My wife runs a SP teaching Zumbini and Zumba classes. She uses 3rd party payment apps like PayPal, Venmo, etc., has split fees with someone who helps to capture business for her (a non-employee) and pays franchise fees to the two companies. Question is this, if fees are deducted from PayPal or some other payment processing website, prior to her getting her share, is that a deductible expense? Or does she claim the net proceeds from PayPal as her gross income? This is a very confusing topic for which there are few resources that clarify including IRS Pub 535.
The way my wife thinks about this is that the true full amount (including all fees) are her gross income and despite the fact that others' (franchises, intermediaries, 3rd party payment apps) take their share before she gets her share that these are still expenses. My position, which may be overly conservative, is that IRS only cares what she ultimately gets from the payment apps and that net figure is her gross income. Since she doesn't actually pay the fees from her net pay (they are pre-deductions) those are not really expenses. Who is correct?
Please help!
