Understanding Consignor Payouts and Taxes

How Consignor Payouts Work in a Consignment Shop

• When you sell items for someone else, a portion of each sale (the split or commission) goes to the consignor.
• You must track payouts, dates, and payment methods for every consignor.
• Payouts can be cash, check, electronic, or store credit but all require accurate records.

The Basics of Consignment Taxes

• As the store owner, you collect and remit sales tax on the total sale, even for consigned goods (unless specifically exempt in your state).
• Consignor payouts are not deductible as “expenses”; your shop’s income for tax is generally your retained commission plus any shop-owned item sales.
• If you pay any single consignor $600 or more (in cash, check, or electronic payout) in a year, you may need to issue a 1099-NEC form (check with your accountant and local state/federal regulations).

How to Track Payouts for Tax Safety

• Use shop software to log each payment: date, consignor, method, sale involved.
• Keep all payout receipts and provide a year-end summary to each consignor, including total paid out.
• Back up copies of statements and track all split percentages and discounts.

Consignor 1099s: When, Why, and How

• When: If a consignor (individual or business) is paid $600 or more in a calendar year (not including store credit), you may need to file a 1099-NEC with the IRS and provide a copy to the consignor.
• How: Collect a signed W-9 from every consignor up front. At year-end, use your reports to identify who needs a 1099. Mail or electronically deliver the form by January 31.
• What: The threshold and requirements can vary by state consult your accountant for any changes.

Payouts as Shop Expenses

• Payouts reduce your reportable shop income. Only your “share” of sold items is taxable business revenue.
• Unclaimed or donated items’ sales may be shop income track clearly to avoid mix-ups or overpaying tax.
• Payouts by store credit are usually not included in 1099 calculations but confirm with a tax professional.

FAQ: Consignor Payouts and Taxes

Checklist for Consignor Tax Safety

• Collect W-9 from every consignor before first payout
• Log all payouts with date, method, and amounts
• Run annual summary to spot 1099 thresholds
• Create and deliver required forms before January 31 each year
• Keep all tax records, statements, and payout logs for at least 7 years

Next Steps for Clean Consignor Payouts and Taxes

• Review and update your consignor agreements to explain payout and tax reporting policies
• Use consignment software for built-in tax and 1099 tracking
• Ask your tax pro for an annual checkup of your system