Reporting Commission and Income Flow (Talent Agent)

[ron5678]

I'm a new talent agent (formerly a performer).  Previously, my methods of receiving and reporting income were very straightforward.... do a show, get a 1099, report the full income, deduct professional expenses, pay taxes on the net.  However, now I'm a talent agent whose income is commissions, and we are merely acting as the passthrough on funds from a venue to one of our artists and removing our percentage.  Not knowing any differently, we did our taxes the same way I have always done: since the venue is writing our agency the check, we reported the full amount received from venues via 1099 as income, recorded what we passed along to the artists as professional expenses (sending them all 1099s for the amount we passed along), and then our net was the commissions.  However, we have been told this is the incorrect way to report: since we are technically hired BY the artists and they are not our hired labor, we have been told we are supposed to send a 1099 to the artist for the FULL amount received by the venue (even though we deducted commission), and then the artist claims the full amount on THEIR tax return and deducts what we took out as a professional expense.  That all makes sense to me, but there's a sticking point: we were told that, on our tax returns we should ONLY claim the commission money as our top-line income and NOT even record what the venues sent us on behalf of the artists, even though those checks are written in our name and we are sent 1099s for those amounts.  Is this correct accounting? Wouldn't it trip a huge red flag for the IRS that the 1099s sent to us by venues show an income that is 85% higher than what we are reporting?  HELP!

[DavidD66]

Yes, if you want to get the IRS' attention, only report 85% of the amounts reported to you on Forms 1099-NEC or MISC.  For tax purposes, you should report the entire amount you receive, and then deduct the amount you pay to the artists.  You want to report all the income reported to you on Forms 1099.   

[ron5678]

Thanks so much, @DavidD66

This (the way you're describing) is the way I've done it in the past, but I have been told multiple times that this is not standard practice for industries (like talent agencies or art galleries) who receive and pass-through monies as a service for others (in a similar function to escrow). I have been told that it is improper to be recording the monies from venues as income and artist's payments as expenses when none of that money was ours to begin with (we were merely acting as the conduit, and the artists hire us to work for them, not the other way around). Any additional thoughts with this additional info, or you still feel like we should be reporting all venue payments at the top of our tax returns as if it were our revenue?

[ColeenD3]

Here is a LINK that may be helpful to you.

[ron5678]

Thanks so much @ColeenD3 .  That does clear up the idea of reporting the full amount to the artist (vs. post commission-deduction) on their 1099s.  But the issue I'm still looking for clarity on is: how should we as the AGENT report our income? What we have done previously is record all those venue payments as income on our tax return (since the checks and venue 1099s are made out in our name o/b/o the artists).  However, we are hearing that industry standard is to only record the commission payments as top-line income, not the amount of all those venue 1099s since that income was never ours to begin with (we were merely a pass-through for the artist, not in contract with the venue).

[ColeenD3]

I extrapolated this from the link:

If they’re (YOU) reporting on the net, and you (client) earned $100,000, and they (YOU) took their 15% commission, they will give you (client) a 1099 for $85,000. You would then report the $85,000 on your tax return and would not take a tax deduction on commissions paid to your agent because they’ve already done that for you on the 1099.

Overall, it’s a good idea to ask your agent to provide detailed support for the 1099 they sent you. This will tell you the commissions they (YOU) took and how the 1099 was reported.

While this is not an IRS publication, it seems like a logical way to report, especially since the funds are paid to you and you turn around and pay your clients.

[ron5678]

Thank you again @ColeenD3 .  The issue I'm having is that I'm receiving 1099s from both the venue (for $100,000, even though this is truly not my income to report) and my artist client (for the commission I deduct before passing the funds I've received along to them). So if we're hypothetically talking about a 10% artist commission, I have received 1099s for $110,000 ($100,000 from venue and $10,000 from artist) on a $100,000 contract.  I have always reported $100,000 as top-line income, a business deduction of $90,000, showing a net profit of $10,000.  However, I am being told that, in my industry, common practice is to report a top-line income of $10,000, since the $100,000 from the venue was never mine to begin with (I am merely pass-through and have no true fiscal relationship or contractual relationship with the venue who is paying the artist).  It's all so confusing to me... any more thoughts?

[ColeenD3]

The first thing is that industry practice has to be based on an IRS directive, not just what a group of people decided how to treat this. Second, the way I outlined is the more reasonable way to do it. You can direct your clients to stop issuing you the commission and tell them that you are taking it out in advance.

Either way, adopt the method that you choose and just make sure all amounts are accounted for properly. It has to be one way or the other and not a combination of the two.

[SecretAgent]

Hi Ron,

I hope you have gotten an answer to this question after two years but if not - here goes.  If you were issued a 1099 by a client you need to shift the tax burden onto the talent. Send out a 1099 for most likely the full amount.  If you on record the top sales, the 1099 will show you have more and bring the IRS to your door.  Technically, it is up to talent to 1099 you for your commissions. I believe most accounting products you would have to override to send out anything but the full amount.  good luck!

[artbathnyc]

Just chiming in here: what if you are the venue in this situation, and you are PAYING a manager for the services of an artist. Do you send a 1099 to the manager since you wrote them the check, or do you send a 1099 to the artist because they just pass the check through?