Comment by camz | Hacker News Reader

Comment by camz | Hacker News Reader

Parent Full thread

There's no real reason for you to stress about this point because if your taking in 100% of the ad revenue and then remitting 70% of it to your publishers then you're only keep 30% as gross profit.

Ex: Ad Rev/Sales = $100 Cost of Sales= $70 Gross Profit = $30

So, the IRS is only going to see that you earned the 30% either way. The only real important issue you may want to consider is whether you want your gross sales to be so high. Have a large amount of gross sales could exclude you from a number of small-business tax saving options such as the S-Corp election and it would make you have to file much more complicated tax returns. If you have a large amount of sales (millions) then you'd have to file reconciling schedules between accrual accounting per your books and records to your tax records.

Honestly, there's an unlimited number of possible problems when you start making lots of money. Mo money, mo problems. But, lets worry about making that first buck and take it step by step.

Conclusion, dont worry about it until you get there because you're fine so far.

Great, but "problems of success" aside, here's another question which is probably more an international law question but, here goes...

Out of the gate, I am seeing folks from all over the world signup for my ad network (mainly, US, India, Singapore), and it has me scratching my head. I don't know how to deal with these customers should they ever convert on a sale.

Does this affect the way I will pay taxes on the revenue?

Are there countries I should absolutely NEVER try to send money to (for example, if the country is under embargo)? If for some reason, I can't pay folks from those places, what becomes of the tax burden? Is the tax liability for 100% of it on me, or can the money sit forever on hold without being taxed (presumably until the embargo is lifted)?

Well income tax wise you'd have to pay taxes on the income regardless of where it's coming from. If there is a country that is under embargo (which I don't know haha) then you're keeping all of the income. Thus, you would have to pay tax on the full amount because you never remitted the portion of the sale that was supposed to be your cost.

If you pay it out later on, then you could take a deduction for it later. This is a common issue that people deal with. It's essentially cost of goods sold. It'll become part of your COGS once you pay it.

On a related question, I'm intrigued as to how this kind of market is different from Apple's App Store[1]. I know Google expenses its AdSense partner cost as traffic acquisition cost[2], but what about them makes the IRS/SEC view them differently?

[1] http://tech.fortune.cnn.com/2010/06/23/app-store-1-of-apples... [2] http://news.ycombinator.com/item?id=1792921

In tax, its all the same generally speaking. The only difference is where these costs enter the equation. Apple is similar to the situation above where they are accepting money and transferring a large portion of it back to the developer as a cost of sales.

In the ad business above, the transfer of 70% income is a cost of sales that leads to gross profit.

I havent looked over google's financials, but i would expect that the traffic acquisition cost is an expense and not a cost of sales. Expenses enter the calculation after gross profit.

Sales - Cost of Sales = Gross Profit - Expenses = Net Income

Reply on news.ycombinator.com