Legal Question in Tax Law in Massachusetts
If a company makes a payment to an individual, must it pay taxes for it?
Situation: there is an online social network that raises money from online ads, like the Google AdSense ones. It pays its best users 50% of the revenue that comes from those ads; this is a commitment stated in the T&C, not just a random gift or prize.
- Will the company have to pay taxes for this payment? Can it deduct them? What are the thresholds?
- And as for the individual, must he/she pay taxes for this income? If he/she decides to use it for charity purposes, can he/she deduct them?
This example applies for a US-based, legitimate and audited company.
1 Answer from Attorneys
Re: If a company makes a payment to an individual, must it pay taxes for it?
It is unclear who is paying whom the 50% and how the Non-profit is getting the money.
If the non-profit is being paid let's call it rent for use of its website the tax treatment is one way. If it is engaging in advertising business then it is an unrelated business enterprise and will be treated as a taxable income.
Without a greater understanding of the arrangement, it is difficult to give any advice.
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