Best Practice: Commission 1099: A Guide for MCAs

MCAs see the taxable income per Transaction in one of three places:

• For individual transactions:
  • The Agent Commission Details page of the Transaction
• List of Transactions for the year:
  • On the Year End Close report in CommandMC

All charitable donations and deductions that follow are the associate's business expenses; associates will need to confer with their own CPA and tax advisor to determine which deduction recipients will require a 1099 from the associate.

All associates can track their 1099 income throughout the year using the monthly updated Associate Report Sales Transaction Detail (for MCAs, this is Associate Production Lookup > Sales Transaction Detail). In this report, each transaction details the amount of reportable income contributing to their commission 1099 provided by the market center. The section at the bottom details the cumulative amount of their 1099 through the close of the previous business month (as marked by month end close). 

It is important for associates to learn and understand that the reported 1099 income may or may not be their taxable income after accounting for business expenses in their tax preparation. Associates are encouraged and coached to maintain business accounting per the MREA to see exactly how deductions, in particular, affect their 1099 reported income through their business tax filings and for calculating quarterly self-employment or business tax payments. 

Here are some common questions associates ask related to why some things are included in their 1099 income and some are not: 

Items on a DA that reduce GCI towards 1099 income  

• Concession – an approved concession per [article] will reduce the GCI and thus the reportable income on the 1099 
• Outside/Inside Referral – an outside or inside referral fee paid to another agent will reduce the GCI and thus the reportable income 
• E&O – in states where the brokerage is required to withhold certain taxes to be paid to the state, this will reduce the amount of reportable income. 
• State Tax deductions – in states where the brokerage is required to withhold certain taxes to be paid to the state, this will reduce the amount of reportable income. 

Items on a DA that do not reduce GCI towards 1099 income 

• KW Donations to KW Cares, KW Next Gen, and/or BOLD – while tax deductible, these deductions do not change an associate’s GCI on a transaction; there is a specific line item on taxes to record donations made. 
• Deductions - these are expenses of the associate’s real estate business (self-employed or incorporated) that they are paying out of their portion of commissions. Just like their monthly agent bill is an expense they account for in their business accounting, these are their expenses that you have agreed to cut a check for out of THEIR income. For example, did the market center cut a check for the associate’s transaction coordinator? That is a business expense of the associate’s real estate business that the market center deducted from the agent’s income and paid on their behalf; this would otherwise have been a check cut from the associate to the TC which means the associate must account for this on THEIR business P&L to adjust for taxable business income. 
• Local KW Charity – these deductions may or may not be tax deductible depending on how the local charity is set up. 

In all matters related to an associate’s income and taxes, each associate should be advised to consult their business CPA and ensure that they follow an MREA P&L for their business accounting, which details where the Cost of Sales and Business Expenses are shown in their business accounting towards determining their final taxable income from what may be reported on the 1099. 

Best Practice for MCAs in January/February: Tax Packets for Your Associates 

Developing an Associate Tax Prep Packet process at your market center is a pro-active way to head off some of the common questions above. Each MCA has learned from experience what additional reports may be helpful to associates, and we encourage you to customize this general outline to meet your associates' needs. These reports can be pulled as soon as associate reports are posted to the Reports section after the most current month end close: 

• Copy of 1099 (original must be postmarked to meet federal requirements for proof of distribution)  
• Sales Transaction Details (KWConnect > Reports): shows their 1099 income per transaction and cumulatively for corroboration with their 1099 
• Deductions Report from Activity Reports
• Associate Dues Paid: AccountEdge > Closed Invoices > 1/1/CCYY- 12/31/CCYY, select one associate at a time