What Tax Field Do I Fall Into?

[GabrielM]

Hello, my name is Gabriel.

I'm in an interesting situation. I've created a website that will be earning money from affiliate links. Basically, if someone clicks my link and buys something from my partner, I receive a commission. This will become how I make my living.

How do taxes work with this kind of thing? What am I classified as? What paperwork do I have to go through? Can I write off business costs? Is there anything else I should know?

Thank you in advance

 

[quincy]

What is the name of your state?

 

[GabrielM]

What is the name of your state?

Texas.

 

[adjusterjack]

I'm in an interesting situation. I've created a website that will be earning money from affiliate links. Basically, if someone clicks my link and buys something from my partner, I receive a commission. This will become how I make my living.

How do taxes work with this kind of thing? What am I classified as? What paperwork do I have to go through? Can I write off business costs? Is there anything else I should know?

Texas doesn't have an income tax. For federal taxes you are a "sole proprietor." You report your income and expenses on Schedule C. You'll also have to pay Self-Employment taxes on Schedule SE (that's your contribution to social security retirement). You may also have to pay Quarterly Estimated Tax - Form 1040-ES.

It's not too complicated. The IRS website has publications, forms, and instructions. I suggest you study all the 2019 forms and publications. Even if you don't make any money between now and the end of the year your start-up costs may be deductible for 2019.

https://www.irs.gov/pub/irs-pdf/p583.pdf

https://www.irs.gov/pub/irs-pdf/p587.pdf

Consider having a tax pro set you up properly for the first year and then see if you are comfortable doing your own taxes after that.

Also contact your Secretary of State's office to see if your endeavor requires any type of registration.

 

[GabrielM]

Texas doesn't have an income tax. For federal taxes you are a "sole proprietor." You report your income and expenses on Schedule C. You'll also have to pay Self-Employment taxes on Schedule SE (that's your contribution to social security retirement). You may also have to pay Quarterly Estimated Tax - Form 1040-ES.

It's not too complicated. The IRS website has publications, forms, and instructions. I suggest you study all the 2019 forms and publications. Even if you don't make any money between now and the end of the year your start-up costs may be deductible for 2019.

https://www.irs.gov/pub/irs-pdf/p583.pdf

https://www.irs.gov/pub/irs-pdf/p587.pdf

Consider having a tax pro set you up properly for the first year and then see if you are comfortable doing your own taxes after that.

Also contact your Secretary of State's office to see if your endeavor requires any type of registration.

Thank you for your helpful information. A sole proprietor. I'll remember that.

And yes, I do plan on speaking with a tax professional. I am able to talk with them about it now that I have a name to mention to them.

 

[Taxing Matters]

Texas doesn't have an income tax. For federal taxes you are a "sole proprietor."

That's true assuming that the OP is the only owner of the business and has not formed a corporation for this business or formed a LLC for it and elected for the LLC to be taxed like a corporation. While from the sound of it the OP is likely a soe proprietor, I don't like to assume things that we don't actually know.

It's not too complicated. The IRS website has publications, forms, and instructions. I suggest you study all the 2019 forms and publications. Even if you don't make any money between now and the end of the year your start-up costs may be deductible for 2019.

There are literally thousands of forms and publications on the IRS website. Most of which will not apply to the OP. Rather, I suggest the OP instead start by reading IRS Publication 334, which is a comprehensive Tax Guide for Small Business. Bear in mind that it only covers federal taxes, not state tax obligations.

Even if you don't make any money between now and the end of the year your start-up costs may be deductible for 2019.

"Start up expenses" have very particular meaning and tax treatment under federal tax law. Those are the expenses which are incurred in creating or investigating the business that are incurred prior to the first day of actual full business operation (e.g before the day a store opens its doors to the public, etc). The general rule under IRC § 195 is that such expenses may NOT be deducted in the year they are incurred. Rather, they are capitalized over 180 months (15 years) starting in the month that the business starts operation. There is, however, a limited election to deduct up to $5,000 of these expenses in the year the business starts operation. There are specific rules for that election that must be followed.

As for state taxation, while it is true that Texas does not have an individual income tax it does impose a business franchise tax. Whether it applies to the OP depends on how the business is organized. For example, the OP must pay franchise tax if the business is organized as a LLC even if that LLC is taxed like a sole proprietorship under federal tax law. Texas also imposes a sales tax, too, which applies to some services and not just the sales of goods. The service the OP describes does not appear to involve one of the taxable services, but the details will matter. Finally, as the OP's business involves the internet, depending on exactly what he does, he may be subject to tax in more than one state.