I sell merchandise on consignment. Do I need to send 1099's to the people whose work I sell?

[JulieH1]

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.

https://www.irs.gov/businesses/small-businesses-self-employed/am-i-required-to-file-a-form-1099-or-o...

[theworkhousebend]

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.

[JulieH1]

You are correct.  Consignment is a very gray area.

[theworkhousebend]

So, ultimately- its a matter of preference?

[JulieH1]

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.

[theworkhousebend]

Ahh. Thank you!

[jlayer555]

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?

[Carl]

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.

[Anonymous]

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 .

https://www.irs.gov/pub/irs-utl/artgalleries.pdf

[Carl]

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.

[DavidaTN]

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

[BarbaraW22]

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:

1. Click on Wages and Income at the top of the screen
2. Scroll down to Investment Income and click on Show More
3. Click on Start or Revisit next to Stocks, Mutual Funds, Bonds, Other and Select Yes
4. Select No to the question "Did or will you receive a 1099-B form or brokerage statement for these sales?"
5. Answer the questions and enter the sales information 

For more information on Capital Assets, please see this TurboTax Article.

@DavidaTN

[nmp222]

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.   

[Yat70]

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.