1. Home
  2. Taxes General Forum
  3. Taxes and internet business: Are payments legal in the US?

Taxes and internet business: Are payments legal in the US?

Hello,

I'm considering to open an internet business, which would mainly consist of a website. In order to encourage people to use the site, I intend to offer money prizes (say, $100 or even $1000) to visitors in some competition. This is not gambling, but rather users competing against each other.

My question is: Am I expecting some tax-related legal difficulties? In particular, if the company is registered outside US, but the money goes to US residents -- any trouble? (And then we have this issue about the web server being in the US...)

Or maybe put differently: Is it legal to put money in someone's hands in the US, no questions asked?

I will be delighted if someone could point me to a clear official document about this.

If you have information about other places in the world, that would be helpful as well.

Thanks in advance, Bill

Reply to
bill.valores
Loading thread data ...

Generally the person who receives prize money or goods must report it on their tax return, line 21 ("Other Income"). If a US regulated company pays more than $600 to any person, they have to issue a 1099- MISC. I don't know if that rule is for wages only, or prizes as well.

None I think, but could be wrong.

It is allowed.

Reply to
removeps-groups

snipped-for-privacy@gmail.com wrote: ...

...

My understanding is each state has its own rules about what constitutes legality in schemes such as this and depending on the rules of the "competition" might (or might not) rule against it. In the particular state in which I reside, there have been any number of similar-sounding ideas floated as money-raisers, etc., that mostly have failed the test for lotteries, etc., ... That doesn't say yours would; insufficient information. But I'd not feel terribly confident you won't have "issues" in various locales.

Reply to
dpb

Bingo. Thank you very much for that. 1099-MISC is the golden keyword I was looking for.

What I didn't find in the IRS' website, is what happens if the paying company is not American. Is it completely an issue between the company and its local tax authorities, or can the company find itself in an uneasy situation if sums above $600 are transferred to an American?

Thanks in advance (again...)

Reply to
bill.valores

My guess is that it's perfectly OK, but you should get paid professional advice to be sure. If you have a physical presence in a state then you have to pay state income taxes in that state, as well as federal taxes, and also obtain licenses -- city, county, state, federal. If your web hosting server is provided by a third party and is located in the US, like Daily Razor

formatting link
that does not I think constitute physicalpresence. Physical presence includes things like: where are thewarehousing facilities, where are the employees, where does the worktakes place.

Reply to
removeps-groups

Thanks for the answers. I suppose I'll need to ask a local accountant. Because I get the impression, that tax authorities keep themselves busy with tracking their own citizen's money transactions, and don't even try to do get foreigners to report to them.

So it looks more and more like I should be clear with my local laws and authorities, and leave the rest of the world to mind its own business.

Bill.

Reply to
bill.valores

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.