If a company makes a payment to an individual, must it pay taxes for it?

[Will J]

Situation: there is an online social network that raises money from online ads, like the Google AdSense ones. It pays its best users 50% of the revenue that comes from those ads; this is a commitment stated in the T&C, not just a random gift or prize.

- Will the company have to pay taxes for this payment? Can it deduct them? What are the thresholds?

- And as for the individual, must he/she pay taxes for this income? If he/she decides to use it for charity purposes, can he/she deduct them?

This example applies for a US-based, legitimate and audited company.

Thanks four your help!

[seniorjudge]

Originally Posted by Will J

Situation: there is an online social network that raises money from online ads, like the Google AdSense ones. It pays its best users 50% of the revenue that comes from those ads; this is a commitment stated in the T&C, not just a random gift or prize.

- Will the company have to pay taxes for this payment? Can it deduct them? What are the thresholds?

- And as for the individual, must he/she pay taxes for this income? If he/she decides to use it for charity purposes, can he/she deduct them?

This example applies for a US-based, legitimate and audited company.

Thanks four your help!

Why did you intentionally omit your state?

[LdiJ]

Originally Posted by Will J

Situation: there is an online social network that raises money from online ads, like the Google AdSense ones. It pays its best users 50% of the revenue that comes from those ads; this is a commitment stated in the T&C, not just a random gift or prize.

- Will the company have to pay taxes for this payment? Can it deduct them? What are the thresholds?

- And as for the individual, must he/she pay taxes for this income? If he/she decides to use it for charity purposes, can he/she deduct them?

This example applies for a US-based, legitimate and audited company.

Thanks four your help!

Yes, it is income to the company. However, the company may in turn deduct the payments that it makes to the individual. At the end of the year the company will have to give each of those individuals a 1099-Misc (probably as "other" income) and those indivduals will have to report the money and pay the appropriate tax.

Yes, the individuals could donate the money to charity an then take a deduction on their personal tax return.