Taxes on a Revenue Stream I'm Splitting evenly with someone

[jbknight23]

This is in Florida.

I recently had a video go viral. A licensing company is going to pay me 70% of the revenue of whatever they sell the video for. I'm splitting this 50/50 with the person in the video (I took the video of a friend). They have agreed to this and have signed a media release.

How does income tax work? The company is paying me directly and then i'm giving 50% of what i receive to my friend. Will it be taxed twice? Is there a way I can only report the 50% that i'm keeping and they report their 50%?

I'm worried that i'll be taxed on the whole amount, making my take significantly less than 50%.

 

[Taxing Matters]

This is in Florida.

I recently had a video go viral. A licensing company is going to pay me 70% of the revenue of whatever they sell the video for. I'm splitting this 50/50 with the person in the video (I took the video of a friend). They have agreed to this and have signed a media release.

How does income tax work? The company is paying me directly and then i'm giving 50% of what i receive to my friend. Will it be taxed twice? Is there a way I can only report the 50% that i'm keeping and they report their 50%?

Depending on the exact details of the deal with your friend you either have a partnership with him or you are paying him a royalty for the work he contributed to the video.

If it is a partnership then the partnership files a Form 1065 return that tells the IRS the income and deductions of the partnership and how those items are allocated between the two partners — in your case 50% to each partner. Then you each end up reporting your share of the partnership income on your personal income tax returns.

If it is a royalty, then you would report the income you receive for the video on your personal return on Schedule C and then deduct as a business expense the amount you pay your friend. You would likely have to give your friend a Form 1099-MISC reporting the total amount you paid him during the year.

Either way, the tax outcome is much the same: you and your friend end up each getting taxed on your respective 50% share of what the video brings in.

 

[jbknight23]

Thanks for the information!!!! It helps out a lot.

We currently have nothing in writing and i'm trying to figure out the best way to go about this. It sounds like a royalty would be easier. I've never made more than the standard deduction though. This probably won't tip me over it, i'm not expecting too much from it. But I'd rather do things right than sloppy.

 

[adjusterjack]

If you want to keep this informal but document the agreement you can probably find a sample royalty contract on the internet that you can modify to suit your purposes.

A lot of people might say get a lawyer but if there is not a lot of money involved the KISS principle is often appropriate.

 

[LdiJ]

This is in Florida.

I recently had a video go viral. A licensing company is going to pay me 70% of the revenue of whatever they sell the video for. I'm splitting this 50/50 with the person in the video (I took the video of a friend). They have agreed to this and have signed a media release.

How does income tax work? The company is paying me directly and then i'm giving 50% of what i receive to my friend. Will it be taxed twice? Is there a way I can only report the 50% that i'm keeping and they report their 50%?

I'm worried that i'll be taxed on the whole amount, making my take significantly less than 50%.

What you will do is issue a 1099-MISC to the person to whom you are paying 50% of the money. That gives you a tax deduction on your Schedule C for that 50%. That means that you will only be paying income tax on the 50% that you keep, minus any other expenses that you might have related to that income.

 

[LdiJ]

Thanks for the information!!!! It helps out a lot.

We currently have nothing in writing and i'm trying to figure out the best way to go about this. It sounds like a royalty would be easier. I've never made more than the standard deduction though. This probably won't tip me over it, i'm not expecting too much from it. But I'd rather do things right than sloppy.

This has nothing to do with the standard deduction. You will be reporting this income on Schedule C (self employment income) and deducting your expenses there. Only your net profit will transfer to your 1040.

If you do not normally use a tax professional to do your taxes, you might want to consider using one this year. You do not seem to understand enough how taxes work to properly deal with this yourself.