It depends.
You need to send 1099's to the people whose work you sold IF you sold more than $600.00 for that person in the year. It would be a 1099-Misc.
If you did not sell more than $600 for that person, then you do not need to send a 1099-Misc.
If you would like to read more about 1099-Misc, please visit this IRS page.
Thank you. I am only intending to send 1099's to those who have I have paid more than $600. The confusion comes up because the payments are on merchandise which is exempt - however it could also be considered 'other taxable income'. I have read the 1099 IRS page and find that there is no conclusive answer.
No, not really. If you sell more than $600 for someone, you should send a 1099-Misc. What I meant by "gray area" is that many people try to argue they are not really "consigning" to get around that requirement to report.
The shop owner of the consignment shop I sell at says her aacountant says that she doesn't need to fill out a 1099, she says that under the IRS "exceptions" section of the 1099, it states payments for "merchandise, telegrams, telephones, freight, storage and similar items." We both just want to do what is right, if I sell refinished furniture and signs does this count as "merchandise"? What do you all think?
The shop owner of the consignment shop I sell at says her aacountant says that she doesn't need to fill out a 1099,
That's there call, and one can argue right/wrong about that call too since it's a grey area. However, it still does not negate you reporting the income you received from the consignment shop. You are not required to have a 1099-MISC to report the income. But you "are" required to report the income. How you report it, depends on if this was a one time thing, or if this is "your" normal course of making money on a recurring basis.
I am updating my response to no 1099 needed.
The IRS rules for an art gallery, where artwork is sold on consignment, is no 1099-MISC is required. I'll go with that as my response. Pages 4 and 12 discuss. CTRL+F (find) then search 1099 .
Consignment is one of those IRS grey areas when it comes to federal tax laws. SO I also recommend you issue the 1099-MISC if the requirements are met. One thing that sticks out to me though is the wording in some of the responses.
Your requirement to issue a 1099-MISC has nothing to do with what you sell or for what price you sell it for. It only has to do with what you pay the individual you do the sale for. If you pay an individual more than $600 in a tax year, then you are required to issue the 1099-MISC. (I use the word "required" loosely, because this is that "grey area")
So if you sell an item for $600 but only give the individual $590 and that's all they get from you for the entire tax year, you are not required to issue them a 1099-MISC. Just understand that if you're not required to issue one, that doesn't mean you can't. You can issue a 1099-MISC to an individual you only paid $1 to if you want. It's optional in that case - not required.
The art consignment answers (pages 4&12) appear to apply to artists consigning their own work. I received a 1099-MISC (box 7) for selling a painting once owned by my dad and I am having difficulty finding the correct place to list the $653 income on my taxes. Can you tell me how to do this? Thank you
Artwork is generally considered a capital asset. The sale of capital assets is reported on Schedule D. Only the gain or loss from the sale of the painting would be included in your income, not the entire proceeds.
In order to report the sale of the painting on your tax return, you will need the sales proceeds and your basis in the asset. If you paid any expenses to sell the painting, you will be able to report those as well.
It sounds like you received a 1099-Misc for the proceeds from the sale of the painting. It is somewhat confusing that it was reported in Box 7 of Form 1099-Misc. This is generally used to report amounts received as an independent contractor or self-employed individual.
Your basis (or cost) in the painting is determined by how you acquired it. For example, if you purchased the painting, the basis would be the cost. If you inherited the painting, the basis would be the fair market value at the date of death of the person from whom you inherited the painting. If the painting was a gift, the basis calculation is a little more complicated. Please refer to this IRS Tax Topic for more information on determining the basis. You can also include any costs incurred to sell the painting, if applicable.
To report the sale of the painting in TurboTax, please follow these steps:
For more information on Capital Assets, please see this TurboTax Article.
Box 7 is meant to be filled in for someone engaged in the business of catching fish. But okay let's deal with your situation. In your hands, the painting is a capital asset. It's value is what the painting was worth at your Dad's date of death. Unless it's been a few years, I'm guessing that it's value is about the same as the selling price. I would list it on the Long Term Sch. D and show it as a wash, that is basis as equal to proceeds of sale. You'll need to show the sale on a Form 8949 part II check box f and then transfer that to the Schedule D.
To report the sale initially, I would take the amount on the line 7 of the 1099-MISC and put it on a schedule C as sales. I would then put in an amount in cost of goods sold equal to the sale. Then put a note at the bottom of the Schedule C and say see Schedule D.
