How to claim consignment shop income

[kellymargelony]

I own a consignment shop. I am trying to figure out if I need to claim money owed to consignors as income, or if it's excluded because it's technically not my money.

For example, I sell a purse for $100. $50 goes to me (the store), $50 goes to the consignor. Do I, the store, claim $100 income, or only $50 income? What if the consignor never collects their $50 and it's just sitting in an account waiting for them?

[JulieH1 · Accepted solution]

You only need to count your part of the money.  In your example above, that would be the $50.

Here is your answer directly from the IRS:

Revenue for consignment stores comes in the form of commissions or fees charged from the selling price before giving the seller her share. For example, a consignment shop that charges a 30 percent commission might list an item for $100. When that item sells, the store keeps $30 and pays $70 to the seller. The store reports only the $30 on its taxes, rather than reporting $100 in revenue and $70 in inventory expense.

You do not count any money in an account for someone else unless you have a policy that it is forfeited after a certain time and becomes yours.  If that is the case, it is income to you.

[brett2]

TuboTaxJulieH1: Would you be kind and provide a link to the IRS source for your answer? I'm not disagreeing, but want to have record of why I've accounted the way I have. If I'm audited, I don't want to say 'I read about it on a TurboTax post... 🙂
How does this reflect on either the business return (ie 1065 or similar) or Schedule C (self employed)?

[jdefl4444]

Question: In this example what income does the seller (self employed) claim?  Is it $100 gross income and $30 expense for commission kept by the store, or is it $70 with no commission expense?  Thank you.  

[dcdc3333dc]

Hi Julie, Quick question - in this example, suppose that $100 was charged on a credit card. I get a 1099 from merchant services in the amount of $100. Am I still only filing the $50 for tax purposes, or do I still have to file the entire $100 since it's on a 1099?

[tmacdebaca]

Hello Brett!

Did you ever get a link or supported info. from JulieH1 about running the consignment expenses thru Purchases?  I like this answer and want to do this, but I want to be sure also that I won't run into problem with the IRS.

[Critter]

Since CC companies are now issuing 1099-K forms  to keep on the good side of the IRS you should report ALL gross sales on the Sch 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. 

[laljnnvt]

In this scenario would I issue a 1099 if I paid the owner more than $600?

example... in an auction business  everything is on consignment. We take our share and pay out the balance do I need to issue them a 1099? I’m thinking no but would like to get confirmation.

[MaryK4]

No, per the IRS, a Form 1099-MISC is not required if payments are for merchandise, telegrams, telephone, freight, storage and similar items.   See Instructions for Forms 1099-MISC and 1099-NEC (2020).

@laljnnvt

[K5Designs]

Can you tell me what line I would report this on? 

I received my 1099K for 198K of which 94K was money paid out to consignors and 17K was sales tax Paid to my state,  does anyone know where I list these Items on Schedule C? 

[MaryK4]

For the consignors, I would recommend listing as Miscellaneous Income- for the Schedule C use one line and report the total amount- but for record keeping- have a list of the individuals paid and the amounts in case you get audited.  For the amount you paid to the state, if it was for sales taxes, include them in the Taxes category.

@K5Designs