Annual 1099 Reporting

*THE INFORMATION PRESENTED BELOW DOES NOT SUBSTITUTE TAX/LEGAL ADVICE FROM AN ACCOUNTANT OR TAX PROFESSIONAL. ALWAYS CONSULT A ACCOUNTANT OR TAX PROFESSIONAL*

As of January 2026, the reporting landscape for consignment shops has shifted.

1. The 2026 Thresholds at a Glance

It is important to distinguish between the payments you made in 2025 (which you are reporting now) and the payments you are making starting today in 2026.

2. Obligations for Consignors (Merchandise) -- Consignor Connect Users

Generally, a consignment store is not required to issue a 1099-NEC or 1099-MISC to individual consignors for the sale of their goods.

•  The 1099-K Factor: You do not issue a 1099-K to your consignors. That form is issued by "Third-Party Settlement Organizations" (like PayPal, Stripe, or Square). If you pay your consignors via these apps, the app handles the reporting if they hit the $20,000/200 transaction threshold.
    

   

• Exception for Royalties: If you sell items for an artist or author where the payment is legally structured as a royalty rather than a sale of owned goods, you must issue a 1099-MISC if the payout is $10 or more.

3. Obligations for Vendors (Services)

If you hire a "vendor" who provides a service to your business (e.g., an independent contractor who cleans the store, a handyman who builds racks, or a professional who authenticates luxury bags), your obligations are different:

• Form 1099-NEC: You must issue this to any non-incorporated vendor (Individuals, LLCs, or Partnerships) if you pay them $600 or more for services in 2025. For work done during the 2026 calendar year, you only need to issue this if the total exceeds $2,000.

   

• Corporation Exception: You generally do not need to issue a 1099 to a vendor that is a C-Corp or S-Corp (though you should still keep a W-9 on file to prove their status).

   

4. Best Practices for 2026

While you may not be legally required to send a 1099 to every consignor, maintaining a "1099-ready" shop protects you during an audit.

• Collect W-9s Early: Even if you don't think a consignor will hit a threshold, make a completed Form W-9 a requirement for their first payout. This ensures you have their Taxpayer Identification Number (TIN) if the IRS rules change or if they transition from a casual consignor to a professional vendor.

• Distinguish "Buy Outright" vs. "Consignment": For "Buy Outright" (inventory you purchase to own), keep receipts as these are strictly inventory costs (COGS) and never require a 1099.

• Check State Rules: Some states (such as Massachusetts or Vermont) have much lower 1099-K reporting thresholds than the federal $20,000 limit. If you use a custom payment platform to pay consignors, ensure it is compliant with your specific state's laws.

   Note: If you are unsure whether a specific payout constitutes "Other Income" (Box 3 of 1099-MISC), many accountants recommend issuing the form anyway as a "protective filing" to show the IRS you are transparently reporting your business expenses.

SAMPLE LETTER TO VENDORS

Consignor Tax Information Letter (2025–2026)

To: All Valued Consignors From: [Store Name] Management Date: January [Day], 2026 Subject: Important Information Regarding Your Consignment Payouts and Form 1099

Dear Consignor/Vendor,

As we begin the new year, we want to provide you with clarity regarding your year-end tax documentation. We often receive questions about whether our store will issue a Form 1099 for the payouts you received from the sale of your items.

Will I receive a Form 1099-MISC or 1099-NEC from the store? In most cases, no. Under current IRS guidelines, payments made for the purchase of merchandise (your consigned goods) are exempt from 1099-NEC and 1099-MISC reporting. Because we are remitting the proceeds of a physical item sold on your behalf, these payments are not considered "non-employee compensation" for services.

Are there exceptions?

• Third-Party Payments (1099-K): If we paid your consignor balance via platforms like PayPal, Venmo, or Stripe, those companies are responsible for reporting. Per the current federal threshold, they generally only issue a Form 1099-K if your gross payments exceed $20,000 and 200 transactions in a calendar year.

• Services: If you provided a professional service to the store (such as repairs or consulting) and were paid more than $600 in 2025, you will receive a Form 1099-NEC.

Your Personal Tax Responsibility While we may not be required to issue a 1099 for your merchandise sales, you are still responsible for reporting any taxable income to the IRS. Generally, if you sold personal items for less than what you originally paid for them (a loss), there is no tax liability. However, if you are a professional reseller or sold items for a profit, we recommend consulting with a tax professional to determine your filing requirements.

Action Required If you have changed your mailing address or updated your Taxpayer Identification Number (SSN/EIN) in the last year, please contact us at [Phone Number/Email] to update your records. This ensures that our internal documentation remains accurate for audit purposes.

Thank you for being a vital part of our community. We look forward to another successful year of partnership!

Sincerely,

[Your Name/Store Name] [Store Website/Address]