Suppose I develop an app with a friend, and put it on sale (say with apple or microsoft). We want to split the income from the sales 50/50.

Suppose I receive all the income from the sales. Now I want to pay my friend 50%.

How would this be reported on US taxes? Would my friend be an "independent contractor", and would that require me sending him a 1099?

Would appreciate any info with regards to this type of situation.

  • 1
    Are you and your friend 50/50 partners in this endeavor? Is there a reason you would want to receive all of the income rather than forming some sort of business entity you both own? – quid Jul 10 '17 at 22:25
  • No reason. He's in another country so I assume that would be an issue. But is that the best way to do it? Suppose I make a partnership with another person... would I then form another business entity with that person, and so on? – Ameet Sharma Jul 10 '17 at 22:28

There are a few different ways to organize this, but mostly I think you need to talk to a lawyer. The 50/50 split thing should be in writing along with a bunch of other issues.

You could have one of you doing a sole proprietorship where the other person is a contractor that receives half of all revenues/profits. The person that owns the sole proprietorship may be entitled to deduct certain costs of running the entity. The other person would then be 1099'd his share of revenues.

You could set up a partnership, again legal paperwork is necessary.

You could also setup an S-Corp, where each of you is a 50% owner.

You could also setup an LLC that is organized as any of the above. I would only do this if you can self fund some additional tax preparation costs. Figure about $600/year at a minimum.

There are a lot of options with a sole proprietorship being the easiest. Your first step on the new venture would be to apply for an EIN (free), and then opening a business bank account.

Good luck.

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