How do I deduct payments to others out of a single payment to the group for contract work?
You send the proper form to the other person for the amount you gave him, and file it as your business expense on your Schedule C.
You can ask the client to pay you through the LLC. In that case you should invoice them from the LLC and have them pay the invoice. If they pay you personally, you can always make a capital contribution to the LLC and use that money to buy equipment. The tax implications for a single person LLC providing professional services are the same for you either way: income is income whether it's from your LLC or an employer. It's different for the employer if they are giving you a W2 vs a 1099. So it doesn't matter much for you. If the LLC is buying equipment, make sure you get enough revenue through the LLC to at least offset those expenses. Assuming you have registered your activities as partnership and receiving this money as Individual, you need to show this under Schedule OS, 1d [other income]. this will be under the ITR-2 [tab CG-OS] XLS tax preparation utility given by Tax Department. The XLS can be found at https://incometaxindiaefiling.gov.in/portal/individual_huf.do If the funds you are receiving are large [more than say Rs 500,000] then suggest you incorporate a partnership firm or company, there are quite a few exceptions you can claim lowering you tax outgo.  The fact that you are transferring funds to your partners can be an issue incase you get audited. You would need to have sufficient evidence to show that the money paid was for services rendered directly and not your income. It would be easier if you create a partnership or have the client directly pay to them. Again if the sum is small its fine, as the sum becomes large, it would get noticed by the tax authorities. You're knowingly providing a payment method which has insufficient funds to meet the terms of the contract, because you are too lazy to comply with the contract. That's unethical and fraudulent behavior. Will you get in trouble? I don't know. I'd suggest getting acquainted with an electronic calendar that can remind you to do things. I took littleadv's advice and talked to an accountant today. Regardless of method of payment, my US LLC does not have to withhold taxes or report the payment as payments to contractors (1099/1042(S)) to the IRS; it is simply a business expense.  He said this gets more complicated if the recipient is working in the US (regardless of nationality), but that is not my case I'm not certain I understand what you're trying to do, but it sounds like you're trying to create a business expense for paying off your personal debt. If so - you cannot do that. It will constitute a tax fraud, and if you have additional partners in the LLC other than you and your spouse - it may also become an embezzlement issue. Re your edits: Or for example, can you create a tuition assistance program within   your company and pay yourself out of that for the purposes of student   loan money. Explicitly forbidden. Tuition assistance program cannot pay more than 5% of its benefits to owners. See IRS pub 15-B. You would think that if there was a way to just incorporate and make your debts pre-tax - everyone would be doing it, wouldn't you? "This is called ""Net Operating Loss"", and it is in fact applicable for individuals as well. You can, under certain circumstances, have NOL even as an individual. But it is far more common in the corporate world. What happens is that you can carry it back or forward, and get refund on taxes paid or adjust income for taxes to pay. In your example, you could carry the $75 NOL back and deduct it from the prior year earnings, reducing the taxable income from $100 to $25, getting $18.75 of the $25 paid as taxes - back. The link is for individual NOL, corporate rules are different, but the principle is the same." The vendor needs to do this using apportionment, according to the VAT rules for mixed supplies: If you make mixed supplies and the individual supplies are not liable to VAT   at the same rate then you need to work out the tax value of   each supply in order to calculate how much tax is due. If the tax   value is based on the total price you charge (see paragraph 7.3) you   do this by splitting that price between the supplies. This is called   an apportionment ... There is no special method of apportionment ... However, your calculations must be fair and you must be able to justify them. It is usually best to use one of the methods shown in section 32. The section 32 referred to really relates to apportioning use between business and non-business purposes, but it implies that splitting up the total price in proportion to the original prices would probably be fair. So in your example the vendor might split the £5 discount equally between the spoon and the carrycot as they had the same gross cost, and pay VAT as if each had cost £7.50 gross. The vendor could also do it in proportion to their net (pre-VAT) prices and thus apportion a bit more of the discount to the carrycot than the spoon, but as this would lead to them paying slightly more tax overall they probably wouldn't choose to. However, none of this is likely to be too relevant to a consumer, since in the UK prices must be presented as the gross (VAT-inclusive) amounts and so the discounts will also apply to those amounts. It will of course affect how much of the purchase price the vendor ends up paying on to the government and thus might indirectly affect what discounts the vendor is willing to offer. This is how a consulting engagement in India works. If you are registered for Service Tax and have a service tax number, no tax is deducted at source and you have to pay 12.36% to service tax department during filing (once a quarter). If you do not have Service tax number i.e. not registered for service tax, the company is liable to deduct 10% at source and give the same to Income Tax Dept. and give you a Form-16 at the end of the financial year. If you fall in 10% tax bracket, no further tax liability, if you are in 30%, 20% more needs to be paid to Income Tax Dept.