Personal Federal Income Taxes
When you do your taxes, you are asked to list all sources of income. That means no matter how you got that money it's going to be taxed even if you made it online.
Personal State Income Taxes
Most states are going to tax any income according to their state-specific laws. Most likely internet marketing income is going to be taxable. You have to become familiar with your states tax rules.
Sales Tax
Here is where internet marketing gets really fun. In the United States their isn't a clear and consistent policy about how to charge sales tax to money made online.
The question usually arises that is it fair to tax out of state retailers who have no physical presence in the state?
There are various issues that complicate the matter that has to do with a fancy word accountants like to use called "nexus". An online retailer might not have a physical business in a state, but a lot of states consider mailing orders placed online(amazon is just one example of many) to customers within their borders as creating nexus.
The counter argument by online businesses is that it's too much of a burden for an out of state retailer to collect and remit sales tax for all of the 50 states.
Then you have the cases where the only product being handled is purely digital such as ebooks and videos. Does someone downloading a file they purchase from a website constitute you having nexus in the state that they live and make you obligated to collect and remit sales tax?
PotPieGirl is one of the few internet marketer's I've come across that talks about this, although I have to admit I don't spend much time following a bunch of different IM blogs. She's made two blog posts about it here in Wealthy Affiliate:
https://my.wealthyaffiliate.com/potpiegirl/blog/i-got-fired
https://my.wealthyaffiliate.com/potpiegirl/blog/amazon-tax-law-in-your-state
and some that I found on her website that do a way better job at explaining the issues than I ever could:
http://www.potpiegirl.com/2012/08/affiliate-nexus-tax-law-coming-to-georgia/
This one below isn't totally about sales tax but it does a good job at explaining taxes as well:
http://www.potpiegirl.com/2012/01/lets-talk-taxes-and-bookkeeping/
Here is a relatively recent article talking about the issue in Colorado.
How It Applies To You
It's easy to ignore this information and think it doesn't apply to you particularly the sales tax issue. You might think it's only the merchant's problem and not your problem. The only time it becomes your problem is when you are no longer allowed to use an affiliate program because they don't allow affiliates in the particular state that you live.
You might be right and it doesn't apply at all to you. However, you might be totally wrong and be setting yourself up for a world of pain in the future.
This leads into my next page: Having a license to do business.
When you do your taxes, you are asked to list all sources of income. That means no matter how you got that money it's going to be taxed even if you made it online.
Personal State Income Taxes
Most states are going to tax any income according to their state-specific laws. Most likely internet marketing income is going to be taxable. You have to become familiar with your states tax rules.
Sales Tax
Here is where internet marketing gets really fun. In the United States their isn't a clear and consistent policy about how to charge sales tax to money made online.
The question usually arises that is it fair to tax out of state retailers who have no physical presence in the state?
There are various issues that complicate the matter that has to do with a fancy word accountants like to use called "nexus". An online retailer might not have a physical business in a state, but a lot of states consider mailing orders placed online(amazon is just one example of many) to customers within their borders as creating nexus.
The counter argument by online businesses is that it's too much of a burden for an out of state retailer to collect and remit sales tax for all of the 50 states.
Then you have the cases where the only product being handled is purely digital such as ebooks and videos. Does someone downloading a file they purchase from a website constitute you having nexus in the state that they live and make you obligated to collect and remit sales tax?
PotPieGirl is one of the few internet marketer's I've come across that talks about this, although I have to admit I don't spend much time following a bunch of different IM blogs. She's made two blog posts about it here in Wealthy Affiliate:
https://my.wealthyaffiliate.com/potpiegirl/blog/i-got-fired
https://my.wealthyaffiliate.com/potpiegirl/blog/amazon-tax-law-in-your-state
and some that I found on her website that do a way better job at explaining the issues than I ever could:
http://www.potpiegirl.com/2012/08/affiliate-nexus-tax-law-coming-to-georgia/
This one below isn't totally about sales tax but it does a good job at explaining taxes as well:
http://www.potpiegirl.com/2012/01/lets-talk-taxes-and-bookkeeping/
Here is a relatively recent article talking about the issue in Colorado.
How It Applies To You
It's easy to ignore this information and think it doesn't apply to you particularly the sales tax issue. You might think it's only the merchant's problem and not your problem. The only time it becomes your problem is when you are no longer allowed to use an affiliate program because they don't allow affiliates in the particular state that you live.
You might be right and it doesn't apply at all to you. However, you might be totally wrong and be setting yourself up for a world of pain in the future.
This leads into my next page: Having a license to do business.
Join the Discussion
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k1nl1
Premium
That is indeed a really good and helpful article. I have a question thou. Do you have an idea how it goes if you are constantly traveling? I am not in that position yet, but my idea is to focus on internet marketing and other similar ventures and be able to travel while doing so possibly for more then 3-4 years. This means constant moving from one month to the next and I can imagine that would complicate things.
I see you have experience with cross country income tax situations as you were a Colorado resident officially, but had to register as well in Hawaii while conducting online business there. Do you think that I have to register in every country as a sole proprietor to be able to operate or is there another possibility?
I see you have experience with cross country income tax situations as you were a Colorado resident officially, but had to register as well in Hawaii while conducting online business there. Do you think that I have to register in every country as a sole proprietor to be able to operate or is there another possibility?
nathaniell
Premium
Do you know if we could be required to pay the 'sales tax' portion considering we're not actually SELLING the product? I mean, as affiliates, we are intermediaries making a commission off of a transaction where we are neither buyer nor seller.
Great tutorial, and it's got me thinking about tax season coming up.
My method is that I only use my Paypal account to pay for things related to my business (99% of the time). I have my Paypal connected to Outright, which is not connected to any other financial accounts. That way, Outright tells me how much I'm making, how much I'm spending, and all transactions are listed. It was a life saver last year when I had to look over where I spend money and on what.
Great tutorial, and it's got me thinking about tax season coming up.
My method is that I only use my Paypal account to pay for things related to my business (99% of the time). I have my Paypal connected to Outright, which is not connected to any other financial accounts. That way, Outright tells me how much I'm making, how much I'm spending, and all transactions are listed. It was a life saver last year when I had to look over where I spend money and on what.