Taxation question?

Question

Example:
'Company A' and 'Company B'

'Company A' provides phone service.
'Company B' is a phone company that allows 'Company A' to provide phone service under the 'Company A' Name.

Basically, 'Company A' is a middle man.

'Company B' charges 'Company A' $5 a client
'Company A' charges client $10

'Company A' receives payment and then pays 'Company B' the remainder.

is there some sort of legal way to organize this with IRS? Is there a form or something that needs to be filled out for tax reasons? is 'Company B' like a sub-contractor, and should be paid in a salary or commission form?

Answer 1

The payment to Company B is an expense that needs to be reported in the appropriate line of Company A's tax return. If the total is over $600 for the year, Company A should also file a Form 1099.

Answer 2

Each company reports their income and expenses. The company that resells the service has income of $10 and expenses of $5 for a taxable income of $5. Plain and simple.