Thank you for the documentation attached. I have a client with a store who sells local artists' work on consignment. According to this document, I should not need to file 1099's for those payments for consignment.
Yes, you must file the 1099-MISC if you paid someone $600 or more. The IRS clearly states in Specific Instructions for Form 1099-MISC:
File Form 1099-MISC, Miscellaneous Income, for each person in the course of your business to whom you have paid the following during the year:
• At least $10 in royalties (see the instructions for box 2) or broker payments in lieu of dividends or tax-exempt interest (see the instructions for box 8).
• At least $600 in:
1. Rents (box 1);
2. Prizes and awards (box 3);
3. Other income payments (box 3);
4. Generally, the cash paid from a notional principal contract to an individual, partnership, or estate (box 3);
5. Any fishing boat proceeds (box 5);
6. Medical and health care payments (box 6);
7. Crop insurance proceeds (box 9);
8. Payments to an attorney (box 10) (see Payments to attorneys, later);
9. Section 409A deferrals (box 12); or
10. Nonqualified deferred compensation (box 14).
@Yat70
Are you saying it doesn't matter that material was sold, just that money was paid out to an individual? Do you know of any specific documentation on consignment?
I find no specific directions, but that is my understanding of the IRS Instructions for Forms 1099-MISC and 1099-NEC. Other income is on page 5.
The income of $600 is the determining factor.
For instance, you bought product A for resale and paid $590. If you sold product A for $595 and had no other transactions during the year, the 1099-MISC would not be required.
If you sold product A for $601 and had no other transactions during the year, the 1099-MISC would be required.
I have a group of Consignors in my shop. When I fill out the 1099-NEC do I put the total amount sold before the stores percentage is taken out? For example, if they sold $1000 worth of product but we took 30% and wrote them a check for $700. Does just the $700 go on the 1099? Hope this makes sense!
No. Consignment shops issue a Form 1099-K if the criteria is met for a consignor. The tax law for consignment shops is gray only to the extent that "consignment" many not be used in the language, however it is a payment for the sale of goods by a third party and not for the services of a person.
Who Must File
Every payment settlement entity (PSE) or other party which submits instructions to transfer funds to the account of a participating payee, in settlement of reportable payment transactions, must file an information return (Form 1099-K) with respect to each participating payee for that calendar year.
Since consignment companies are now issuing 1099-K forms to keep on the good side of the IRS you should report ALL gross sales on the Schedule C and then simply deduct the commissions paid out as an expense. This will net you the same amount but keep you from having a mismatch with the IRS.
Ok, I have a client that sells children's clothing. They not only sell on consignment (vendor gets 30%; my client keeps 70%) , they sometimes buy the clothing outright and then sell for their own account. I told my client that I wanted to do some research first but my gut feel is that in the latter case, I didn't think they needed to send a 1099 regardless of how much they paid for the vendor's goods. But in the case of a consignment, the 30% commision paid would be subject to the 1099/$600 or more rules. So by way of example:
1. Example 1: Vendor A comes in with children's clothing that my client feels she can sell for at least $2,000. My client suggests that she pay Vendor A $650 for this inventory and Vendor A agrees. I am thinking that no 1099 is required because my client is buying inventory for $650 not paying a commission.
2. Example 2: Vendor B comes in and says I have children's clothing that I would like my client to sell on consignment. My client and Vendor B agree that if sold, my client will pay Vendor B 30% of what my client realizes from the sale of some or all of this clothing. In this case, my client is paying a commission and if the aggregate amount of commissions paid during the year to Vendor B equals or exceeds $600, a 1099 would be required.
Thoughts?
Yes, I agree you are right in both assumptions. According to this IRS.gov link, "If you paid someone who is not your employee, such as a subcontractor, attorney or accountant $600 or more for services provided during the year, a Form 1099-NEC needs to be completed," The key word is services.
In the first example, you are paying for inventory, which does not require a 1099. The second example is an example of a service being provided. This requires a 1099-NEC in accordance with IRS guidelines.
So I'm confused.
Everything I'm reading says that you are not to receive a 1099 for selling merchandise to someone.
It is my understanding that a 1099 is for services not merchandise.
???
Yes, 1099's are for services. If you purchase more than $600 in services from an unincorporated business in a year then you are required to provide them with a 1099. You do not issue 1099's for merchandise you sell.