I am a real estate agent on a real estate team. I paid the team $2,147 in commissions, do I need to send them a 1099 or can I simply just deduct it on the schedule C?

[userdaniellaplantrea]

The team is structured as an LLC.

[ColeenD3]

Are you and individual, or do you have your own Sole Proprietorship? I am assuming it is a multi-member LLC, taxed as a corporation or partnership. 1099-NEC

What is nonemployee compensation?

The IRS explains that, in general, you must report payments you make if they meet the following four conditions:

1. The payment is made to someone who is not your employee
2. The payment is made for services in the course of your trade or business
3. The payment is made to an individual, partnership, estate, or corporation
4. The payment total is at least $600 for the year

Additionally, businesses will need to file Form 1099-NEC

• when they pay an individual at least $10 in royalties, or
• if the business has withheld any federal income tax under the backup withholding rules regardless of the amount of payments for the year to the nonemployee.

Nonemployee compensation can include:

• Fees
• Benefits
• Commissions
• Prizes and awards for services performed by a nonemployee
• Other forms of compensation for services performed for your trade or business by an individual who is not your employee

[userdaniellaplantrea]

Thank you for your response. I am an individual and yes it is multiple members of the LLC.  There are 2 owners of the LLC however I am not positive on if they are taxed as corporation or partnership. 

[ColeenD3]

You have a Schedule C, though. If your Schedule C business is paying them, then yes, issue the forms.

[userdaniellaplantrea]

Yes, I do have the schedule C. The LLC owner insists that the 1099-NEC that I received, which included the team portion of the commissions, is correct even though it includes over $2k in commissions that they kept, and I never saw. Thanks again for your help!

[RayW7]

This sounds just like what you would report if you received a 1099-NEC direct from your broker, only you are being paid by the LLC rather than your broker.  

For tax filing you would include the amount on the 1099-NEC as income.  If the fees are not included in the income listed on the 1099-NEC and you did not reimburse the LLC then you would not be able to deduct them as an expense.  This income would be handled by the LLC.

If the fees are included in the 1099-NEC and you had to pay them back then you can deduct them as an expense. 

[userdaniellaplantrea]

Hey Ray, thanks for the response. To clarify, this is a commission split with the team LLC that was paid to the LLC and monies I never received so it’s nothing to do with reimbursement of fee’s.

[DawnC · Accepted solution]

You need to claim only the income that you received.  If the income belongs to other team members you paid or includes income that the LLC kept, you can deduct those amounts on your Schedule C.    Let's say there was a 5K sales commission that you received a 1099-NEC for - but the LLC only paid you 3K and kept 2K for their commission/fee.   You would report the 5K but also deduct the 2K to net 3K of income on your Schedule C.    

[userdaniellaplantrea]

DawnC,

Thank you very much for the reply, this definitely clarified that I can state the gross and deduct on my schedule C. One part of that I’m getting mixed info about is that given it’s over $600 that I paid them in commissions, do I need to 1099 them? Thanks again for all the input.

[DawnC]

If you made the payments to the other members, then yes, you would need to send them 1099-s, but if the LLC kept those payments and they paid the other members, the LLC would send the 1099s.   You have to issue 1099s to anyone your Schedule C business pays more than $600.   But your sole proprietorship is not responsible for issuing 1099s for amounts paid by the multi-member LLC.   

[userdaniellaplantrea]

I am a general contractor to the LLC, I'm the one receiving the 1099 which includes the amount I received from the transactions plus the amount the LLC received from the same transactions. The LLC (not me) was issued lets say $10K, my portion was $7K which was paid to myself and the LLC kept the other $3K. Since I was assessed the $10K and will be deducting the $3K, do I need to issue a 1099 to the LLC?

[DianeW777]

Yes. The IRS requires that a Form 1099-NEC be filed with both the IRS and the LLC for any services where the amount is $600 or more. The due date for this to be filed with the IRS was January 31, 2021.  They may allow some grace so file it immediately and if a penalty should get assessed, it's a good idea to explain your situation and ask for the penalty to be removed.

You can use the Quick Employer Forms and there may not be a fee if you are using certain versions of TurboTax. This can be e-filed to the IRS automatically from the site.

• Quick Employer Forms