Any accountants out there? I have a question.

Okay here is my situation...

I'm currently developing and selling games for blackberry smarthphones. I use a few different websites to sell my applications. Each website takes 20-40% commission.

Now is that 20-40% commission considered a business expense? If so could I write it off? I've asked a few people (non accountants, but self employed) and I get yes and no's all the time.

Does anyone know if this is considered a business expense. I personally think it is because they are taking 20-40% of my revenue from my product, in return they bring me more sales. I see it no different then advertising really.

Thanks

 

You pay taxes based on your net profit. Commission is a deductible expense, not profit. You are responsible for keeping records of all payments you make and filing 1099's on those individuals whom receive a cumulative total of $600 or more a year.

 

So would I have to send the business a 1099 because they've taken well oveere 600$ in commission? Also I don't think they are based in the USA so a 1099 wouldn't be relevant would it? Thanks for your help

 

How do the commissions work?
(a) Do you actually receive the gross amount from the customer, then pay the websites their share?
(b) Or do the web sites collect the cash from the customer, and just pay on to you the net amount (i.e. after deducting their commission)?

In case (a), I would say there is a good case for treating the commissions as a deductible expense. In case (b), the commissions are irrelevent -- you just have to pay tax on the net amount.

Of course, all of this is very dependent on which country you live in, and (in some cases, such as the United States) which *part* of the country you live in as well. And, as well as income tax, there may also be sales tax to consider.

If you are looking to do all of this legitimately (which it sounds like), there's probably no harm in actually asking your local tax office for the definitive answer.

(Disclaimer: I am *an* accountant, but I'm not *your* accountant, and probably not qualified to offer professional advice in your jurisdiction anyway, so this is just friend-to-friend. But I hope this helps.)

 

Thanks for your help it is (b) on your list. The company takes in all the money and then sends me my cut. Although to me this seems like a business expense. I'm paying 40% of my total income to the site. Although I never actually see the money in my hands I'm the one who generated this revenue. They are taking 40% of what I make because I use there website to sell my product.

Wouldn't this be similar to....say I had a business selling fruit and I had to rent a booth in town to sell my fruit on. That would be a business expense right, because I'm renting the booth for my business.

Essentially I'm renting space / advertising on their site and in return they take 40% commission. Am I not thinking logically on this? I've done my own taxes the past couple years and didn't have much issues with write-offs, but when it comes to something like this I'm just clueless. I used to have an accountant, but he ran off with 5k or my money and I have yet to hear from him again.

Thanks for taking the time to help me out

 

If you never had the money, it's not a deductible expense. The difference of your fruit stand example is that you take in the gross amount, and then pay expenses like rent. You're already getting credit for the 40% expense because you are only reporting 60% of the sale as income.

$100 gross sale paid to you.

$100 gross (if total sale is paid directly to you)
-$40 commission (you pay out) deductible expense.

You are left with $60.

$100 gross sale made by your associates.
$40 kept directly by them.

You are left with $60, you only report $60 as income, the 40% kept by the seller has nothing to do with your taxes.

Let's say commission was 50%.

$100 gross sale - $50 net to you.

If you took the $50 deduction on what was never paid to you, you would have zero income (which obviously isn't the case)

 

What mjewel said. As you only ever see the net amount, nothing to deduct.

 

Makes a lot more sense now thanks for that. I've been self employed for a while now but I never had to deal with commission until this year. Thanks for taking the time to explain it.