Conflict Regarding Amount To Be Issued on 1099

[nycguy1]

Long story short, I received a substantial amount of money in the last week of December.

The money received was part of a business deal where I promised a third party a commission based on the funds sent over.

Because of the date I received it, and it took a few days for the check to clear, I wired over the commission on January 7.

I did several similar deals with this person in 2018, so I'm getting ready to issue a 1099 to his company.

Here is the conflict, my accountant is saying that I can't add the December commission to the 1099 because I sent it in a new fiscal year.

However, he advised me to do what he called a "grossed-up" 1099 - but the other side, for whatever reason, is NOT agreeing to the amount of the grossed up 1099, because I sent the commission payment in January.

Does this mean I'm on the hook to pay tax on the commission, and then have to wait until April 2020 to offset the amount with next year's 1099? It's over 16K.

By contract, that commission money is legally theirs. It's not my money to keep or spend.

Is there any way to solve this issue, outside of a grossed up 1099?

 

[LdiJ]

Long story short, I received a substantial amount of money in the last week of December.

The money received was part of a business deal where I promised a third party a commission based on the funds sent over.

Because of the date I received it, and it took a few days for the check to clear, I wired over the commission on January 7.

I did several similar deals with this person in 2018, so I'm getting ready to issue a 1099 to his company.

Here is the conflict, my accountant is saying that I can't add the December commission to the 1099 because I sent it in a new fiscal year.

Your accountant is correct. You did not pay the commission until January therefore its a 2019 expense.

However, he advised me to do what he called a "grossed-up" 1099 - but the other side, for whatever reason, is NOT agreeing to the amount of the grossed up 1099, because I sent the commission payment in January. However you received the money in December, therefore its 2018 income.

It would be inappropriate to "gross up" a 1099. I do not understand why your accountant suggested that.

 

[Zigner]

If you didn't pay the money until 2019, then the 1099 shouldn't be issued for 2018.

 

[LdiJ]

If you didn't pay the money until 2019, then the 1099 shouldn't be issued for 2018.

Well, he did say that the contractor had done other work for him so it appears that a 1099 will be issued anyway. Its a merely a question of it being inappropriate to include THAT particular commission in the 1099 for 2018.

 

[nycguy1]

Exactly, there is a 1099 being issued either way for August, September, October, November. We are just in a disagreement over adding the December commission on the 1099.

Does that mean I'm on the hook for that 16K, which contractually isn't even my money and then have to wait until next year to make things right?

 

[davew9128]

It was your money with regards to the person who paid you though. The legal obligation to pay a commission only creates a tax expense in the year you pay it unless you are an accrual basis taxpayer.

 

[LdiJ]

It was your money with regards to the person who paid you though. The legal obligation to pay a commission only creates a tax expense in the year you pay it unless you are an accrual basis taxpayer.

Which we are pretty sure he/she is not, since his/her accountant already told him/her that it could not be counted as a December expense.

 

[Zigner]

Well, he did say that the contractor had done other work for him so it appears that a 1099 will be issued anyway. Its a merely a question of it being inappropriate to include THAT particular commission in the 1099 for 2018.

The clear implication was that I was referring to the payment in question...however, you are correct. My post would have been better worded as follows: "If you didn't pay the money until 2019, then the 1099 for that payment shouldn't be issued for 2018." Or, "If you didn't pay the money until 2019, then it shouldn't be included on the 2018 1099".

 

[xylene]

There is nothing complicated about your situation except that you made an end of year mistake that will add compliance cost.

 

[LdiJ]

The clear implication was that I was referring to the payment in question...however, you are correct. My post would have been better worded as follows: "If you didn't pay the money until 2019, then the 1099 for that payment shouldn't be issued for 2018." Or, "If you didn't pay the money until 2019, then it shouldn't be included on the 2018 1099".

It wasn't clear to me Zig, or I would not have commented.

 

[Zigner]

It wasn't clear to me Zig, or I would not have commented.

LdiJ, party of one...your table is ready.

 

[LdiJ]

LdiJ, party of one...your table is ready.

Pound sand Zig.

 

[Zigner]

Pound sand Zig.

Already did - now I have a nice place for my beach chair