@unixkernel wrote:
So, I'm considering doing this as a sole proprietorship and paying Utah sales tax if it sells in Utah, other states would be handled by Ebay. I then plan on reporting this on Schedule C as self-employment in come then paying the 50% left to my friend. Since its merchandise and not a service I should not have to issue a 1099-NEC, right? Does my course of action seem OK? I just don't want to get in trouble with the IRS.
It may not be the lowest tax strategy for you.
You would want a formal contract between you and your friend in which your friend consigns the goods to you for a specified period of time (it could be renewable) and that your friend remains the owner until the goods are sold or reclaimed by him if the sales are unsuccessful. The contract should also specify whether the amount you pay (50%???) is of the gross sales, the net selling price after expenses like sales tax and shipping, or something else, to avoid all future misunderstandings. (If you paid 50% of the gross, then after your taxes and expenses, there might be very little left for your efforts.)
You would act as a consignment seller, all your income is reported as ordinary income (no capital gains since you don't own the items). Your gross income is the gross amount you collect from the seller, your cost of goods sold is what you pay to your friend. You can deduct ordinary and necessary business expenses including sales tax, listing fees, credit card transaction fees, shipping, and so on; and you pay income tax and SE tax on the net profit to you. If you pay your friend more than $600, you issue a 1099-MISC (not a 1099-NEC). You should have your friend fill out and give you a W-9 form. Your friend would be responsible for his own taxes, it doesn't concern you how he reports this income.
I don't see anything wrong, but it may not be the lowest tax strategy available to you.
