Does Your 1099 Add Up? Income and Expenses for Hosted Travel Agents!

IMG_0839-700On the beach at North Carolina’s Fort Macon State Park

If you’re an independent contractor/hosted agent, sometime in late January you’ll normally get a little surprise in your mailbox:

A 1099 from your host agency.

Don’t let that surprise you as your host should be sending you one every year…but, if it’s your first year in business that 1099 may raise an eyebrow…it did with me.

What is a 1099? We’ve all gotten them before, they should look familiar, but what are they, exactly?

1099 is the title given to a series of documents created by the U.S. Internal Revenue Service (IRS). 1099s are information returns (returns filed with the IRS and others that are for information only) used to report certain types of payments or income to the individuals or organizations receiving those payments.

You’ll receive a 1099 from your host because your received money – hopefully gobs and gobs of it – from your host throughout the year.

That money you received from you host is income.

Now this sounds like a real lame question, but it’s a hard one to answer if you haven’t thought it through a bit.

What is income?

Duh…it’s when I make money…right?

Sort of.

Income is an increase in assets as a result of the activities of an organization.

Think it through…you receive cash from your host agency when you sell travel. The activity of your agency is the selling of travel.

The asset being increased is cash.

Pretty simple.

That 1099 you receive from your host will contain a figure, probably in box 3 – other income – of form 1099-MISC.

Let say that number is $40,000.

Wait a minute!

you’ve been keeping meticulous records over the last year (or you have a sharp and dashingly handsome CPA doing it for you) and you don’t show having made $40,000 from that host over the year.

What gives?

Each host may do things a little differently, and there may be some timing issues involved, but here’s the scoop:

Let’s say you’re on a 80/20 split with your host and you received a total of $32,000 in commissions throughout the year. Your host kept $8,000 of those commissions.

That $32,000 is income to your business.

The $8,000 is an expense.

What exactly is an expense?

An expense is an event in which an asset (in this case cash) is consumed, or a liability is incurred to obtain a product or service.

Even though it was not a direct payment to your host, $8,000 of your cash was consumed to provide you with the services of you host agency. You earned the entire $40,000, you host just kept $8,000 of it.

Just as an aside: most folks would assume that an expense is some outflow of cash in exchange for some good or service. That definition is mostly correct but it is important to point out that there are times when cash flow out of an organization and an expense is not recognized (in turn there are also times when expense must be recognized and no cash is expended). We’ll discuss some of those instances in future posts.

To simplify this, think of your tax return…you’ll show income of $40,000 corresponding to that 1099 you received from your host agency. You’ll also show $8,000 in expenses for the host’s share of the commission. You can call that something along the lines of “Host Agency Services Expense.”

If those two items were your only income and expenses for the year, you would have a net income of $32,000.

Let’s review:

What is income?

Income is an increase in assets as a result of the activities of an organization.

What is an expense?

An expense is an event in which an asset is consumed or a liability is incurred to obtain a product or service.

What is a 1099?

A 1099 is the title given to a series of documents created by the U.S. Internal Revenue Service (IRS). 1099s are information returns used to report certain types of payments or income to the individuals or organizations receiving those payments.

Now get out there and sell some travel and add some digits to this year’s 1099!

Thanks so much for reading!!!

And let me know if you have any questions.

 

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