If you are going to offer a rebate, you would be better off offering it to everyone. In other words, a 20% rebate to everyone would be better than a 100% rebate to every fifth customer.

However, yes its a legitimate, deductible promotional expense. If you pay any one person more than 600.00 you have to issue a 1099. If its less than that, you don't.

[FleshJoe]

Thanks Ldij for the answer.

[FleshJoe]

Well, I don't think that your idea is all that good of one. If you are going to offer a rebate, you would be better off offering it to everyone. In other words, a 20% rebate to everyone would be better than a 100% rebate to every fifth customer.

However, yes its a legitimate, deductible promotional expense. If you pay any one person more than 600.00 you have to issue a 1099. If its less than that, you don't.

The additional advantage of your approach is that I would have a really hard time hitting the $600 limit if I offered everyone 20% instead of 1 in 5 a 100% rebate, even with very expensive products.