tax-deduct

Are commission advance fees tax deductible?

Are commission fees tax deductible? The answer is yes if your commission advance proceeds are used for your business expenses, the costs are tax deductible.

Commission Advance Fee Tax Deductibility

Because commission advances are used for business purposes, they are considered a tax-deductible business expense. The commission advance fees are similar to interest costs on a loan. Agents and brokers should include an itemized summary with their tax return detailing all advance fees paid to any commission advance service provider they used in the year.

As an independent contractor, owner of an LLC or Corporation, the fees you pay to secure a commission advance are a fully deductible business expense. It’s a true cost of doing business. For sole proprietors, this means recording the fees as a business expense on Schedule C of your tax return.

Business Expenses

Further benefits when receiving a commission advance is the fact that business expenses paid for with your advance proceeds are also tax deductible. For example, say you use a portion of your commission advance to pay for office rent. That rent payment is a tax-deductible expense, even though you used your commission advance to make the payment. The same holds true for any other legitimate business expense, such as purchasing marketing materials, car related expenses and meals.

Personal versus Business

As with any sole proprietorship, it’s important to keep your business expenses separate from your personal expenses for tax purposes. For example, client lunches can be tax deductible whereas paying for a kid birthday present is not.  

See www.irs.gov/publications/p535 with the title Publication 535, Business Expenses.

Tax issues are complex and could change over time. As such, it’s advisable to always consult a tax professional prior to filing your taxes.

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