do the taxes owed on that $1000 need to come directly out of that $1000 given?
Yes.
Or, can you give out that $1000 as a guaranteed payment, and then transfer an additional $200 for taxes owed on that $1000 to another account where it will remain until time to pay the tax estimate?
That would make the guaranteed payment amount $1,200 and they would owe/pay taxes on $1,200. What the recipient does with the extra $200 doesn't matter, but they'd be smart to set it aside for taxes.
I find that in my SCH C business, if I set aside and pay 20% of my gross business income each quarter, come tax filing time I'm easily within $1K of whatever my tax liability will be. But I do recommend that if there's a possibility the taxable income for the year will exceed $160K, they set aside 25%. Also, don't forget about state taxes if applicable, as that would make the amount to bet set aside a little bit more.
