In a transaction flow where the payments to the Agents and other 3rd parties are being made by Escrow or Title on behalf of a Broker, the Broker is still responsible for tracking and reporting those payments on Agent’s 1099’s.
QuickBooks Setup:
To reflect this scenario, a Broker will typically set up the following in their QuickBooks:
An account type BANK, named Escrow or Title, whichever applies to track movements of funds that are happening on behalf of a broker but do not go through the brokers actual bank checking account. I will refer to it as Escrow in instructions below.
An Agent as a vendor, with track 1099 payments checkbox checked.
A Bank account where the funds received by Broker from Escrow are deposited
An account type INCOME to track gross commission income of a transaction. Typically named “Commissions Income”
An account type EXPENSE to track agent payments, typically named “Commissions Expense”
The process:
A hypothetical transaction of 123 Main Street
Gross Commission $10,000
Agent, Anthony Smith, Commission Payment $6,000
Net due to Broker $4,000
1. The Broker records the transaction gross income as a deposit into Escrow Account.
Note that a deposit can be recorded directly, using Deposit transaction, or can be done via Invoice / Payment combination or a Sales Receipt. The choice is a matter of preference of a bookkeeper, with Deposit being the simplest.
In our example, the broker records the Deposit of $10,000 into Escrow Account, attributed to Commission Income account.
2. The Broker then enters Agent commission payments as checks paid out of the Escrow account to the Agent. While Escrow made this payment to the agent, on behalf of the Broker, recording it in QB will ensure that agent payments are properly tracked for the 1099 purposes.
In our example, a check payable to Mark Smith for $6,000 written from Escrow account, attributed to “Commissions Expense”
3. The remaining balance in the escrow account at this point is $4000.00 and equals to the net due to Broker. Since income and expenses were already recorded for this transaction, the broker enters a transfer of funds from Escrow to Broker’s Checking Account for $4000.
When the payment from Escrow is received and deposited into the Broker’s bank checking account, QuickBooks will download the transaction downloaded from the bank and recognize that a bank transaction (A deposit into broker’s bank account of $4,000) matches an incoming transfer already entered into bank register in QuicKBooks. This helps reconcile the account.