If someone was running a website, selling digital goods of other individual (non-employees) - collecting 100% of the gross earnings, and then paying out 50% commissions of the collected earnings to the artists... How would they report their gross income? The structure is almost like a consignment type setup. Obviously the business owner would have to receive a W9 or W8 form from the artist, and send out a 1099 listing the paid commissions, but would those amounts be subtracted from gross receipts on the website owner's own personal tax return? I know there are different boxes in the 1099 that apply, whether the individual has been paid out over $10 or over $600 in that tax year. Thanks in advance, for any help or insight on this.

The commissions paid to the artists would be considered "non-employee compensation", so Box #7 of the Form 1099-MISC is checked. The Form 1099-MISC is required for any subcontractor who earned $600 or more

These commissions would be considered subcontractor costs and would be a valid deduction/expense on the website owner's tax return (Schedule C if it is a sole proprietorship).

Thanks so much. This has been a tremendous help.

Would the website owner not be required in this case, to send 1099-misc forms out, unless the artist earned over $600? I'm guessing that a website owner's tax return can still have a valid deduction/expense for anything paid out to employees, whether they send of 1099's or not? Or would it be safer to 1099 everyone, and use the royalties box on form 1099 to report anything paid out over $10?

CreativeDude:

You MUST be accurate on how you prepare and send out the Form 1099-MISC. The IRS can and WILL levy significant fines if these forms are NOT prepared accurately.

The cutoff for non-employee compensation (Box #7) is $600. Anything below that amount does NOT require a Form 1099-MISC, though a Form 1099-MISC CAN be generated for lesser amounts if you wish (no penalty for that).

However, do NOT report these payments as royalties, because it is clear that they are NOT royalties. The IRS WILL fine you for that offense.

If you need professional help preparing and submitting the Forms 1099-MISC, email me at [email protected].