Are you paying too much tax on your commission income?

The following outreach is courtesy of Tiffany Medellin, CFE, who is a frequent instructor of tax preparation courses at HAAR and multiple other associations.

Realtors, this is why I think you may be paying too much tax on your commission income...

Until you have BOTH your 1099 AND your transaction summary from your broker, you should PAUSE your tax preparation effort.
Unless the figure on your Form 1099 EXACTLY corresponds to the net commission checks you deposited from you broker, you have a tax problem. Let me explain.  Your CPA will absolutely report commission income at whatever dollar figure is reported on your 1099 since that figure was also reported to the IRS and the State.  
What happens if your 1099 says $100,000 commission income, but you only deposited $95,000 in commission checks?  What does that $5,000 difference mean?
Well, that $5,000 difference was likely additional broker or transaction fees that need to be recognized as an expense on your tax return.  Otherwise, you are paying tax on commission income you didn’t actually get to keep.  
Because each broker does things a little bit differently, I can’t say for sure if this is happening to you.
But instead of fretting, I want you to feel EMPOWERED to take responsibility over your own tax matters.
Ask yourself:
Does the commission income on my 1099 exactly match the sum of all my commission checks I deposited during calendar year 2023?
  • If yes, then you have no problem. Ā You are ready to turn your tax documents over to your tax preparer. Ā 
  • If no, then you need to investigate. Ā 
    • Either your 1099 is wrong and you need to speak with your broker about issuing a corrected 1099. Ā 
    • OR, the difference can be explained by additional broker fees like transaction charges and concession fees. Ā You need to summarize these and deduct them as a business expense (perhaps include them on Line 10 of your business Schedule C, which attaches to your personal tax return, Form 1040)
The links below open in .xslx spreadsheet files.