| Author |
Message |
oneiros
Guest
|
 Posted:
Wed Oct 19, 2005 8:00 am Post subject:
How does paying out commission work tax-wise? |
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Greetings everyone,
I do work as a freelance graphic designer & web designer,
and I currently completed a small job, for which I am paying
a commission to someone for a bit of leg work he did at the
onset of the project and of course as a bit of a finder's
fee.
However, the client is paying me the total amount, and I
wondering how do I work out his comission for tax purposes.
Do I have to get some sort of 'receipt' from him regarding
the amount of the comission for this amount not be something
I pay taxes on, or I have to pay taxes on that portion
regardless of anything? It is a small amount (his comission
will work out to around $200) but I figure it is a good a
time as any to do things right and be prepared as I try to
expand my client base.
Thank you all in advance for your help in this matter,
-O-
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Bill
Guest
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| Posted:
Thu Oct 20, 2005 8:00 am Post subject:
Re: How does paying out commission work tax-wise? |
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enhypnion@gmail.com (oneiros) posted:
| Quote: | Greetings everyone,
I do work as a freelance graphic designer &
web designer, and I currently completed a
small job, for which I am paying a commission
to someone for a bit of leg work he did at the
onset of the project and of course as a bit of a
finder's fee.
However, the client is paying me the total
amount, and I wondering how do I work out
his comission for tax purposes. Do I have to
get some sort of 'receipt' from him regarding
the amount of the comission for this amount
not be something I pay taxes on, or I have to
pay taxes on that portion regardless of
anything? It is a small amount (his comission
will work out to around $200) but I figure it is a
good a time as any to do things right and be
prepared as I try to expand my client base.
|
You simply write your agent a check for the "commission"
due, and record it on your records as a payment for services
rendered ("Consulting" could be used).
It becomes a cost of doing business, and is deductible as an
expense when you prepare your Schedule C.
(Incidentally, if this "agent" delivers other customers --
earning multiple commissions -- you should issue him a
1099-MISC at the end of the tax year when the total reaches
$600.)
If you're truly planning on expanding your client base and
anticipate growing your business, it might be a good idea to
retain an accountant to handle your taxes and counsel you on
matters like this.
Bill
<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2005) - All rights reserved. >>
<< ======================================================= >> |
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Mark H
Guest
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| Posted:
Thu Oct 20, 2005 8:00 am Post subject:
Re: How does paying out commission work tax-wise? |
|
|
By your description of yourself, you're self-employed.
Assuming you haven't incorporated or formed any other
business entity you'll be filing a Schedule C as part of
your individual income tax return (Form 1040) to report your
business income or loss. You need your consultant's tax
idenfication number, if he's self-employed like you, it's
his social security number. During January next year, you
need to issue him a 1099 for the amount that you paid him
during all of 2005 (1099 required if amount paid to him is
| Quote: | $600, optional below that amount). You will take a
deduction on Schedule C for whatever amount you paid to him. |
The purpose of the 1099 is to substantiate the amount of
your deduction, he's supposed to pick up that amount on his
tax return. You can include the amount you paid to your
consultants either on Line 4 of Schedule C as part of Cost
of Goods Sold or as Contract Labor on line 11. The
assumption here is that you're a U.S. based person.
<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2005) - All rights reserved. >>
<< ======================================================= >>
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Paul Thomas
Guest
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| Posted:
Thu Oct 20, 2005 8:00 am Post subject:
Re: How does paying out commission work tax-wise? |
|
|
"oneiros" <enhypnion@gmail.com> wrote
| Quote: | I do work as a freelance graphic designer & web designer,
and I currently completed a small job, for which I am paying
a commission to someone for a bit of leg work he did at the
onset of the project and of course as a bit of a finder's
fee.
However, the client is paying me the total amount, and I
wondering how do I work out his comission for tax purposes.
Do I have to get some sort of 'receipt' from him regarding
the amount of the comission for this amount not be something
I pay taxes on, or I have to pay taxes on that portion
regardless of anything? It is a small amount (his comission
will work out to around $200) but I figure it is a good a
time as any to do things right and be prepared as I try to
expand my client base.
|
You issue him (or her) a 1099 for the amount you paid them.
Deduct that amount on your tax return.
--
Paul A. Thomas, CPA
Athens, Georgia
<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2005) - All rights reserved. >>
<< ======================================================= >> |
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Herb Smith
Guest
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| Posted:
Thu Oct 20, 2005 8:00 am Post subject:
Re: How does paying out commission work tax-wise? |
|
|
oneiros wrote:
| Quote: | I do work as a freelance graphic designer & web designer,
and I currently completed a small job, for which I am paying
a commission to someone for a bit of leg work he did at the
onset of the project and of course as a bit of a finder's
fee.
