Sunday, November 29, 2009

Your Social Security Number---Keep It To Yourself!

Payment for Consigned Merchandise Does Not Require a 1099-MISC

by
Diane Burket

The Internal Revenue Service (IRS) does not require Consignees to give Consignors a 1099-MISC, so there’s no reason to give your art gallery, consignment shop, museum or retailer your Social Security number (SSN). Identity theft is one of the fastest growing crimes in the world. Keep your SSN number confidential, except when authorized by law.

My partner, Armand Cabrera, and I are in the art business. Armand is a fine artist that consigns his paintings to galleries across the United States. When the paintings sell, the art gallery writes a check to Armand for his portion of the proceeds. Occasionally, a gallery erroneously requests Armand to provide his SSN on a W-9 Form. We do not send it to the gallery because the IRS does not require it.

Armand consigns merchandise (artwork) to the gallery and they pay him for merchandise they sell. He is not considered an Independent Contractor, nor is the gallery paying him money for “services”. The gallery is paying him for merchandise. Merchandise is considered an “Exception” to the IRS. The IRS does not require galleries or consignment shops to report payment for consigned merchandise to artists or other consignors---although the payment is taxable to the consignor.

Let’s look at it like this…You purchase merchandise from Nordstrom, Safeway, Petco and Home Depot. At the end of the year, you don’t ask for their SSN (or Federal ID #) and issue a 1099-MISC! You’ve purchased merchandise---you haven’t employed them or hired them to perform a service.

Don’t take my word for it. You can view this information on the IRS.gov website on this page:
http://www.irs.gov/pub/irs-pdf/i1099msc.pdf

You will see the merchandise reference on the right side under “Exceptions”, 2nd bullet. The Internet is riddled with misinformation about this subject. Please---get your facts from the IRS official website---not from accountants and bookkeepers who make their living by preparing your taxes.

I don’t know why galleries and other consignees ask for this unnecessary information.Perhaps their CPA’s insist on it so they can make more money from their clients by creating needless paperwork. Maybe they’re just clueless. In any event, hang on to your SSN and only provide it when required by the IRS!

About the Author:

Diane Burket is an award-winning Voice Over Professional. She has been voicing scripts for over 20 years. She can be heard on National Commercials, Corporate Films, Training Videos, Telephone Prompts, Internet Sites and Multimedia recordings. In addition to her Voice Over, Diane also is the Agent for Armand Cabrera, a nationally-known oil painter represented by fine art galleries across the United States.
http://www.dianeburket.com/

10 comments:

Stapleton Kearns said...

Really I had no idea. I have of course been giving them my social security number for years. I do get a form 1040 (I guess) back from them I give it to my accountant. Is that something the galleries accountant does not knowing it is unnecessary?
,................Stape

ARMAND CABRERA said...

You're not alone, Stape. Most artists provide their SSN to the galleries. The galleries then send you a 1099-MISC. All of this is completely unnecessary. You're just selling them "merchandise". You're not providing a service. You're not working for the gallery. I'm sure the galleries don't issue a 1099-MISC to their framing suppliers or their print suppliers---like Greenwich Workshops. They're just buying "merchandise". Funny thing---we didn't run into this problem until we moved to the East Coast. The CPA's here are insisting on having our galleries get our SSN's (with a W-9). One more way for the CPA's and bookkeepers to make money.

Tina Steele Lindsey said...

Great post and hopefully seen by many gallery owners and artists. My best.

Wyn Easton said...

My question is, how do you report income to the IRS? I'm not sure of the form number, but I thought the gallery sent me a 1099 form stating what they paid me as my part of their sales of my paintings? Are you saying that there is a form that you file that states how much income you've gotten from the galleries? If that is the case, there is no paper trail. The IRS likes paper trails...

ARMAND CABRERA said...

Hey Wyn....Diane here...You have to report the income, but there is no form sent to you. As you are an artist (consignor of merchandise), you've got to keep your own records and report that income. You're right---the IRS likes paper trails---but they wrote the rules on this one. You don't send a 1099-MISC to your framing supplier do you? You're just buying merchandise---not hiring them to perform a service for you.

Nichelle said...

This is a big assumption that artists will keep good enough records from art sales throughout the year on their own. Artists are self-employed so the 1099 is a form for self-employment income.So I guess you file a 1040 with a schedule C. How can the IRS verify art your income?

ARMAND CABRERA said...

Hi Nichelle. Diane Burket here. Yes---A 1099 is used for employment income. Yes---you are self-employed. But the galleries are paying you for your paintings (merchandise)---not paying you to work for them. If you sell your art, you are running a business. When you run a business, you've got to keep good records---or pay someone to do it. We would never trust a gallery to provide accurate information about how much money they've sent us. If we get audited, the gallery will certainly not be there to bail us out! Recordkeeping is a lot of work. Armand pays me to do it so he has time to paint. I have updated EXCEL spreadsheets for every gallery showing 1) paintings they have at their gallery and 2) paintings they have sold (name, size, price, etc.) I enter payments from galleries on these forms---which is also reflected as deposits on our bank records. Be sure to keep a record of your deposits and what they are for. I use QuickBooks for our bookkeeping. As the IRS loves to audit artists, I suggest you employ a really good accountant to prepare your taxes. It's a business deduction. Ah...the joys of running your own business!

difyr tasg stiwdio said...

Wow, this is interesting. Just one question, if the Gallery does not issue a 1099-Misc how will they claim the expense ($ to consignor) against income (total $ taken in for the item consigned)? thanks!

ARMAND CABRERA said...

They would claim the expense just like any other merchandise expenditure for which they write a check. If the gallery purchases frames, the frame company will not issue the gallery a 1099. It's not like you're an employee of the gallery---you're just selling them merchandise.

Kathy Partridge said...

Good post. I had no idea that some galleries think they have to issue a 1099 to their artists. Now I know in case it ever comes up.

For me, the easiest way to track this stuff is to maintain separate accounts for your art vs. personal. (The IRS requires this anyway.) Then make sure your records (spreadsheets, Quicken, YNAB, whatever you use) match your bank accounts. This is super easy these days with the "download transactions" feature of all the accounting programs now. Download once a month and if you forgot to record a deposit, you'll know because your account won't reconcile.