Schedule C · Line 10
Commissions & Fees
Paying for performance? Whether it's sales commissions, referral fees, or broker fees, Line 10 is where you deduct the cost of acquiring revenue.
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Key Insight
Quick Answer
Schedule C Line 10 reports commissions and fees paid by a sole proprietor. The substance of the payment controls: employee commissions are wages, professional fees belong on Line 17, and payments for ordinary contractor labor may belong on Line 11. Direct service payments to nonemployees may also require Form 1099-NEC.
What Goes on Line 10?
Schedule C Line 10 ("Commissions and fees") is specifically for amounts paid to non-employees for services that help you generate sales or business. Think of Line 10 as "Success Fees." Unlike hourly labor (which typically goes on Line 11) or professional services (Line 17), commissions are usually tied to a specific result: a sale, a closed deal, or a new client.
YES: Deductible Here
- Sales Commissions: Paid to independent reps (1099 contractors) who sell your product.
- Referral Fees: "Bird dog" fees paid to someone for sending you a lead that closes.
- Listing/Broker Fees: Percentage fees paid to platforms (eBay, Etsy, Upwork) or real estate brokers.
- Affiliate Payouts: Payments to influencers or affiliates who promote your brand for a cut of sales.
NO: Do Not List Here
- Employee Commissions: If you pay a W-2 staff member a bonus or commission, it goes on Line 26 (Wages).
- Payments to Yourself: You cannot deduct commissions paid to yourself. That is just profit distribution.
- Real Estate Closing Costs: Commissions paid to buy a building are added to the building's basis, not expensed immediately.
Line 10 vs. Nearby Categories
Classify the payment by what the recipient did
The label in your bookkeeping software does not decide the tax-return line. Start with the agreement and the service performed, then map the annual total to Schedule C. A consistent classification makes the return easier to reconcile to Forms W-2 and 1099.
| Payment | Typical Schedule C treatment | Why |
|---|---|---|
| Percentage paid to an independent sales representative | Line 10 | Compensation is tied to a sale or closed account. |
| Commission or bonus paid to an employee | Line 26 | Employee compensation belongs in wages and payroll reporting. |
| Hourly production work by a nonemployee | Usually Line 11 | The payment is contract labor rather than a success fee. |
| Accountant or attorney fee for operating the business | Line 17 | Schedule C provides a separate line for legal and professional services. |
| Commission incurred to acquire a building or other capital asset | Capitalize | Acquisition costs generally become part of the asset's tax basis instead of a current Line 10 expense. |
1099-NEC and W-9 Workflow
Information reporting is a separate question from deductibility. A valid business commission can still create a filing obligation, and filing a Form 1099 does not turn a personal or capital expenditure into a deduction.
Key Insight
For payments made in 2026, the federal reporting threshold for many direct nonemployee service payments is $2,000. Collect Form W-9 before the first payment, track the payee total across the full calendar year, and use the current Form 1099-NEC instructions to test entity and payment-method exceptions.
Payments made by payment card or through qualifying third-party networks are generally handled under the payment-network reporting rules rather than duplicated on Form 1099-NEC. Do not guess from the vendor name; retain the W-9 and payment-method record.
Payments made by payment card or through qualifying third-party networks are generally handled under the payment-network reporting rules rather than duplicated on Form 1099-NEC. Do not guess from the vendor name; retain the W-9 and payment-method record.
Timing and Classification Examples
A short reconciliation at month-end prevents the three most common errors: mixing employee and contractor compensation, recording net deposits instead of gross revenue and fees, and deducting an acquisition cost immediately.
Referral or Finder's Fee
Document the lead, the agreement, the amount, and the business result. Confirm that state licensing or professional-conduct rules permit the payment before treating it as an ordinary business commission.
Affiliate Marketing Scaling
Record gross customer revenue separately from the affiliate payout. Platform reports help reconcile the amount, but they do not replace the payer's own Form W-9 and information-reporting review.
Year-End Planning
A cash-method business generally deducts an eligible commission when paid, while an accrual-method business applies the all-events and economic-performance rules. Related-party payments and disputed amounts can alter timing, so do not post an unpaid year-end accrual as though it were cash.
Audit Defense Checklist
This page was reviewed against the current IRS materials available on August 23, 2026:
- 2025 Instructions for Schedule C, including Lines 10, 11, 17, and 26.
- 2026 Instructions for Forms 1099-MISC and 1099-NEC.
- IRS Publication 334 (2025), Tax Guide for Small Business, for ordinary-and-necessary expense and accounting-method rules.
Frequently Asked Questions
If you pay a commission to a W-2 employee, it must be included in their W-2 wages (Line 26). Do NOT list it here on Line 10. Line 10 is strictly for non-employees (contractors, other businesses).
Back to Schedule C Hub · See also Line 11: Contract Labor
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Disclaimer: This content is educational and does not constitute individualized tax advice. Tax rules change; verify all figures with a qualified CPA before filing. For personalized guidance, book a consultation.
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