Many Californians and Americans have taken their entrepreneurial spirit online and started an e-business. In some cases, the individual may build a company from scratch. However, it is more common for individuals to engage with a larger company that may offer direct selling opportunities. Individuals who work in affiliate marketing and remarketing businesses often receive commissions on the sales they make. There is a low barrier to entry into this type of commercial venture. However, this fact can mean that eager entrepreneurs can get ahead of themselves and fail to consider even the basic tax implications associated with receiving commissions for online sales.
Generally, most forms of income result in an obligation to pay income taxes. However, there are certain scenarios where one may be relieved from filing such as when your income is extremely modest. However, most individuals will choose to file taxes even when their income is modest because filing is the only way to receive your tax refund. Even if your business didn’t make any money or lost money, it may still make sense to file if you can reasonably claim tax deductions due to the business loss. However, potential claims should first be reviewed by an attorney because the IRS’s view of what constitutes a business versus a hobby is unlikely to comport with your own.
In addition to income taxes, most individuals involved in online sales and affiliate marketing are considered independent contractors. Typically, independent contractors are issued a 1099 though this is not a determinative factor regarding one’s employment status. As independent contractors, the employer does not cover payroll taxes. Therefore, an obligation to pay self-employment taxes exists. Furthermore, certain independent contractors subject to the self-employment tax are required to make quarterly estimated payments. The failure to do so can result in additional fines and penalties.