(calculate for 20% tax bracket). The tax slabs given above are fine. If you fail to pay the remainder tax (if applicable) Income Tax Dept. will send you a demand notice, politely asking you to pay at the end of the FY. I would suggest you talk to a CA, as there are implications of advance tax (on your consulting income) to be paid once a quarter. As an individual freelancer, you would need to maintain a book of accounts. This should show all the income you are getting, and should also list all the payments incurred. This can not only include the payments to other professionals, but also any hardware purchased, phone bills, any travel and entertainment bills directly related to the service you are offering.  Once you arrive at a net profit figure, you would need to file this as your income.  Consult a tax professional and he can help with how to keep the records of income and expenses. i.e. You would need to create invoices for payments, use checks or online transfers for most payments, segregate the accounts, one account used for this professional stuff, and another for your personal stuff, etc. In a normal course the Income Tax Department does not ask for these records, however whenever your tax returns get scrutinized on a random basis, they would ask for all the relevant documentations. Sounds you need to read up on S corp structures. I think this would benefit you if you generate income even after you physically stopped working which is incomes from membership fees, royalties % of customer revenue, middle man etc...  Under the Scorp, you as the sole member must earn a wage that fair and at current market value. You pay social security and Medicare on this wage. The interesting thing here is that an Scorp can pay out earning dividends  without having to pay payroll taxes but the catch is that you, as the sole employee must earn a fair wage.   As for paying the other member you may want to look into 1099 contract work plus a finders fee. The 1099 hourly wage does not require you to pay Medicare and SS.   The common fee I'm used to is 5% of gross invoice. Then you would pay her an hourly wage. The company then bills these hours multiplied by 2 or 3 (or whatever you think is fair) to the client. Deduct expenses from this and that's your profit.   Example. Contractor brings Client A which is estimated as a  100 hour project with $100 cost in supplies and requires 2 hours of your time @ $40/hr.   You quote 100 hours @ $50 to client, client agrees and gives you down payment.   You then present the contract work to your contractor, they complete the work in 100 hours and bill you at $25.   You pay your contractor 2500 plus the 5% ($250)  and your company earns $2070 (5000 - 2500 - 100-80)  And you'll earn $80 minus the payroll tax.   Then at the end of the quarter or year or however you want to do earning payouts your LLC- Scorp will write you a check for $2070 or whatever earning % you want to take. This is then taxed at your income tax bracket.   One thing to keep in mind is what is preventing this other person from becoming your competition? A partnership would be great motivation to try and bring in as much work under the LLC. But if you start shafting people then they'll just keep the work and cut you out. "As you clarified in the comments, it is not a contract work but rather an additional temporary assignment with the same employer. You were paid for it in form of a ""bonus"" - one time irregular payment, instead of regular periodic payments. Irregular wage payments fall under the flat rate withholding rule (the 25% for Federal, some States have similar rules for State withholding). This is not taxes, this is withholding. Withholding is money the employer takes from your salary and forwards to the IRS on the account of your tax liability, but it is not in itself your tax liability. When you do your annual tax return, you'll calculate the actual tax you were supposed to pay, and the difference between what was withheld and your actual tax will be refunded to you (or owed by you, if not enough was withheld). You can control the regular pay withholding using W4 form." Here is a quote from the IRS website on this topic: You may be able to deduct premiums paid for medical and dental   insurance and qualified long-term care insurance for yourself, your   spouse, and your dependents. The insurance can also cover your child   who was under age 27 at the end of 2011, even if the child was not   your dependent. A child includes your son, daughter, stepchild,   adopted child, or foster child. A foster child is any child placed   with you by an authorized placement agency or by judgment, decree, or   other order of any court of competent jurisdiction. One of the following statements must be true. You were self-employed and had a net profit for the year reported on   Schedule C (Form 1040), Profit or Loss From Business; Schedule C-EZ   (Form 1040), Net Profit From Business; or Schedule F (Form 1040),   Profit or Loss From Farming. You were a partner with net earnings from self-employment for the year   reported on Schedule K-1 (Form 1065), Partner's Share of Income,   Deductions, Credits, etc., box 14, code A. You used one of the optional methods to figure your net earnings from   self-employment on Schedule SE. You received wages in 2011 from an S corporation in which you were a   more-than-2% shareholder. Health insurance premiums paid or reimbursed   by the S corporation are shown as wages on Form W-2, Wage and Tax   Statement. The insurance plan must be established, or considered to be   established as discussed in the following bullets, under your   business. For self-employed individuals filing a Schedule C, C-EZ, or