As an individual or business selling goods, you may be wondering if you need to provide 1099 forms to report your sales income. The short answer is that in most cases, you do not need to issue 1099s for selling goods. However, there are some important exceptions and details to be aware of.
When do you need to issue a 1099 for selling goods?
In general, you only need to issue a 1099-MISC form if you meet the following criteria:
- You paid at least $600 in rents, services, or other income payments to an individual or unincorporated business in the calendar year.
- The payment was made in the course of your trade or business.
- The payment was not for the purchase of goods or merchandise.
So if you are simply selling physical products or goods to customers, and not paying for any services, you typically do not need to issue a 1099. The sale of merchandise is not considered a rental, service, or income payment that requires 1099 reporting.
When selling goods requires a 1099
However, there are some cases where selling goods does trigger the requirement to issue a 1099 form:
- If you paid an individual or unincorporated business $600 or more in royalties or licensing fees related to the sale of inventory or products. This includes payment for the use of a patent, copyright, or other intellectual property.
- If you paid an individual or unincorporated business $600 or more as a brokerage commission for facilitating the sale of your inventory or products.
- If you paid an individual or unincorporated business $600 or more to provide services related to the sale of inventory or products, such as delivery, installation, or repair services.
In these situations, the payments are considered income other than for the sale of goods, so they require 1099-MISC reporting if they exceed $600.
Self-employment income and Schedule C
Even though you may not have to issue 1099s for selling goods, you still must report your sales income on your personal or business tax return. The income from selling merchandise is reported as self-employment income on Schedule C of your Form 1040. You owe income tax and self-employment tax on your net profits from selling goods.
Marketplace facilitators and third party settlement organizations
There are also some special 1099 reporting requirements if you sell goods through a marketplace facilitator like Amazon, eBay, or Etsy, or use a third party settlement organization like PayPal:
- Marketplace facilitators must issue a 1099-K if they facilitate over $20,000 in sales for a seller and process the payments.
- Payment settlement organizations like PayPal must issue a 1099-K if they process over $20,000 in payments and over 200 transactions for a seller.
So even if you aren’t required to issue 1099s for selling goods, you may still receive a 1099-K from these third party facilitators if you exceeded the reporting thresholds through their platforms.
Takeaways on 1099 requirements for selling goods
In summary, the key takeaways on 1099 requirements when selling goods include:
- You do not need to issue 1099s when simply selling physical products or merchandise.
- You must issue a 1099 if you paid over $600 for royalties, commissions, or services related to selling goods.
- You must report your income from selling goods on Schedule C, even without 1099s.
- Third party facilitators may issue you a 1099-K if you exceed transaction thresholds on their platforms.
Consult IRS publication 1099 Instructions and IRC section 6041 for more details on the reporting requirements. Reach out to your tax professional for guidance on properly reporting your income from selling goods.
Frequently Asked Questions
Do I need to issue a 1099 for retail sales to individual customers?
No, you do not need to issue a 1099-MISC form for retail sales to individual customers purchasing goods for personal use. 1099s are only required when you pay for services, rents, or other income, not for sales of merchandise.
Do I have to issue a 1099 if I sell handmade crafts on Etsy?
If you are selling physical handmade crafts or merchandise on Etsy, you typically do not need to issue the buyers 1099 forms, even if sales exceed $600. Only Etsy itself may have to issue you a 1099-K if your transactions pass the reporting thresholds on their marketplace platform.
I operate an ecommerce store – do I need to provide 1099s to customers?
No, you do not have to issue 1099s to customers of your ecommerce store if you are selling physical goods or merchandise. The sale of products to customers does not trigger 1099 reporting requirements.
What if I sell over $600 to a wholesale customer?
You still do not have to issue a 1099 form even if selling over $600 worth of merchandise to a single wholesale customer. Only services, rents, royalties, or commissions require a 1099, not wholesale transactions for physical products.
Do I need to 1099 commissioned sales reps?
Yes, if you paid a commissioned sales rep over $600 during the year, you must issue them a 1099-MISC to report their commission income. Commissions count as reportable income even though they are related to product sales.
Where do I get the 1099 form to issue?
The 1099-MISC forms are available for download or purchase on the IRS website at www.irs.gov. You can also use tax software or have your accountant provide you with the forms to issue 1099s to vendors.
Example Scenarios
Selling handmade jewelry online
Grace sells handmade jewelry that she makes herself through her Etsy shop. She sells over $20,000 worth of merchandise to hundreds of different individual buyers during the year. Grace does NOT need to provide 1099 forms to any of her buyers. She simply reports her income from her jewelry sales as self-employment income on Schedule C of her 1040 tax return. Etsy may issue Grace a 1099-K for exceeding the transaction threshold on their platform, but Grace herself has no 1099 issuing requirement.
Wholesale clothing distributor
Gina owns a wholesale clothing distribution company. She sells over $1 million worth of wholesale clothing items to various retail store customers during the year. Even though some wholesale orders exceed $600, Gina does NOT have to issue any 1099 forms to the stores purchasing her clothing merchandise. Only the sale of services, not goods, necessitates 1099 reporting.
Manufacturer paying sales commissions
Acme Tools manufactures power tools and paid sales commissions over $600 to several outside sales reps who sold Acme’s tools to various retailers. In this case, Acme MUST issue 1099-MISC forms to each commissioned sales rep, since their commission income exceeds the reporting threshold.
Reporting Requirements Summary Table
Sale of Goods Scenario | 1099 Required? |
---|---|
Selling handmade crafts online | No |
Wholesale merchandise over $600 | No |
Sales commissions over $600 | Yes |
Conclusion
Selling goods and merchandise to customers does not typically require issuing 1099 forms, even for substantial sales volumes. The only exception is if you paid commissions, royalties, or service fees related to the sales that exceeded $600 for the year to unincorporated individuals or businesses. In that case, you must furnish a 1099-MISC to report those specific types of payments. Aside from those exceptions, you can sell goods without 1099 worries and simply report the income on your tax return.