7. Is it necessary to pay tax on advance commissions?

If a person receives advance commission then he must include the commission amount while calculating the tax. In other words it is a taxable income. In most of the cases, agents are given advance commissions even before the customer pays the premium amount. Such advance payments should be reported. If any repayment of advance commission is done then it should be reduced from the amount included in your tax if the amount is received on the same year. But if the amount is repaid on the next year then one can deduct the repayment on one’s tax return by including it as an itemized tax deduction. Some people adjust the payment so that they can get the maximum reduction while paying the tax. But there are some limits on it. If the amount exceeds $3,000 it will not be subjected to the 2% AGI floor. But if the advance payment amount is $3,000 or less then that amount will be subjected to 2%AGI floor. So by adjusting the amount one can make sure that the necessary deductions in tax are obtained. The details regarding the itemized tax deduction is given in the Form 1040, line 27 of schedule A in one’s tax return form.