Commissions and Fees on Schedule C: Line 10, 1099-NEC, and Limits

Commissions and fees on Schedule C go on Line 10, and the line is reserved for payments you make to non-employees whose work directly produces revenue for your business: referral fees, broker commissions, finder’s fees, and the cut that online marketplaces take from your sales.¹ Get the classification right and you reduce both your income tax and your self-employment tax. Get it wrong and the same dollar can end up on the wrong line, capitalized instead of deducted, or disallowed entirely.

What Line 10 Actually Covers

The IRS instruction is short: enter total commissions and fees for the tax year, and exclude anything capitalized or deducted elsewhere.² A commission is usually percentage-based and tied to the value of a sale. A fee is usually flat, paid for facilitating a specific transaction or referral. Both share one defining trait: a direct link between the payment and income your business earned or expects to earn.

Typical Line 10 items:

Referral fees paid to an outside partner who sends you a paying client.
Broker commissions paid to a sales agent for closing deals on your behalf, or to a real estate broker for securing a commercial lease.
Finder’s fees paid to someone who connects you with a specific revenue-producing opportunity.
Selling and transaction fees charged by platforms like Etsy, eBay, or Amazon. The platform is functioning as your sales intermediary, so its cut belongs on Line 10 even though no individual is named as the payee. Payment processing fees charged by those same platforms fit here too.

Every one of these payments has to be ordinary and necessary — common in your line of work and helpful to your business — to be deductible at all.³

One boundary worth stating clearly: if your business is the one earning commissions (you are the agent getting paid), that income belongs on Line 1 as gross receipts. Line 10 is only for commissions going out.

Where Similar Payments Belong Instead

Several Schedule C lines look like they could hold a commission but shouldn’t. Total deductions come out the same either way, but industry expense ratios don’t, and the wrong bucket muddies your own records.

Contract Labor (Line 11)

Line 11 is for non-employees who perform operational work: a freelance developer building your site, an IT consultant maintaining your servers. They help you make or deliver your product. Line 10 people help you sell it. The working test: did this person help you do the thing, or help you sell the thing?²

Legal and Professional Fees (Line 17)

Accountants, tax preparers, attorneys, and bookkeepers go on Line 17. Those are advisory and compliance services. A broker who lands you a new client is a Line 10 payment; a tax preparer who files your return is a Line 17 payment.²

Advertising (Line 8)

Digital ads, print, flyers, promoted listings on a marketplace — all Line 8. Advertising is a cost you pay regardless of results. A Line 10 commission is a cost you pay because of results.

Commissions That Have to Be Capitalized

When you pay a commission to acquire a long-term business asset, you don’t deduct it on Line 10. You add it to the asset’s basis and recover it through depreciation or when you eventually sell. The classic case is real estate: a broker’s commission paid to buy a commercial building for your business becomes part of the building’s cost basis. The same treatment applies to commissions paid when buying stocks, bonds, or other investment property.⁴

The Schedule C instructions add a wrinkle: commissions paid to facilitate the sale of property must generally be capitalized unless you’re a dealer who regularly sells that type of property.¹ Flip houses for a living, and the broker commissions are Line 10. Buy one building to house your office, and the commission gets added to basis.

Commissions You Can’t Deduct at All

A few payments that look like deductible commissions don’t qualify anywhere on Schedule C.

Personal commissions. A commission paid on the sale of your personal home isn’t a business expense. Neither are fees on personal investments outside your trade or business.

Illegal kickbacks and bribes. Federal tax law disallows deductions for bribes or kickbacks paid to government officials, foreign or domestic. Illegal kickbacks to private parties are also non-deductible if the payment subjects you to a criminal penalty or the loss of a business license under a generally enforced state law. The regulations specifically define a kickback to include payments for the referral of a client, patient, or customer.⁵

Medicare and Medicaid referral payments. Kickbacks and rebates tied to services paid for under Medicare or Medicaid are non-deductible whether or not they’re technically illegal, and the rule applies to any provider, supplier, or physician making or receiving them in connection with covered items or services.⁵

The 1099-NEC That Rides Along

Deducting a commission on Line 10 often creates a parallel obligation: you may need to report the payment to the IRS on Form 1099-NEC so the recipient reports the income on their own return.⁶

For tax year 2026, the threshold is $2,000 or more paid to any single non-employee during the calendar year, applied to total payments across the year rather than per transaction. The threshold rose from $600 and will be inflation-adjusted starting in 2027.⁷ Payments to corporations are generally exempt. Collect a Form W-9 from any recipient before you pay them; it gives you the taxpayer ID number and the entity type you need to decide whether a 1099-NEC is required.

If you pay by credit card or through a third-party network like PayPal, you generally don’t file a 1099-NEC on that payment. The processor reports it on Form 1099-K once the recipient exceeds $20,000 and 200 transactions through the platform in a calendar year.⁸ Pay by check, ACH, or cash and the 1099-NEC obligation stays with you.

The form is due to both the IRS and the recipient by January 31 of the year after payment. For returns due in calendar year 2026, per-return penalties run:⁹

$60 if corrected within 30 days.
$130 if corrected after 30 days but by August 1.
$340 if filed after August 1 or not filed at all.
$680 per return, with no maximum cap, for intentional disregard.

Small businesses with gross receipts of $5 million or less get lower annual maximum caps on total penalties, though the per-return amounts don’t change. A handful of missed 1099s adds up fast.

When You Take the Deduction

Timing depends on your accounting method, and you have to apply the same method consistently year over year.¹⁰

On the cash basis, you deduct the commission in the year you actually pay it. A commission earned by your agent in December but paid in January belongs on next year’s return.

On the accrual basis, you deduct when the all-events test is satisfied (the obligation is fixed and the amount can be determined with reasonable accuracy) and economic performance has occurred, which for services means the work has been done.¹¹ If your sales agent closes a deal in December and you can calculate the commission, you deduct it that year even if the check goes out in January.

Most sole proprietors use cash. If you’re unsure which method you’re on, check last year’s return; switching requires IRS approval.

The Self-Employment Tax Effect

Every dollar on Line 10 reduces two taxes at once. Your Schedule C net profit flows to Schedule SE, which computes self-employment tax at 15.3%: 12.4% for Social Security and 2.9% for Medicare.¹ For 2026, the Social Security portion applies to the first $184,500 of net self-employment earnings; Medicare has no cap.¹²

Practically, a $5,000 commission deduction saves roughly $765 in self-employment tax (15.3% of $5,000) on top of the income tax it saves. Half of your total self-employment tax is then deductible on Schedule 1, trimming adjusted gross income further. Tracking commissions carefully pays off more than the raw deduction suggests.

1
Internal Revenue Service. Instructions for Schedule C (Form 1040) (2025)
2
Internal Revenue Service. 2025 Instructions for Schedule C (Form 1040)
3
Office of the Law Revision Counsel. 26 U.S. Code 162 – Trade or Business Expenses
4
Internal Revenue Service. Basis of Assets
5
eCFR. 26 CFR 1.162-18 – Illegal Bribes and Kickbacks
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Internal Revenue Service. About Form 1099-NEC, Nonemployee Compensation
7
Internal Revenue Service. 2026 Publication 1099 – General Instructions for Certain Information Returns
8
Internal Revenue Service. Understanding Your Form 1099-K
9
Internal Revenue Service. 20.1.7 Information Return Penalties
10
Internal Revenue Service. Publication 538 (01/2022), Accounting Periods and Methods
11
eCFR. 26 CFR 1.461-4 – Economic Performance
12
Social Security Administration. What Is the Current Maximum Amount of Taxable Earnings for Social Security