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SPIFF - reported as Other income, not subject to S/E tax - but it went to business owner

plrraz
Level 3

I cannot find anything that says a SPIFF (sales incentive) that is paid to the owner of a business, rather than an employee should subject to self employment tax.

This is a new client, and the prior CPA reported the SPIFF as subject to S/E - reporting the amount as part of the income on schedule C.

That is the conservative approach to be sure, but employees do not have to report as subject to S/E, so wouldn't the same hold true for a business owner reporting as part of his income on schedule C?

I've changed my mind three or four times about this.

Thoughts?

 

 

 

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BobKamman
Level 15

You're underthinking if you would even consider it not subject to SE tax.

Contractual relationship between manufacturer and car-dealership employee:  None. 

Contractual relationship between manufacturer and guy who buys his products:  Picture the truck delivering the goods, the dealer writing the check.  How much closer do you need?

If you buy widgets from me for $100 each, but sales are slow for me this month so I give you $10 for each one you sell before the 31st, what do you call that?  It's a rebate.  It reduces my cost of goods sold.  

Maybe you are leaving out some essential facts.  Is the business Widgets Inc, and Larry the owner pays himself on a W-2 and maybe a K-1?  That's a close encounter of the second kind -- but he's still diverting business income (or reductions in business expenses) to himself.  

 

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6 Replies 6
Just-Lisa-Now-
Level 15
Level 15
I spiffs I see are from clients that work at car dealerships, the come from the manufacturers, not the employers, theyre reported on a 1099MISC in Box 3 like any other prize or award. No SE tax.

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
plrraz
Level 3

Thanks Lisa, 

I have been leaning that way as well - I think I'm overthinking it because the previous CPA reported it as subject to s/e tax.

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Just-Lisa-Now-
Level 15
Level 15
well now, if its going to a business owner, rather than an employee, that may cause me to pause as well...is all income received in the course of the business subject to SE?

If store sells a winning lottery ticket and they get some of that money for selling the ticket, is that subject to SE (Ive never had this come up, so Ive never researched it), seems like that would be long the same lines as this, no?

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
plrraz
Level 3

One other thing, this business owner sells appliances, and the SPIFF is coming from one of the manufacturers of the appliances he sells - it's not going to an employee, but rather the business owner. 

Bottom line, it's reported in box 3 on a 1099misc, and that's what's reported to the IRS, I don't believe it'll be an issue, I am just having a heck of a time going back and forth with myself again

I just need to stop overthinking it, and once again thank you for your input.

BobKamman
Level 15

You're underthinking if you would even consider it not subject to SE tax.

Contractual relationship between manufacturer and car-dealership employee:  None. 

Contractual relationship between manufacturer and guy who buys his products:  Picture the truck delivering the goods, the dealer writing the check.  How much closer do you need?

If you buy widgets from me for $100 each, but sales are slow for me this month so I give you $10 for each one you sell before the 31st, what do you call that?  It's a rebate.  It reduces my cost of goods sold.  

Maybe you are leaving out some essential facts.  Is the business Widgets Inc, and Larry the owner pays himself on a W-2 and maybe a K-1?  That's a close encounter of the second kind -- but he's still diverting business income (or reductions in business expenses) to himself.  

 

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plrraz
Level 3

Yep, that's where I ended up - including the SPIFF as part of the S/E income and reported on Schedule C (no w2 for owner)  - As I mentioned earlier, I was going back and forth with myself on this, and I ended up including it as s/e income for the same reasoning you used - without the business relationship (and sales of products, etc) there is no SPIFF forthcoming.

As far as underthinking, I do that a lot :).

 

 

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