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.

[fromatoc]

Yeah but I'm too timid to call every 2nd person to ask if theyre familiar with consignment accounting. 

[fromatoc]

I keep very meticulous records, so I know exactly how much was paid for each item, how much the platform deducted, how much my commission is, and how much I'm paying out. My simple question here which I'm not getting an answer to but hopefully eventually I will, is whether I must have an actual paper trail (i.e. canceled checks) to prove my payouts to my clients. Bc if I do, I want to inform them that this will be the new method from now on.

I got lots of helpful info on this thread so far and I'm so grateful.

[heckofagame · Accepted solution]

I would highly recommend lining up an accountant to do your taxes, then you can ask that person.

If you do your own and make a mistake, it's you vs. IRS. Better to have a knowledgeable expert in your corner. 

[fromatoc]

I know. I don't really make enough yet to afford/justify paying an accountant but I'm hoping to build up to become bigger, which is why I'm exploring all of this stuff to know how to proceed.  Thanks so much. You've been very helpful. I've been struggling to find other consignors online.

I'm also debating whether it would be helpful if I open a 2nd bank account just for all this and if I should do a single member LLC or other corporation so I can keep it truly separate from my personal finances. I'm doing this so far just for some neighbors and relatives so it's not anything big or official, it's dribs and drabs over time, but I think I'm heading towards getting more so it might be time to do that. It's terrifying though, bc I'm so afraid to mess up. But I might just have to take the leap....

Thanks to you and everyone else who's been so helpful.

[chapeau-noir]

@fromatoc  Don't worry about an LLC right now - that's for later.  Take care of the basics, first.  It would be helpful for you to open a second account just to deal with your business.  Your records of consignment are enough documentation (I actually use a spreadsheet - they're easy to learn).  Consignment is actually very common and it's a pretty simple model if you keep it simple, and there should be no problem getting tax advice - you want to see a tax specialist, you don't necessarily need a pricey CPA.  A tax specialist does nothing but taxes, or it's a huge part of their business and their main focus. 

[fromatoc]

 if you say a spreadsheet is enough, taht would work -- I have my own spreadsheet system set up and it's thorough. I just hope I find someone who understands this line of work. Will do my research! thanks so much!

[downunder-61]

As suggested just go to a Tax Professional, you will only need to do it once and then you have a template to follow for future years that you can manage yourself.

Good luck, ain't tax time fun LOL