central checkout 1099K

[kathyc2]

I had a business that is going to be opening call me today for accounting assistance. It's a rather unusual situation, so hoping I can pick some brains on how best to set it up.

They are going to be running an antique/collectible mall. The vendors who have space there will pay them monthly rent. The individual booths will not be manned, so client will be providing a central checkout location for purchases. Client will also be selling some of their own inventory, but they project it to only be about 10% of total.

Since they are going to be accepting credit cards, client will be issued 1099K for the sales. I'm thinking of setting up 3 sales account: rent income, sales (for their own items), and renter sales. Then I would have two COS accounts, one for the regular sales and one for renter sales.

The renter sales account and the renter sales COS account should net to zero. This could create a very odd looking tax return, as COS will be a very high percentage of sales, and inventory on hand will be a very low percentage of annual sales.

Thoughts or suggestions?

[JON]

1099k

Rent, if you are supplying substantial services and rent is also on credit cards you probably need one schedule C. 1099K is used only to compare the gross amounts of revenue against those reported on the returns. For certain established businesses the IRS seems to have ratios they compare. 1099Ks are for gross revenue comparisons only. Remember the original rule was preparer reconciles gross reported to the 1099Ks, and then it changed to you have to reconcile numbers IF the IRS asks for that. Be ready to reconcile if asked!

[kathyc2]

Yeah, the rent will be regular income since they are providing services, but just planning on a separate account for internal accounting purposes.

Pre 1099K, I would have not shown the renters sales as sales on the tax return, as my feeling is it is a fiduciary arrangement rather than true sales. But since we have 1099K's I'll need to show the amounts in gross sales. My concern is that reporting the sales and then offsetting as COS will produce wacked out percentages and increase the risk of an audit.

I'm leaning toward having them issue 1099's to all renters as a protection. My guess is that some of renters will not report their sales as business income since they won't have a 1099K or sales tax reporting requirements.

They filed as an LLC. Of course they did this on their own without benefit of an attorney or even Legal Zoom so doubtful they have even have articles of organization. Meeting with them tomorrow and will discuss if they want to be taxed as a partnership or S-corp.

[kathyc2]

Also adding to my concerns is I doubt they will ever show a profit. Speaking with the wife on the phone I didn't get the impression they have a lot of business sense, and I don't think with the location chosen they will have enough customer draw to make it a profitable venture.

[Lion]

Are they purchasing the items from other vendors and then selling them? Or, are they just taking payment as a courtesy and passing along the proceeds, with or without taking an administrative fee? Why not nominee via Forms 1099? Or, bills of sale?

[joanmcq]

I have a client that does this, and has a sophisticated POS software that tracks all of the sales, including the sales by the other vendors. I'm going to have him record all sales in gross sales and then 1099 to the other vendors for items sold at gross. It's then on the other vendors to report their income and COGS. 1099s under commissions paid.

[kathyc2]

I have a client that does this, and has a sophisticated POS software that tracks all of the sales, including the sales by the other vendors. I'm going to have him record all sales in gross sales and then 1099 to the other vendors for items sold at gross. It's then on the other vendors to report their income and COGS. 1099s under commissions paid.

I like the idea of putting the payments as an expense rather than COS. COS percentage would then be unusually low rather than unusually high. Overstating gross profit rather than understating it should make it less likely to be picked up by IRS computers.

They are going to be using antiquesoft software, which supposedly integrates w/ QuickBooks.

Does you client remit all the sales tax to state rather than leaving it up to the renters to report?