However, the client is paying me the total amount, and I
wondering how do I work out his comission for tax purposes.
Do I have to get some sort of 'receipt' from him regarding
the amount of the comission for this amount not be something
I pay taxes on, or I have to pay taxes on that portion
regardless of anything? It is a small amount (his comission
will work out to around $200) but I figure it is a good a
time as any to do things right and be prepared as I try to
expand my client base.
|
Assuming you are an independent contractor, you will be
filing Schedule C and SE for your freelance activities.
Include the total amount received from the client under
income (Line 1) and the commission you pay out as an Expense
(Line 10). That will reduce your net profit and your taxable
income. Get a receipt to back up your expense and you may
(but not required to, because of the amount) issue a
1099-MISC (Box 7, nonemployee compensation) to the person
you are paying the commission to. It is his problem to
report the income on his tax return.
<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2005) - All rights reserved. >>
<< ======================================================= >> |
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Katie
Guest
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| Posted:
Thu Oct 20, 2005 8:00 am Post subject:
Re: How does paying out commission work tax-wise? |
|
|
The fee you paid is a deductible expense on your Schedule C.
You could describe such payments as "purchased services" or
"contract labor" or just "commissions."
If you pay $600 or more (or is it more than $600? I forget)
to this individual during the year, you must report it on
Form 1099 to the IRS with a copy to the recipient. In any
case, you should document the payment as you would document
any other expense of your business -- e.g., with a receipt
or check voucher describing the purpose of the payment.
Katie in San Diego
<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2005) - All rights reserved. >>
<< ======================================================= >> |
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Arthur Kamlet
Guest
|
| Posted:
Thu Oct 20, 2005 8:00 am Post subject:
Re: How does paying out commission work tax-wise? |
|
|
oneiros <enhypnion@gmail.com> wrote:
| Quote: | I do work as a freelance graphic designer & web designer,
and I currently completed a small job, for which I am paying
a commission to someone for a bit of leg work he did at the
onset of the project and of course as a bit of a finder's
fee.
However, the client is paying me the total amount, and I
wondering how do I work out his comission for tax purposes.
Do I have to get some sort of 'receipt' from him regarding
the amount of the comission for this amount not be something
I pay taxes on, or I have to pay taxes on that portion
regardless of anything? It is a small amount (his comission
will work out to around $200) but I figure it is a good a
time as any to do things right and be prepared as I try to
expand my client base.
|
A receipt is a good thing. Lacking that, write a check on
your business account marking it "contract work" or similar.
And record it as contract work on Schedule C.
__
Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZH
<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2005) - All rights reserved. >>
<< ======================================================= >> |
|
| Back to top |
|
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oneiros
Guest
|
| Posted:
Thu Oct 20, 2005 9:26 pm Post subject:
Re: How does paying out commission work tax-wise? |
|
|
Thank you all for your responses and all your help!!!
Mark H: Only partly. I still work full time (also as a
graphic designer) but I am slowly transitioning to a
freelance / independent setting. The work I do on the side
is sporadic at best, but over the last few months it has
become regular and more numerous. I haven't incorporated
yet, I operate under a name that uses my full name (to stay
legal) for the mean time, but will soon be forming an LLC
most likely, if things keep going this way.
Thanks once again for all your help!
<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2005) - All rights reserved. >>
<< ======================================================= >> |
|
| Back to top |
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Mark H
Guest
|
| Posted:
Fri Oct 21, 2005 8:00 am Post subject:
Re: How does paying out commission work tax-wise? |
|
|
"oneiros" <enhypnion@gmail.com> wrote:
| Quote: | Thank you all for your responses and all your help!!!
Mark H: Only partly. I still work full time (also as a
graphic designer) but I am slowly transitioning to a
freelance / independent setting. The work I do on the side
is sporadic at best, but over the last few months it has
become regular and more numerous. I haven't incorporated
yet, I operate under a name that uses my full name (to stay
legal) for the mean time, but will soon be forming an LLC
most likely, if things keep going this way.
Thanks once again for all your help!
|
You can be self-employed as well as employed elsewhere.
Assuming you're planning on reporting your income from your
freelance work for tax purposes, as long as you haven't
formed a new entity (i.e., incorporated) you'll still be
filing a Schedule C as part of you tax return. Even after
you form an LLC, if you're the only owner, you'll still be
filing Sch C to report your earnings.
<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2005) - All rights reserved. >>
<< ======================================================= >> |
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| Back to top |
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