New to this. Entered Profit Share. What kind of taxes can I expect?

[NoBusinessBrains]

I'm from the US. I recently entered and help develop a project with a decent amount of potential to offer a better pay day than I've ever seen personally.

So I entered an agreement to 10% of the profit. After distributors take anywhere from 5-30% (mattering on the distributor), I get 10% of what's left.

I'm not considered an employee. I'm a freelancer and if the company becomes successful there's a good chance at some later date I'd become and employee and move there. The company is based in the UK, London.


I don't know crap about taxes. I don't know crap about profit share (just have my contract and a good lawyer who loved it). Profits are defined by any amount of money this product makes (meaning as far as I know they can't lower my money, therefore profits, to pay for a new office and whatnot and also they worry about their taxes AFTER I get the 10%).

Basically, I don't know what to expect tax wise. I've been told I should consider starting a business to save on taxes and stuff. But I'm clueless. And honestly, very poor atm because I'm working free until the profits come in so I can't exactly afford to go to an accountant or business person right now to ask myself (I'm lucky enough to be related to a lawyer who does stuff for free on that end).

Any help?

[vangogh]

Welcome to the forum NoBusinessBrains. I'm not the best person to answer your question, but I wanted to reply to keep the thread active until someone who can answer better sees it. I'll offer some thoughts, but take them with a grain of salt.

If you entered into a partnership agreement, I would think the business has to send you some paperwork as to how much money you earn through the business. At least that's how I think it works here in the U.S. Since this company resides in the U.K. there may be different rules.

Assuming they do send you some paperwork about your earnings, you'd likely enter that on a 1040 Schedule C where it asks for income. The same form is where you record deductions. I don't know what the product is or your role in the product, but for the sake of example say the product is software and you're helping develop the product. If during the year you purchased a code editor, 2 books on programming, and a tablet to test the software, all of those would be deductible in some way and probably end up on a Schedule C. Office expense would end up there as well.

The Schedule C basically replaces the W2 you would get from an employer.

Having said that, since you readily admit not knowing anything about taxes, I think your best bet is hiring an account or tax preparer.

[nealrm]

When they send you a check, put 15% into a separate account for taxes. You don't need to worry about them until you get some money coming in. If the amount is substantial then see a tax accountant, other TurboTax business can step you through it.

[NoBusinessBrains]

Okay so things are going very well. I'm looking at more profit then I've ever had (by far, but I was poor :P).

Anyways, not paid yet but soon. I have a few questions.
I'm an American. Our product is software. The distributor from what I understand pays the VAT tax (EU tax of some sort) themselves and when distributed with the non-Vat tax countries it amounts to about 6% of the total (in all we'll get about 85% of the profits with VAT, PayPal, the distributor, etc getting the rest).

Our profit sharing is not going to a middle man or the boss but the distributor is paying each of us directly (we don't have a contract with them but our leader set it up to do this to the correct % we get paid).

Some of my coworkers from across the globe are concerned. They're from Denmark and Sweden and seem to think they have to pay the VAT tax again (possibly because of the no contract with the distributor tied to them directly) and are afraid they're looking at like a 60% tax. I'm pretty sure I don't have to worry about it myself. Just wondering if anyone here could help.
One of them even said their tax guy said they'd have to do this! Seems odd to me since it's double taxation from the same tax source...


It's not a partnership. I'm not an employee. None of us are. It's purely a profit share and we're all freelancers.