posted on May 21, 2001 12:37:14 AM new
I have a friend, a former partner who has found himself in an intersting position. A co-worker has recently inherited an estate from a very wealthy relative with items that can be expected to reach $50,000. The co-woorker is willing to split the proceeds of the sale with him.
HE wants me to post the bulk of these items on eBay. He wants to give me a 20% percent of the cut on HIS take, which would amount to 10% of total sales, here for the sake of example, $5000.
Well, not a bad deal for listing a dozen or two items. Or is it? I would be responsible for receiving payment, so technically this will constitute taxable income. I would not be able to deduct expenses, since these would be essentially nil here. I would assume the taxes alone would be about $15,000 - so owing $10,000 for a 'favor' is hardly feasible.
Is there a way around this? Can I do a 1099 on each of them, and would it require that I get their Social Security numbers from each of them, and how can I verify that the numbers are real?
Right now it looks like no deal, and even a full third may not be worth the aggrivation.
posted on May 21, 2001 01:51:47 AM new
The whole setup sounds fishy to me.
At any rate, assuming that your friend has a friend who is willing to split 50K worth of stuff (why?), here's my thoughts...
1. You and your friends need tax advice- particularly from an accountant who knows about estates and inheritance. You get what you pay for, and that's exactly what you'll get here on tax issues.
2. The issue of consignment sales is fraught with problems. Most who have tried it won't do it for under about 40%, unless working with high value items. Need to resolve issues of minimum closing values, unrealistic expectations, who is liable if item not as represented, who is liable for chargebacks, and the like.
3. As to YOUR income tax liability (get advice from an accountant!), generally your tax liability is your gross sales less your expenses- this can go on Schedule C. Expenses would include your consignment payments to the other parties, eBay fees, postage fees, office supplies, office at home, mileage, and the like. So you wouldn't be paying income tax on the whole 50K-- just your share less expenses.
Anyway, sounds really fishy to me. Tread carefully...
posted on May 21, 2001 02:12:47 AM new
Why not set up a Paypal or Billpoint account for your friend. Or have checks and money orders made out to him.
Just because you receive funds doesn't make it taxable income.
10% profit depends on how much work you have to do.
If you are doing pictures listings sales packing and shipping I would get at least 25% of entire sale.
If you are simply listing 10% may be reasonable.
I sell some items for people and either get 20%-30% of total sale or sometimes I do it at a flat rate per item.
I never accept payment for someone else I have different cliens set up their own account
Joe B
posted on May 22, 2001 12:02:38 AM new
magazine_guy and jrb3,
Many thanks for your input.
The details of this 'deal' have yet to be worked out, and I have just been offered a higher percentage, that would come out to around 15 to 20%.
I would require that that all the items consigned be in my posession. I would also need to do all the photography and write ups, simply because I would not dream of allowing anyone to even accidentally misrepresent a product under my name. I am a purple star vendor, so my reputation is valuable.
There is furniture involved which I simply will not touch. The Ethan Allen brand may have value in real life markets, but certainly not on eBay. Why spend thousands for repros when the real stuff can be had for less.
There is art and antiques of value but the difficulty here is making it clear that book value has no relation whatever to eBay prices.
But my main question is what constitutes proof for consignments when faced with an IRS audit?
I can not have the money sent to them, since I need to be in a position to make refunds if necessary. I would insist on a liberal return policy for high priced items as a means of trust and more liberal spending among bidders.
I do see the possibility for a world of grief with this situation. I can just picture our ex-partner giving inflated price estimations to keep the other party interested. He has done this in the past...
And then doing a bunch of work to launch these things and getting no sales at *their* absurd prices, while getting hammered with listing fees.
posted on May 22, 2001 04:26:53 AM new
I have sold in the past for consignors and also have a friend whose only business is consignment eBay items.
You have the right idea with keeping control and I commend you for that. However, I still would up the commission. I personally will not do it for less than 30%, plus eBay costs. But that is your choice.
Insofar as the tax consequences of consignor. Draw up a consignment agreement, with the terms of the commission, etc. Have your client sign and provide a Social Security Number. If during the course of the year his items total more than $600, send him a 1099 at the end of the year for the full amount of the sale, not less your fees. He then can take your fees as a deduction off of the income. Also, provide this person with an invoice for the items as you pay them and have them sign the invoice confirming they received payment. Keep all those invoices & the contract and a copy of the 1099 in your files for the IRS later on.
You were given good advice earlier as well. See a tax accountant if you are unsure how to proceed.
posted on May 22, 2001 04:34:56 AM new
Snake -- The co-worker will have no income tax consequences, since the estate was responsible for estate taxes (if any) and he received the property via inheritance at a "stepped-up" basis (that is, current value).
You and your friend, of course, will have income on which you would pay taxes. Keep good records. Have the co-worker file a 1099 on your friend for his share, have your friend file a 1099 on you for your percentage. (One 1099 at the end of the year.) File a Schedule C. No problem.
Vinnie
[ edited by capotasto on May 22, 2001 04:38 AM ]
posted on May 22, 2001 11:34:06 PM new
capotasto and xenainfla,
Many thanks. This is *exactly* the advice I was looking for. Namely the mechanics of dealing with the consignors and the IRS if need be.
Now the only question is can *I* be held responsible for the information supplied by the other parties of a consignment? In other words would my life be complicated if they submitted false Social Security numbers or other info. I guess this would apply to consignments in general rather than this particular deal, but I can just envision all kinds of 1099's filed on Herman Munster SS# 666-00-7734.
Without some kind of controls virtually all online income could be 1099'd to fictitious entities. I imagine I would be responsible for verification of payment, so cash would probably not be advisable, but something with a paper trail like a cashier's check would probably be the best thing.
Once again, many thanks to everyone for the input.
