Someone hands you a dead relative's record collection, or a friend's bin of overflow stock, and asks you to sell it for a cut — 30%, 50%, whatever you agree on. You already have the Discogs and eBay accounts, the grading knowledge, and the patience for it. It feels like a side errand, not a second business. Then tax season arrives and the 1099-K from your payment processor shows a number that has nothing to do with what you actually earned, because the form doesn't know the arrangement existed.
The form reports the account, not the ownership
A 1099-K reports gross payment volume that moved through your account on that platform — every sale, from every seller, blended into one number. It has no field for "but 70% of this belonged to someone else." If you move $6,000 worth of a friend's collection through your Discogs account this year and keep 30% ($1,800), the $6,000 shows up in your gross payment volume exactly the way your own inventory's sales do. If your own reselling adds another $21,000 on top, your account's total gross payment volume is $27,000 — over the $20,000-and-200-transaction threshold that governs 2026 — and the 1099-K you get reports the full $27,000, with no line anywhere distinguishing whose money it was.
Below the threshold, nothing changes about what's actually taxable — you still owe tax on your real $1,800 commission whether or not a form ever gets issued — but once you're over it, the form itself becomes the thing you have to reconcile against, and that's where the real trap shows up.
Why reporting just your commission creates a mismatch
The instinct is to report the $1,800 commission as income and leave it there — after all, the other $4,200 was never yours. But the IRS runs an automated matching program against 1099-K totals, and if your Schedule C gross receipts line reads dramatically lower than the gross payment volume on file for your account, that gap is exactly the pattern that generates an automated notice. The IRS's system doesn't know $4,200 of that $27,000 belonged to someone else — it only knows the processor said $27,000 moved through your account and your return claims far less. You didn't do anything wrong, and you'll eventually be able to explain it, but a notice you have to respond to with documentation is a worse place to be than a return that already reconciles.
The fix practitioners consistently land on — there's no single IRS publication that spells this out for informal consignment arrangements, so treat this as the common approach rather than settled law — is to report the full 1099-K gross on Schedule C and then deduct what you paid out to the consignor as a business expense. Report $27,000 in gross receipts, deduct $4,200 paid to your friend, and your Schedule C now matches the form while your actual taxable income still lands at the right number once your own costs and fees come off on top of that.
These items have no cost basis — because you never bought them
Your own inventory has a cost basis: what you paid for it. Consigned items don't, because you never bought them — there's no purchase to form a basis around. The $4,200 you pay out isn't cost of goods sold in the usual sense; it's a disbursement of someone else's sale proceeds, which is why it belongs on its own expense line (commissions and fees, or itemized under other expenses) rather than folded into the per-item cost-basis math you'd use for stock you actually bought in a lot. Mixing the two in the same column is how a reseller ends up with a profit-per-item number that's wrong in both directions: your own margins look worse than they are, and the consignment arrangement looks like a loss-making product line instead of the pass-through it actually is.
What this doesn't settle
- Whether you owe the consignor a 1099-NEC. Paying someone for their
- own property's sale proceeds isn't clearly "payment for services" the
- way a 1099-NEC is built for, and the guidance here is genuinely thin.
- Ask a preparer directly rather than assuming either way.
- State rules on selling other people's goods for a fee. A few states
- regulate this under consignment-shop or auctioneer statutes once it's
- more than an occasional favor for a friend. That's a state-specific
- question worth a real answer before you take on consignment at any
- volume, not something to extrapolate from a forum thread.
- Sales tax. eBay and Shopify collect and remit it as marketplace
- facilitators regardless of whose item is actually selling, so nothing
- about consignment changes that part on those two platforms.
What to actually do
- Get something in writing before you list anything — even a short
- note naming the consignor, what's being sold, the split, and when
- payouts happen. It's the only documentation you'll have if the expense
- deduction is ever questioned, since there's no purchase receipt behind
- it the way there is for your own inventory.
- Keep consigned items separate from your own stock from day one. You
- need "total paid out to consignors this year" as one clean number at
- tax time, and you can't get it by untangling a column that mixed the
- two all year.
- Report the full 1099-K gross, then deduct the payouts — don't net
- them before they hit your return. The form and your gross receipts line
- should match; the deduction is where the money that was never yours
- comes back off.
PalmFlow's Teams feature (on the Ultra plan) exists for exactly the "whose stock is this" problem — tag items by consignor and the inventory list filters down to just theirs, with an Unassigned view for everything else. Custom attributes on the Pro plan work too, logging a Consignor field right on the item. Neither calculates the split or cuts a payout — that part's still on you — but keeping the two inventories visibly apart in the same workspace is most of what keeps this honest at filing time. The free plan still covers per-item cost basis on 50 items of your own inventory, no card required.
Disclaimer: this is general information, not tax advice. Consignment reporting sits in a genuinely under-documented corner of the tax code — confirm the approach, the deduction, and any state-level registration question with a CPA before you rely on it.