File this one under Naked Conversations. We all live and learn in our first year of business, and I’m happy to share.
This post is for any agented author who in the past received 1099 amounts based on “net” receipts paid to the author by their agency. I know that many agencies have reported only net payments and that some may continue to do so, but in 2004 the IRS ruled that middlemen such as agents must report the “gross amount of royalties received from the publisher.”
Therefore, each 1099 I send out will report gross amounts received from the publisher and will include a short note detailing total commission charged.
When you do your taxes you will have to deduct the cost of commissions or expenses paid to your agency from the gross amount reported on your 1099-MISC. I know that some of my clients have already experienced this.
Of course, like many IRS rulings, this seems to be a waste of time (accounting software is geared to net payments of checks actually cut) that creates more paperwork for everyone for little purpose.
As a sole proprietor, and even after talking to my accountant, I believed that I might simply be 1099ed by the publisher and in turn 1099 my authors on their net receipts, but once I got into the nitty gritty of creating my 1099s I learned that we must add another 1099 from the author back to me for any commissions deducted ($600 and over).
Every author who paid me more than $600 in commissions will receive a short email statement in the next day, ahead of their 1099, so that they can plan to 1099 me. I’m not overly concerned that I receive these before January 31 since everything’s accounted on my end already, but the government must receive the 1096 form accompanying the 1099 by February 28.
I’m truly sorry for this inconvenience, and for anyone who has to 1099 me (or anyone for that matter), Gail Perry sent me this link to Filetaxes.com where you can submit a single 1099 with a 1096 at a cost of $3.79. For any of my clients who aren’t generating 1099s already and that want to take this option, I’ll repay you for any associated costs.
I was already planning to incorporate as an LLC after my first year and once the business was well established (it is) so this won’t recur in the future.
If your agency or agent is incorporated, you needn’t worry about reporting the commission payments.
Happy taxes everyone, and thanks for your patience.