Question for Consignment Sellers, about Schedule C

[fromatoc]

Does anyone here sell primarily on consignment? I'm confused how to structure my 1099 / Schedule C. Obviously the sales amount is not my earnings; my earnings are after I pay out my clients. So how do I structure them as deductions? Is that part of Cost of Goods Sold? Do I have to issue them 1099's? (I don't think anyone made $600). And what do I need to prove the deduction? Do they have to write me an invoice? Do I have to issue checks? I'm very confused here.

If anyone sells on consignment, can you tell me what kind of accounting system you use? How do you structure it all? Do you work with an accountant to help you?

THanks so much.

[lacemaker3]

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@heckofagame wrote:

How do they IRS 1099-MISC rules apply to this?

About Form 1099-MISC, Miscellaneous Income | Internal Revenue Service (irs.gov)

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Apparently, these payments do not have to be reported on a 1099-MISC:

https://www.irs.gov/instructions/i1099msc

 ...

[heckofagame]

That doesn't apply here. That is if the shop owner would purchase the merchandise rather than take a consignment. 

[slippinjimmy]

Other Costs would be fine, doesn't really matter which line (36 through 39) it goes into in Section III they will all result in the same number on Line 42 which goes to Line 4 in the main section.

The wonderful but confounding thing about accounting is that you can come up with the same accurate final number in many different ways. Consistency is the important thing.

[glasser]

You pay tax on the profit so what counts toward that starts with the net from each transaction so that's the revenue generated (this could be the item sale price+shipping collected + any other charges you make to the customer like a packing fee)- fees-any other costs like shipping supplies or other-what paid for shiping

Could be easily tracked by transaction on a spreadsheet, But you really need to talk to a tax person.  Everyone's circumstances are different, and a tax preparer is essential, I think, if you are running a business.

[heckofagame]

As we get a 1099 anyway, we just report all revenue (merchandise, shipping, etc.) and then expense the shipping, payouts  and other costs. There are probably different ways to do it, but this has worked well for us for years. 

As @glasser stated, "Everyone's circumstances are different, and a tax preparer is essential, I think, if you are running a business."

[glasser]

@heckofagame If you only sell on eBay that works. But if you have revenue from different streams you have to things a bit differently.

[heckofagame]

We do have multiple streams and it's all the same. You have revenue and expenses.  You take in money and you have a gross profit. Then you hope you can expense things down to a manageable tax level. 

This is why I pay to have my taxes done. It can get complicated. 

[chapeau-noir]

^^^ This - I do consignments as well as source.  Payouts for the inventory on consignment are 'expenses'.  Outright purchases of inventory are 'cost of goods sold'.   

This is not site-dependent, it works on all revenue/expenses no matter where I sell because it's a taxable event.

ETA: I use TurboTax Home and Business edition, but I've been doing this for quite a while.  When I had a business back in the pre-tax software days  (tech writing, transcription, proof reading) I used a tax accountant - not a CPA, but a tax specialist and it was well worth the very reasonable fee - they were able to get every single lawful deduction for me.  They even had a cool motto "Give unto Caesar what is Caesar's...and not a penny more!"

[divwido]

my heads hurts.  This should have been decided before you start to sell, not after.

[chapeau-noir]

This is a pretty simple question, though - half the deductions I do I didn't figure out before I started doing my taxes.  It's just sorting receipts into a different pile, that's all. 

[fromatoc]

I wish I would know one! I dont know where to find one....

[fromatoc]

i keep meticulous records of my payouts. I just dont know what kind of paper trail to use. Bc many of the payouts are transfers to quickpay, paypal, etc. Or taking cash out at the bank ATM. so I'm trying to figure out what kind of paper trail I need. Is just an invoice from them enough?

I have asked 2 accountants they are clueless. Consignment is a very rare business model.

[heckofagame]

You're in New York? The place is crawling with accountants

[fromatoc]

I am NOT using ANY sales to decrease any taxes! It's the whole truth and nothing but the truth!!!

Hypothetically speaking:

Supposed I made $300 in sales.

30% went to me as commission ($90)

12% went to ebay ($36)

Approximately $20 went for shipping fees.

The other $154 was paid out to 3 of my clients.

Why on earth would I have to pay taxes on the $300. I only kept $90. $154 went to my actual clients as payouts. These are legitimate deducations from my gross receipts. My net 'profit' was only $90.

So that's my question. Do I need to issue checks and show canceled checks, or is an invoice for payment from them, enough.

[fromatoc]

Thank you. That was super helpful!!