J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

2.4 Commissions Taxable When Credited

Earned commissions are taxable in the year they are credited to your account and subject to your drawing, whether or not you actually draw them.

Do not report commissions that were earned in 2012 on your 2012 return if they cannot be computed or collected until a later year.

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Caution

Earned Commissions Credited to Your Account

You may not postpone tax on earned commissions credited to your account in 2012 by not drawing them until 2013 or a later year. However, where a portion of earned commissions is not withdrawn because your employer is holding it to cover future expenses, you are not taxed on the amount withheld.

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EXAMPLE

Arno Jeffers earns commissions based on a percentage of the profits from realty sales. In 2012 he draws $10,000 from his account. However, at the end of 2012 the full amount of his commissions is unknown because profits for the year have not been figured. In January 2013, his 2012 commissions are computed to be $15,000, and the $5,000 balance is paid to him. The $5,000 is taxable in 2013 even though earned in 2012.

Advances against unearned commissions.

Under standard insurance industry practice, an agent who sells a policy does not earn commissions until premiums are received by the insurance company. However, the company may issue a cash advance on the commissions before ...