The IRS taxes income earned through commissioned sales just as it does income earned through wages, salaries and tips. The tax deductions you can take as a person who earns his income through commissions depends on whether you are a regular employee of a company or an independent contractor. Regular employees receive W-2 forms at the end of the year, while independent contractors receive 1099 MISC forms.
You can only take the home office deduction if your home office is your principal place of business and your employer does not provide you with an office for business use. To qualify for the home office deduction, you must use the office exclusively for business. Itemized home office deductions include a percentage of your utility bills and property taxes as well as any improvements made to the home office. The percentage of the deductible depends on the square footage of your home office as compared to the total square footage of your home. For example, if your home is 3,000 square feet and your home office is 300 square feet, then the deduction for property taxes and utilities is approximately 10 percent.
Personal Vehicle Use
If you use your own vehicle during the course of earning a commission, you can take a mileage deduction on your taxes. To take this deduction, you have to have another vehicle available for personal use. You can only claim the deduction for the miles you drive between your primary place of business to client locations. Commuting miles from your home to your employer’s office are not tax deductible. You must also keep written and accurate records of your mileage to take this deduction.
Any business expenses you incur while earning a sales commission is tax deductible. Common business expenses include unreimbursed expenses such as office supplies, business cards and software programs specifically for work use. Unreimbursed business meal and entertainment expenses are also tax deductible up to 50 percent of the total cost of the meals. Computers and peripherals are also tax deductible, but they must be exclusively for business use. Again, you must keep accurate records of all business expenses, so be sure to hold on to your receipts.
- IRS Publication 587: Business Use of Your Home
- Internal Revenue Service. "Tax Reform: What’s New for Your Business," Pages 3–4. Accessed Oct. 19, 2019.
- Internal Revenue Service. "Tax Reform Provisions that Affect Individuals." Accessed Oct. 19, 2019.
- Internal Revenue Service. "Tax Cuts and Jobs Act, Provision 11011 Section 199A - Qualified Business Income Deduction FAQs." Accessed Oct. 9, 2019.
- United States Congress. "H.R.1 - An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018." Accessed Oct. 9, 2019.
- Social Security Administration. "If You Are Self-Employed," Page 1. Accessed Oct. 9, 2019.
- Internal Revenue Service. "Topic No. 554 Self-Employment Tax." Accessed Oct. 9, 2019.
- Internal Revenue Service. "Publication 587 (2018), Business Use of Your Home." Accessed Oct. 9, 2019.
- Internal Revenue Service. "About Form 8829, Expenses for Business Use of Your Home." Accessed Oct. 9, 2019.
- Internal Revenue Service. "Publication 535 (2019), Business Expenses." Accessed March 16, 2020.
- Internal Revenue Service. "Travel, Gift, and Car Expenses," Page 5. Accessed Oct. 9, 2019.
- Internal Revenue Service. "Tax Guide for Small Business," Page 40. Accessed Oct. 9, 2019.
- Internal Revenue Service. "Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)," Page 2. Accessed Oct. 9, 2019.
- Internal Revenue Service. "Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)," Page 18. Accessed Oct. 9, 2019.
Sue-Lynn Carty has over five years experience as both a freelance writer and editor, and her work has appeared on the websites Work.com and LoveToKnow. Carty holds a Bachelor of Arts degree in business administration, with an emphasis on financial management, from Davenport University.