Today TaxMama hears from Stacy in California with this situation. “My husband runs a travel softball team and we allowed the players to get sponsors. The rule was that the first 25% of the sponsorship went to the team; and the other amount went to their individual accounts. We have a player who did this, but is no longer with our team. She would like her sponsorship money back. Before returning the money, would this impact anything with our taxes that will be filed?”
Looks like you have more than a team. You have budding entrepreneurs.
Any money going to the team members needs to be accompanied by a 1099-MISC. This should be non-employee compensation at the very least. Be sure she understands that she will be paying income taxes and self-employment taxes. The same goes for everyone on the team.
Another thing to think about. Since 25% is going to support the team business – and the other 75% is going to players who are doing work to earn this money (selling sponsorships and getting a commission), this should really be paid via a payroll. You should be taking withholding out on these checks and filing all the usual payroll rigamarole.
By the way, having a payroll does not mean you have to pay someone a regular wage. You can use it to issue periodic checks, like bonuses, commissions, etc.
Naturally, you would deduct the checks to the team members as commission expense or payroll.
Consider working with a tax professional and have them review how you’re running the business. You just might need to change some things. Please be careful, administratively – and enjoy the team!
And remember, you can find answers to all kinds of questions about sports taxes and other tax issues, free. Where? Where else? At TaxMama.com
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