Kicking Back Commissions

Today TaxMama hears from SB in the TaxQuips Forum with a common problem. “As a real estate professional, I had to kick back some commissions to a buyer to close a sale. But I am getting the 1099-MISC for the full commission. Can I give the buyer a 1099-MISC for the commission I paid her? Should I put the information in Box 7? How does all this work?”

Dear SB,

Kris Hix our TaxLady in Kentucky explains that the box- Box 7 is for nonemployee income.  They were not your employees.  Please put the dollar value into box 3 – Other Income.  This way the clients don’t have to try to explain why it was not included on a Schedule C; or why they are not paying self-employment taxes on the money.

TaxMama understands your frustration, feeling that you might have to pay tax on income you didn’t receive. Will your broker be issuing you a 1099 for your full share of the commission, without deducting the $4,000? That’s most likely what he will do.

So, yes, include the full commission in your income. Then deduct the $4,000 as either a cost of goods sold, or as a selling cost.  You may issue a 1099 to the buyer.  (hmmm, not the seller? That’s unusual) But, be kind. Do what Kris suggested and do NOT use the box for nonemployee income.  Use Box 3 for Other Income and be merciful.

(The buyer should pick it up as a reduction of the basis in the home.)

You will file that 1099-MISC with the buyer and IRS by January 31st (or as late as March 31st if you do it electronically). You can use FileTaxes.com to file just the one 1099 for this buyer, or a few, if you need more. 1099s are filed separately, not with your tax return. They go to a different address than the one where your tax return is filed.

 You will use your address and your SSN. If you have an employer ID number, you can use that. If you don’t have one, don’t get one just for this purpose. Be sure the buyers know you’re going to be giving them the 1099. Otherwise, they’re going be very angry.

And remember, you can find answers to all kinds of questions about balancing out tax matters, 1099s, and other tax issues, free. Where? Where else? At www.TaxMama.com.

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