| Generally, commissions are taxed in the same way as other forms of compensation. They are taxable in the year that they are credited to your account and you are entitled to draw on them. The question of whether or not you actually withdraw them is irrelevant so long as they are subject to your withdrawal.
Advance commissions received for services that you will perform in the future should be included in income in the year of receipt if you are a cash basis taxpayer. If you are required to pay back any unearned commissions in a later tax year, you are allowed to reduce the amount included in income in the year of the repayment by that amount.
Taxable commissions include amounts paid to salespeople and brokers either on a percentage or a specific sum basis. The status of the salesperson or broker as an independent contractor or an employee has no effect on the taxability of the commissions earned by them.
Even commissions earned on sales to oneself must be included in income. Therefore, commissions earned by the sale of real estate or insurance policies by a broker or by an agent to himself are not properly treated as reductions in the purchase price but must be included in gross income.
Generally commissions received by executors of wills are taxable compensation for services rendered. However, if an executor receives a bequest under a will that is in lieu of all compensation or commissions and is unconditionally payable whether or not the executor performs services, the bequest is treated as a gift rather than a taxable commission.
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