Filing a Form 1099

Dear Tax Talk,
I have a crafters' consignment shop. Crafters bring in their items for sale. They pay a shop fee and a percentage of their sales. They get paid once a month for items of theirs that have sold minus shop fee and sales percentage, and some do sell over $600 for the year. Do I need to give them a 1099 or are they responsible for their own income? Thank you. -- Renee

Dear Renee,
Form 1099-MISC is used by businesses (not individuals) to report payments to individuals for services, rents and other types of income in excess of $600 annually.

For example, if you pay a handyman to help you fix items in your shop, you would need to report to the Internal Revenue Service and him the amount you paid to him if it exceeded $600 in any year. The IRS, of course, uses this to make sure that the recipient reports his or her income on a tax return.

However, you do not have to report payments for the purchase of merchandise from individuals. Since you're purchasing or paying your craft makers for their crafts, which would be considered merchandise, the payments are not reportable to the IRS since they are not strictly for services.

Included in Form 1099-MISC is a category for direct sellers. A direct seller is, for example, an Amway or Avon representative. Amway or Avon would report to the IRS that the representative purchased goods from them to resell. This would not be your case, as you're the one making the purchases, not the other way around.