Independent contractor paying referral agency a 30% of my money from every job where can I deduct these

[sunnyjay88]

So where do I deduct these fees

[AmyT · Accepted solution]

You can deduct this as an  Other Miscellaneous Expense.

1. When you get to the screen that asks "What kind of expenses did you have for <your business>?", choose the drop-down for "Less common expenses" and select "Other miscellaneous expenses"
2. Click "Continue"
3. Scroll down to Expenses; find "Other miscellaneous expenses"; click on the blue Start button
4. Enter a description such as "Referral fees" and enter the expenses that you paid during the year.

[raynskye44]

I'm an independent contractor as a real estate agent, and I also pay 30% commission to a referral partner when I close leads that they provide to me.  In real estate, though, the broker pays all the commissions because everything is paid to them and then they divvy it out so to speak, even the referral agreement is between the Broker and the referring party and myself (agent of Broker).  Am I still entitled to deduct the referral fee that I pay in this scenario?

[GeorgeM777]

It is not clear whether you can deduct the referral fee.  If the managing broker is the one that receives all the commissions and pays the agents their respective share, and pays the referring agent/party their respective share, then it's likely in that scenario that the managing broker is the one that takes the deduction for paying the referral fee.  Perhaps to render a more definitive answer we need to know what the agreement says about payment of the referral fee.  If you can provide that information, that might better assist us in responding to your tax question.  

@raynskye44

[raynskye44]

Thanks George, I thought that might be the case, but wasn't sure.  In my online searches it's became clear that for sure any agent like myself that pays another agent a referral fee, that is definitely tax deductible.  But that is also paid by the broker, not by me, so I thought maybe it would be the same for a referral partner.  I'm happy to attach an example partner referral agreement, is there a way to attach?

[MarilynG1]

No, you can't attach a copy of a referral agreement to your return, sorry.  How are you paid?  If you receive a 1099-NEC or 1099-Misc, does it reflect what you actually received?

If so, then you don't need to claim the referral fee as as expense, since you didn't pay it out of your income.

I'm sure you have plenty of other expenses to deduct against the income.

Here's some Tax Tips for Real Estate Agents.

@raynskye44 

[raynskye44]

Thanks, I was not wanting to attached the agreement to the return, but to this forum so George could view it.  I receive a 1099-NEC, yes it reflects what I actually receive.  I don't need to claim it, but I would certainly like to if I can.  I'm the one paying the referral % out of my commission so I would not expect to see it in my 1099-NEC.  The paying agent in an agent to agent referral agreement can deduct the referral fee, so I'm just trying to understand why it would be different with a referral partner.

[VolvoGirl]

If you don't include it in your total income you can't deduct it.  So if it's not on the 1099NEC you can't deduct it.  

[raynskye44]

Sorry if I'm still not understanding, I'm paying a referral fee so I'm not receiving anything and wouldn't expect to, maybe I'm supposed to be asking if I can expense it instead of deduct it?  Sorry for my ignorance.

[VolvoGirl]

Deduct and expense are the same thing.  Yes if the 1099NEC doesn't include the referral fee you can't deduct it.  Or did you actual pay it out from your bank account?  

You either report 100% of your commissions before the fees then you can deduct the fees.

Or report the Net commissions you actual got after the fees.  Then  you can't deduct the fees again.