Consignment Store Operations

• Entrepreneurs who operate consignment stores do so to earn a profit, even though the items they sell are not the property of the store. Generally, the shop owners will offer to sell people's used goods in their shop and take a portion of the sale proceeds before paying the property's owner. If the consignment store is unable to sell the used property, it will return the merchandise to the owner without incurring any cost. However, when items do sell, the consignment store must report its share of the sale proceeds on a tax return.
  
  

Consignment Store Expenses

• Consignments store owners still incur expenses to operate their business even without the burden of paying for inventory. The business owner still has to pay rent for the store, pay utility bills, hire employees to work in the store every day, pay advertising fees to market the business in the community and a range of other expenses. Each of these business expenses are deductible on the store's business tax return and will reduce the amount of earnings that are taxable.
  
  

Employee Taxes

• Operating a business with employees imposes additional obligations on the store beyond just paying out salaries. Your consignment business is responsible for withholding various taxes from the paychecks of each employee, such as for federal and state income taxes, federal unemployment tax and Social Security and Medicare taxes. The consignment store is also responsible for paying half of each employee's Social Security and Medicare taxes. So if you withhold $50 from one employee's paycheck for these taxes, you are responsible for paying an additional $50. However, these employment taxes are fully deductible from the store's earnings.
  
  

Business Tax Filings

• Depending on which legal structure you use to operate the consignment store, the tax forms you calculate the business's taxable income on are different. If you run the business as a sole proprietor, you can fill out a Schedule C with your personal tax return. The Schedule C allows you to separately report all of the consignment store's earnings and expenses to arrive at the net taxable earnings for the business. You then transfer the net earnings to your personal 1040 form, where it's subject to the same tax rates as your other personal income. For consignment store owners who use a corporate structure, the IRS taxes the store as a separate taxpayer. This means that nothing you report on a corporate tax return will appear on your personal taxes. You can use Form 1120 or 1120A, depending on the store's annual income, to calculate the income tax. And if you use an LLC, you have the option of filing the store's tax return as a corporation or sole proprietorship.