Reporting Commission and Income Flow (Talent Agent)

Forum|Forum|5 years ago
March 8, 2021
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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!

Not A Product Question

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.

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ron5678Author

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?