How to report art royalty income and expenses by s-corp

Forum|Forum|1 year ago
March 5, 2025
1 reply
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Background:

- Company X paid $1000 in royalties to Agency A for art licensed from Artist B

- Company X sends 1099-Misc to Agency A showing $1000 in royalties

- Agency A takes $400 commission, and pays Artist B $600s of distribution from the royalties received

- 1099-Misc to Artist B lists $1000 in royalties (gross royalties)

Now, here are my questions:

- Agency A is a C-Corp filing as an S-Corp, using Form 1120-S.

1. What income category is the $1000 royalties received by the agency reported under? These were sent to the Corporation but they are on behalf of the artist and reported under the Artists' 1099-Misc.

2. What expense category is the $600 paid to the artists reported under?"

Thanks,

Lisa

Royalties

RobertB4444

There are two ways to report this.

The easiest is to just enter the $400 as income received and call it a day. The artist will list $400 in commissions paid on their tax return and that is it. You never take the $600 into income so you never have to worry about paying it out.

The other way to handle it would be to take all $1000 in as income as though the 1099-MISC were paid to you. Then you list the $600 as commissions paid and that shows as an offsetting expense. The problem with this is that you didn't really get paid $1000 and you should, technically, in this case issue a 1099-MISC to the artist for the $600 that you forwarded to them to cover the expense. But then they have received tow 1099s for the exact same money.

I like the first approach. It is cleaner and technically correct. No one paid the thousand dollars to you. The artist paid you $400, you just handled it for them.

@LLarsen1

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