Commissions and Fees
What You May Deduct
You may deduct commissions and fees paid to independent contractors for their services. For example, if you paid a broker a commission to help you buy a business, this commission is deductible as a business expense. Or if you paid a finder's fee to someone for finding you a business to buy, you may also deduct this amount.
What You May NOT Deduct for Commissions and Fees
This line is not used for tips for employees. Bribes and kickbacks are illegal, are not considered legitimate "commissions" or "fees," and are not allowable expenses.
Where to Show these Expenses
- For sole proprietors and single-member LLCs, commissions and fees are totaled on the "Expenses" section of Schedule C
- For partnerships and multiple-member LLCs, commissions and fees are totaled in the "Deductions" section of Form 1065
- For corporations, commissions and fees are totaled on the "Deductions" section of Form 1120.
If you pay more than $600 a year to an independent contractor, you must file a Form 1099-MISC showing the amount paid. The 1099-MISC is sent to the independent contractor and a Form 1096 is sent to the IRS showing the total of all 1099's you filled out for the previous year.
This article presents general information; I am not a tax attorney or tax preparation specialist. Refer to IRS publications and refer questions to your tax consultant.