I work for a transportation company and we have over 40 independent contractors (owner operators) and a handful of them have brought to my attention that their 1099's are wrong. Since I am no expert, our company pulls a 25% commission off of gross revenues. If a contractor made $100K in gross revenues, the company pulled 25% commission right off the top, and they owner operators grossed (were paid) $75K, the $75K would be their taxable income, correct? Our company is reporting their gross revenues as $100K and the owner operators are having to pay taxes on that amount even though $25K of it was pulled for a commission. Advice??

Its very simple, your independent contractors report their income on Schedule C as having received $100,000 as their gross income. This would match the 1099-Misc amounts. However, they are also entitled to "any reasonable, necessary and ordinary deductions that are incurred to production of this income."

Hence, commissions paid out become an expense along with any other deductions these owner operators are entitled. Thus, at a minimum, the gross income would be $100,000 along with Commissions paid of $25,000 leaving a minimum net income of $75,000.

With the services of a good tax professional, the owner operators would be entitled to additional expenses which would ensure that there taxable income to be below $75,000.

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