Scott <golden[at]uslink.net> wrote:

- quote -

The cash flow still isn't clear. Assume I'm the customer.
I order something from you. You charge my credit card
$1,000. You pay the manufacturer $800 to drop-ship the
goods to me; he charges my credit card $100 for sales tax
and shipping.

In that case, you have $1,000 income from the sale, and $800
cost of goods sold.

On the other hand, if the manufacturer charges my credit
card $1,100 and puts $200 into your account with him (or
pays it by check), you have $200 commission income.

Seth

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shedges[at]bloomington.com wrote:

- quote -

That makes sense to me. The customer calls me to place an
order, so I am making the sale. That's why I report it as
income. Then, I drop-ship the order on my account on the
manufacturer's website. Since the manufacturer pays the
sales tax and shipping, using the customer's credit card, it
makes sense to keep those amounts off my books. It looks
like I only need to report the sale of the product itself as
income and the value of the product as a purchase. I think
that's what you're saying.

Thanks!
Scott

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Scott <gol...[at]uslink.net> wrote:

- quote -

Well, that depends. You'll hear a lot of that here. Who
forks over the tax to the state? I would assume you do since
you are the retailer. In that case you would report the
sales tax collected as income and deduct whatever you pay to
the state as sales tax expense. If you just take orders and
are not the retailer, the sales tax is paid to the
manufacturer and he pays it to the state. If the money
doesn't pass through your hands or bank account then it need
not be accounted for by you. Given the general level of
intelligence of IRS auditors, if it hasn't gone into your
bank account it doesn't belong on your tax return. Shipping
appears to be paid to the manufacturer who then pays the
shipping company. Shipping does not go on your return since
you don't handle the money.

There may be other opinions about this recordkeeping system
but if you get audited and "admit" to the IRS that some
money on your books did not go through your bank account,
they will wonder how much more there is.

You might want to read Minding Her Own Business by Jan
Zobel, E.A. and Small Business Taxes Made Easy by Eva
Rosenberg, E.A. Both books are inexpensive and are good desk
references when IRS publications are too wordy and unclear.

Linda Dorfmont E.A., CFP, CSA

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I'm a little confuse on this issue, I can't figure out how
the credit card actually operates in this transaction.
Look-the tax code says that "income" includes income from
every source. If all you're getting is the commission check
from the manufacturer, that's all you report. If you're
buying the item on your account-that's your purchase expense
(COGS) and the customer's payment to you is your income. If
you're not paying for shipping, you can not take the
expense. If you are not collecting the shipping from the
customer, you don't record the income.

The bottom line is that you must account for all income from
every source. If you have expenses, you must have a receipt
for its payment- you just can't enter it on your books. If
its on their credit card, its their expense, not yours. In
summary, you have to report all income, if you don't the IRS
might nail you. Just because you have off- setting expenses
doesn't mean you don't have to report the income. If you
have off-setting income and expenses, you report both the
income and the expense. If the customer is paying for some
stuff, you cannot take the expense. And if you don't have
income, you don't have to report income. Hope this helps.

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I'm a very small business owner. Sometimes I drop ship an
order (using customer's credit card) from the manufacturer's
warehouse to the customer. I'm an independent rep for this
manufacturer. On my books, I show the sale as income. Do I
include the shipping and tax in the income figure?
Similarly, when I post the sale as a "purchase" for COGS, do
I include shipping and tax? I don't make any deduction for
shipping or tax on my books, since the customer paid both of
those charges.

Thanks!
Scott

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >