Q. I'm a television writer. Are my agent commissions considered "business-expense" deductions or is there any way I can deduct them on Schedule C (or any other way to take it off the AGI)? All my income was from W2s; the only schedule C income I had was a $75 royalty. Unfortunately, I've already hit AMT before I factor in my commissions, which is by far my biggest deduction.
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Thanks so much
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Angela - Los Angeles
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A. It appears that you are “screwed”.
A commission paid to an agent would be a business expense. If you were treated as an “independent contractor” and your income was reported on a Form 1099-MISC then you would report the income on Schedule C and deduct the agent’s fee as a business expense on Schedule C. However, as you are considered to be an employee and receive a Form W-2 your business expenses as an employee are reported on Form 2106 (or Form 2106-EZ) and carried over as a miscellaneous deduction on Schedule A, subject to the 2% of AGI exclusion and not deductible in calculating the dreaded Alternative Minimum Tax (AMT). Your agent’s commissions would be along the lines of a job-seeking expense, or a legal fee to negotiate a salary agreement.
I expect that you would have other employee business expenses connected with researching the teleplays that you are writing, although perhaps these expenses are reimbursed by your employer under an “accountable” plan.
If you had both W-2 income and 1099 income for the same profession, as is common in the entertainment industry for actors, writers, etc. (I see it in my practice for police officers employed by a municipality who often receive a 1099-MISC for off-duty security work) and your business expenses applied to both sources of income you could allocate the expenses between Form 2106 and Schedule C either by applying direct expenses to the appropriate income or by using a “percentage of income” formula, or a combination of both.
Here is how the “percentage of income” formula would work. Let us say that you had total earnings of $100,000 for the year. $75,000 was reported on a Form W-2 and $25,000 was reported as “nonemployee compensation” on a Form 1099-MISC. You had a total of $10,000 in business expenses for the year. You would apply 75% or $7,500 ($75,000 W-2 income divided by $100,000 total income) to Form 2106 as employee business expenses and 25% or $2,500 ($25,000 1099 income divided by $100,000 total income) to Schedule C (or Schedule C-EZ).
In your specific situation that would not work. Your only other source of income is $75.00 in royalty income. In your case, as I assume the royalty is from something you have written, this $75.00 would be considered self-employment income to be reported on a Schedule C-EZ. It is not “royalty income” that is reported on Schedule E.
To add insult to injury, as you live in California, a highly taxed state, you are a victim of the dreaded AMT, which wipes out any tax benefit you would be able to receive from your employee business expenses.
As I said at the beginning of my answer, you are “screwed”. All you can do is hope that Congress does away with the dreaded AMT in 2008.
BTW, for what show(s) do you write? Perhaps I have seen and enjoyed your work!
TTFN
A. It appears that you are “screwed”.
A commission paid to an agent would be a business expense. If you were treated as an “independent contractor” and your income was reported on a Form 1099-MISC then you would report the income on Schedule C and deduct the agent’s fee as a business expense on Schedule C. However, as you are considered to be an employee and receive a Form W-2 your business expenses as an employee are reported on Form 2106 (or Form 2106-EZ) and carried over as a miscellaneous deduction on Schedule A, subject to the 2% of AGI exclusion and not deductible in calculating the dreaded Alternative Minimum Tax (AMT). Your agent’s commissions would be along the lines of a job-seeking expense, or a legal fee to negotiate a salary agreement.
I expect that you would have other employee business expenses connected with researching the teleplays that you are writing, although perhaps these expenses are reimbursed by your employer under an “accountable” plan.
If you had both W-2 income and 1099 income for the same profession, as is common in the entertainment industry for actors, writers, etc. (I see it in my practice for police officers employed by a municipality who often receive a 1099-MISC for off-duty security work) and your business expenses applied to both sources of income you could allocate the expenses between Form 2106 and Schedule C either by applying direct expenses to the appropriate income or by using a “percentage of income” formula, or a combination of both.
Here is how the “percentage of income” formula would work. Let us say that you had total earnings of $100,000 for the year. $75,000 was reported on a Form W-2 and $25,000 was reported as “nonemployee compensation” on a Form 1099-MISC. You had a total of $10,000 in business expenses for the year. You would apply 75% or $7,500 ($75,000 W-2 income divided by $100,000 total income) to Form 2106 as employee business expenses and 25% or $2,500 ($25,000 1099 income divided by $100,000 total income) to Schedule C (or Schedule C-EZ).
In your specific situation that would not work. Your only other source of income is $75.00 in royalty income. In your case, as I assume the royalty is from something you have written, this $75.00 would be considered self-employment income to be reported on a Schedule C-EZ. It is not “royalty income” that is reported on Schedule E.
To add insult to injury, as you live in California, a highly taxed state, you are a victim of the dreaded AMT, which wipes out any tax benefit you would be able to receive from your employee business expenses.
As I said at the beginning of my answer, you are “screwed”. All you can do is hope that Congress does away with the dreaded AMT in 2008.
BTW, for what show(s) do you write? Perhaps I have seen and enjoyed your work!
TTFN
2 comments:
To clarify, if I receive a W2 as a television writer, then there is no where I can deduct the 10% commission I pay to my agent each week?
Thanks so much!
S-
No. There is a place to deduct your commission.
As I say in the post -
"However, as you are considered to be an employee and receive a Form W-2 your business expenses as an employee are reported on Form 2106 (or Form 2106-EZ) and carried over as a miscellaneous deduction on Schedule A, subject to the 2% of AGI exclusion and not deductible in calculating the dreaded Alternative Minimum Tax (AMT). Your agent’s commissions would be along the lines of a job-seeking expense, or a legal fee to negotiate a salary agreement.
I expect that you would have other employee business expenses connected with researching the teleplays that you are writing, although perhaps these expenses are reimbursed by your employer under an 'accountable' plan."
TWTP
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