How to report taxable amounts if I sold items for a friend (and got a small cut)?

[jttraverse777]

I've sold some collectable comics for an elderly gentleman who was not Ebay-savvy enough to do it for himself.  They've been selling fairly well for a good price, and I'm getting a bit cautious now since the whole amount shows up as my Ebay profit, even though I only really get 25% and send the balance on to him.

Does anyone have suggestions on how best to report this on my taxes? I'm less worried about current 2022 than what I might incur in 2023, but I'd like to be prepared. Thanks

[monica-sells]

to break it down simple...

100% is your income (before allowable deductible expenses)

the 75% you paid your friend is your Cost of Goods sold....

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this is not quite as cut & dry as this, but it is the principle guideline....

depending on your arrangement, your friend needs to give you a 'receipt' for funds

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it is similar to a consignment arrangement, but doing it as individuals complicates it a bit...

i am not an accountant, nor do I play one on TV

please seek professional advice if large sums are involved

[nobody*s_perfect]

Your 1099-K will show the full amount of payments that eBay processed for you.  The funds that you turned over to your friend are a deductible expense on your Schedule C. Take a look at the instructions for that form to help understand how the IRS sees this situation.

[caldreamer]

Below is from IRS

https://www.cdtfa.ca.gov/formspubs/pub114/

Instead of making direct sales, individuals and businesses often place goods with others who make sales for them. These types of transactions are commonly called consignment sales. In most cases, the owner of the item (the consignor), and the seller (the consignee), need to register with us to obtain a seller’s permit, and report and pay sales on their returns. However, if you make no more than two qualifying sales or consignments in any twelve-month period, your sales are generally considered “occasional sales,” and you do not have to register for a seller’s permit or report those two sales or consignments.

I sell items placed with me on consignment. When is my consignment sale considered a retail sale?

You are responsible for obtaining a seller’s permit and paying the sales tax on the retail selling price of consignment sales when you:

• Have possession or control of the item you are selling, and
• Can transfer ownership or use of the item to the buyer without further action on the part of the owner.

For example, you may own a jewelry store where you sell jewelry on consignment. Typically, the owner of the jewelry will bring it to you and sign an agreement that authorizes you to sell the item and transfer ownership to the buyer. You are considered the retailer of jewelry you sell in this way and must pay sales tax based on your retail selling price.

If you make sales on behalf of others, and those sales do not meet the two conditions described above, please read see Broker Sales.

[slippinjimmy]

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@jttraverse777 wrote:

I' I'm getting a bit cautious now since the whole amount shows up as my Ebay profit, even though I only really get 25% and send the balance on to him.

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eBay does not report your "profit" they have no way of knowing what your actual profit is.

eBay reports your GROSS Revenue from which you need to deduct all your valid expenses. Paying your "supplier" is a valid expense.

[sin-n-dex]

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@jttraverse777 wrote:

I've sold some collectable comics for an elderly gentleman who was not Ebay-savvy enough to do it for himself.  They've been selling fairly well for a good price, and I'm getting a bit cautious now since the whole amount shows up as my Ebay profit, even though I only really get 25% and send the balance on to him.

Does anyone have suggestions on how best to report this on my taxes? I'm less worried about current 2022 than what I might incur in 2023, but I'd like to be prepared. Thanks

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I have this business model. I sell here, keep a cut for me based on my agreement with the owner of the items, and send money to them. All transfers are done by cheque  (you could probably do ACH or something else if there's a record of who you pay and for what). I total up my cheques at the end of the year and it gets deducted from my gross earnings. You do have to declare 100% of what you got, but you deduct what you paid your friend. Don't forget to deduct any fees and expenses that are eligible.

C.

[the_fancy_fox]

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@caldreamer wrote:

Below is from IRS

https://www.cdtfa.ca.gov/formspubs/pub114/

Instead of making direct sales, individuals and businesses often place goods with others who make sales for them. These types of transactions are commonly called consignment sales. In most cases, the owner of the item (the consignor), and the seller (the consignee), need to register with us to obtain a seller’s permit, and report and pay sales on their returns. However, if you make no more than two qualifying sales or consignments in any twelve-month period, your sales are generally considered “occasional sales,” and you do not have to register for a seller’s permit or report those two sales or consignments.

I sell items placed with me on consignment. When is my consignment sale considered a retail sale?

You are responsible for obtaining a seller’s permit and paying the sales tax on the retail selling price of consignment sales when you:

• Have possession or control of the item you are selling, and
• Can transfer ownership or use of the item to the buyer without further action on the part of the owner.

For example, you may own a jewelry store where you sell jewelry on consignment. Typically, the owner of the jewelry will bring it to you and sign an agreement that authorizes you to sell the item and transfer ownership to the buyer. You are considered the retailer of jewelry you sell in this way and must pay sales tax based on your retail selling price.

If you make sales on behalf of others, and those sales do not meet the two conditions described above, please read see Broker Sales.

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If your only selling on ebay you don’t need a sellers permit in CA. 

I have one in CA. 

If you don’t file and pay the sales tax they will cancel your sellers permit. They threatened me with cancelation one year when I had no California sales. 

Since ebay collects the tax and remits it now, if you only sell on a site that collects that tax, a permit in CA will do you no good. 

[inhawaii]

When ever I sell something for a friend or relative (which is rarely for this very reason), I take the full tax hit.

I just make sure that the percentage  I charge them more than covers and additional taxes that I may incur at the end of the year.

[mega-ma-roo]

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@caldreamer wrote:

Below is from IRS

https://www.cdtfa.ca.gov/formspubs/pub114/

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This is not from the IRS. It is from the California Department of Tax and Fee Administration. The OP is in Texas.

[darth-vintage]

Wow! This is so helpful! K.i.s.s. Man this is just really really stupid helpful! Thanks so much. I can totally wrap my head around it now.

[kh-shakhib]

Hi everyone,

Due to the age of this thread, it has been closed to further replies. Please feel free to start a new thread if you wish to continue to discuss this topic.

Thank you for understanding.