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If I have to pay a US individual $1,000 fee for professional services, and i don't pay him in cash but instead give him an Amazon gift card for the same amount, will it be deductible under business expenditure? What amount of tax will be required to be withheld, if any? Thanks in advance!

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    whenever there is a question about paying somebody a significant sum of money via gift card, the first thought is "are you sure this isn't a scam?" Aug 24, 2023 at 18:05
  • Do you have documentation that you can use to prove that the expense is business related? Are you asking about your taxes or the other persons taxes? Aug 24, 2023 at 18:07
  • Yes, i will have an invoice for the professional services billed to me. I am asking about my liability to withhold tax AND eligibility to claim such expenses as business expenses when filing taxes. Aug 24, 2023 at 18:28

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If I have to pay a US individual $1,000 fee for professional services, and i don't pay him in cash but instead give him an Amazon gift card for the same amount, will it be deductible under business expenditure? What amount of tax will be required to be withheld, if any? Thanks in advance!

If the person providing the services is not an employee, then you don't have to do any withholding. The other company is responsible for the taxes.

For example you pay a painter to paint the lobby of your business. They aren't an employee. You document the cost. The painting company then pays the painter. You have no idea if they are a W-2 employee or a 1099 contractor.

Because you want to be able to deduct the expense, you will need their tax ID number, so that you can properly report the expense on your tax forms.

If they are wanting cash or gift cards it is likely that they aren't expecting you to report their income.

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The tax impact of your payment is not affected by the method of payment. You can pay with cash, gift cards, credit cards, bitcoins, shark teeth, or your own services - it doesn't matter. What matters for tax purposes is the value. If you don't pay in cash, then you need to make sure you record the payment in USD value, no matter how you actually delivered that value to your counterpart.

If you're required to do withholding, then obviously it cannot be in anything but USD. So whatever it is that your method of payment is - you'll need to subtract the withheld amount from its value.

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  • Thankyou. Is there any publication i can refer to for the limit above which withholding is required, its applicability on me and the rate at which tax is required to be withheld? Aug 24, 2023 at 18:27
  • @NikhilAnand you should probably discuss this with your accountant, but start here: irs.gov/individuals/international-taxpayers/…
    – littleadv
    Aug 24, 2023 at 18:36
  • In the specific case of credit cards, withholding is unlikely to be necessary. Normally, witholding is an alternative to reporting taxes via 1099. With credit card payments, the credit card company reports the transaction themselves. Note that this doesn't contradict littleadv's answer (the tax impact is the same).
    – Brian
    Aug 25, 2023 at 15:55

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