Handling commission in 1099 Box 3

[thomtax]

Client works for real estate office. She is paid salary and receives W2 for these earnings. She also receives a 1099 with an amount in Box 3 for some commissions. This is a much smaller amount than wages. Last year it was reported on line 21 with no SE tax calculated.

Should correct handling be:

1)- Line 21 Other earnings - no SE tax
2)- Line 21 Other earnings and go into SE screen and have SE tax figured.
3)- Put on Schedule C and be able to deduct mileage.

All advice appreciated.

LT

[gbroiles]

I would treat as subject to SE

If the t/p is working in a real estate office and collecting commissions on an ongoing basis, it sounds like it's part of a regular trade or business, and hence subject to SE tax.

Or, it doesn't belong on 1099-MISC, and should be on the W-2 as regular wages.

I would have done as you apparently did last year - treated it as an irregular/non-recurring event (and hence not a trade or business) and not subjected it to SE. But two years in a row makes it tough to argue "irregular" with a straight face, especially if the income is closely related to the t/p's regular line of work.

If the t/p had expenses related to earning the commissions I would show the income and expenses on a Sch C; otherwise would just file SE and use 1040 Line 21. I would be a little wary of filing the extra Sch C because (a) around here, the IRS shares data with the state who shares data with cities who would then sent the t/p a letter asking her to pay the local business tax, and (b) it is not clear to me whether or not the t/p is licensed as an agent, and if she's not licensed I would be wary of creating additional paperwork that makes her look like she's in a business she's not licensed for - maybe this is not an issue in your state - and (c) statistically, filing the Sch C increases the likelihood that the return is selected for audit, which is stressful for the t/p even if the audit results in a "no change" letter.

[travis bickle]

not sure i would file se

i have a client in a somewhat similar situation.

she works in a community's leasing office [gets w2 wages] and gets a bonus ("spiff") for anyone she gets to sign on the dotted line.

since it is just a bonus (similar to "salesperson of the quarter", etc) i have no qualms about putting it on L21 with no se filing.

i did have to advise her this year that the irs may contact her because her employer put the money in box 7 of the 1099-misc, not box 3.

[thomtax]

Thanks for the opinions. As you see, they vary by 180 degrees, which matches my mind. I can put up an argument for each viewpoint. It's terrible when you get to the point where you not only talk to yourself, but argue with yourself and neither side wins.:-)