F, a   policy can be either in the name of the business or in the name of the   individual. For partners, a policy can be either in the name of the partnership or   in the name of the partner. You can either pay the premiums yourself   or your partnership can pay them and report the premium amounts on   Schedule K-1 (Form 1065) as guaranteed payments to be included in your   gross income. However, if the policy is in your name and you pay the   premiums yourself, the partnership must reimburse you and report the   premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to   be included in your gross income. Otherwise, the insurance plan will   not be considered to be established under your business. For more-than-2% shareholders, a policy can be either in the name of   the S corporation or in the name of the shareholder. You can either   pay the premiums yourself or your S corporation can pay them and   report the premium amounts on Form W-2 as wages to be included in your   gross income. However, if the policy is in your name and you pay the   premiums yourself, the S corporation must reimburse you and report the   premium amounts on Form W-2 as wages to be included in your gross   income. Otherwise, the insurance plan will not be considered to be   established under your business. Medicare premiums you voluntarily pay to obtain insurance in your name   that is similar to qualifying private health insurance can be used to   figure the deduction. If you previously filed returns without using   Medicare premiums to figure the deduction, you can file timely amended   returns to refigure the deduction. For more information, see Form   1040X, Amended U.S. Individual Income Tax Return. Amounts paid for health insurance coverage from retirement plan   distributions that were nontaxable because you are a retired public   safety officer cannot be used to figure the deduction. Take the deduction on Form 1040, line 29. I strongly recommend that you talk to an accountant right away because you could save some money by making a tax payment by January 15, 2014. You will receive Forms 1099-MISC from the various entities with whom you are doing business as a contractor detailing how much money they paid you. A copy will go to the IRS also. You file a Schedule C with your Form 1040 in which you detail how much you received on the 1099-MISC forms as well as any other income that your contracting business received (e.g. amounts less than $600 for which a 1099-MISc does not need to be issued, or tips, say, if you are a taxi-driver running your own cab), and you can deduct various expenses that you incurred in generating this income, including tools, books, (or gasoline!) etc that you bought for doing the job. You will need to file a Schedule SE that will compute how much you owe in Social Security and Medicare taxes on the net income on Schedule C. You will pay at twice the rate that employees pay because you get to pay not only the employee's share but also the employer's share. At least, you will not have to pay income tax on the employer's share. Your net income on Schedule C will transfer onto Form 1040 where you will compute how much income tax you owe, and then add on the Social Security tax etc to compute a final amount of tax to be paid. You will have to pay a penalty for not making tax payments every quarter during 2013, plus  interest on the tax paid late.  Send the IRS a check for the total. If you talk to an accountant right away, he/she will likely be able to come up with a rough estimate of what you might owe, and sending in that amount by January 15 will save some money. The accountant can also help you set up for the 2014 tax year during which you could make quarterly payments of estimated tax for 2014 and avoid the penalties and interest referred to above. To quote the answer you linked to: Perhaps the simplest way to think about this is you can only deduct an expense that you actually incur. In other words, the expense should show up on a bank or CC statement. So, if your business purchased the $1000 gift card for $800, you should see a $800 charge appearing on a business CC or bank statement. You would therefore be able to deduct the $800, but not the full $1000 of items that you purchase with it. Side Notes: "This is going to depend on the tax jurisdiction and I have no knowledge of the rules in Illinois.  But I'd like to give you some direction about how to think about this.   The biggest problem that you might hit is that if you collect a single check and then distribute to the tutors, you may be considered their employer.  As an employer, you would be responsible for things like  This is not meant as an exhaustive list.   Even if not an employer, you are still paying them.  You would be responsible for issuing 1099 forms to anyone who goes above $600 for the year (source).   You would need to file for a taxpayer identification number for your organization, as it is acting as a business.  You need to give this number to the school so that they can issue the correct form to you.  You might have to register a ""Doing Business As"" name.  It's conceivable that you could get away with having the school write the check to you as an individual.  But if you do that, it will show up as income on your taxes and you will have to deduct payments to the other tutors.   If the organization already has a separate tax identity, then you could use that.  Note that the organization will be responsible for paying income tax.  It should be able to deduct payments to the tutors as well as marketing expenses, etc.   If the school will go for it, consider structuring things with a payment to your organization for your organization duties.  Then you tell the school how much to pay each tutor.  You would be responsible for giving the school the necessary information, like name, address, Social Security number, and cost (or possibly hours worked)."