Understanding Business Taxes: What You Need to Know Before You Start

If you’re running a consignment store and this is your first time doing taxes, you’re not alone. Business taxes might seem overwhelming, but once you understand what’s expected, you can break it into manageable steps. Here’s a simple overview of what you’ll need to prepare. You may want to pair this with our more brief, simple "How to" blog on taxes as well.

What Are Business Taxes?

Business taxes are how the government collects revenue based on the income your business earns. As a consignment store owner, you may need to file taxes with:

• The IRS (federal government) – where you report your total income and expenses, and possibly pay taxes on any profit your business made.

• Your state and/or city – where you report and remit sales taxes collected from customers, and possibly pay business taxes like franchise or gross receipts taxes.
  

What Does the Government Want to Know?

When you file your taxes, you’re answering a few key questions:

• How much money did your business make?

• What did it cost you to earn that money (inventory, rent, wages, etc.)?

• How much money is left over (your profit)?

• How much tax do you owe on that profit?
  

And if you collected sales tax from customers (which almost all stores do), the state wants to know:

• How much sales tax did you collect?

• Did you send it in on time, and in full?
  
  

What Do I Need to File Taxes?

Here’s a quick list of what you’ll need before you can fill out any tax forms:

• Sales totals – how much your store earned over the year (before taxes).

• Consignor payouts – how much you paid to your consignors (their share of the sale).

• Inventory costs – only for items your store bought outright (not consigned).

• Expense records – rent, utilities, advertising, payroll, and anything else you paid to run the store.

• Bank/credit card statements – to cross-check your expenses and payments.

• Sales tax records – how much sales tax you collected from customers, and when/where you paid it.

• Employee info – if you have staff, you’ll also need to report payroll and file employee tax forms like Form 941.

• Your EIN and business structure – whether you’re a sole proprietor, LLC, S-corp, or C-corp determines which tax forms to use.
  

💡 Tip: If you’ve been using ConsignCloud all year, you’re already in great shape. Most of this data—sales, consignor payouts, inventory details—can be pulled directly from your reports.

Consignment Store Tax Filing Checklist: Step-by-Step Guide

Filing taxes for your consignment store can feel daunting, especially if it’s your first time. This checklist-style guide breaks down the process into simple steps, focusing on essential federal tax forms: (Form 1120, Schedule 1125-A for Cost of Goods Sold (COGS), Form 941 for payroll) and touches on state/local sales taxes. It also shows how to use ConsignCloud’s features—such as Sales Summary reports, Item Sales exports, and Balance History—to gather the information you need at each step. Follow this step-by-step guide to file your taxes accurately and confidently.

Before jumping into the steps, here is a list of the tax forms you may need:

Most all stores will need these:

• One of these (based on your business structure): Form 1120 – Corporation Income Tax Return (for C-corporations): https://www.irs.gov/pub/irs-pdf/f1120.pdf or a Schedule C (Form 1040) – Profit or Loss From Business (for sole proprietors): https://www.irs.gov/pub/irs-pdf/f1040sc.pdf

• If you have buy-outright inventory, Form 1125-A for cost of goods sold: https://www.irs.gov/pub/irs-access/f1125a_accessible.pdf

• Your state’s sales tax return: filed through your state’s Department of Revenue (Example for WA: https://dor.wa.gov).

Only some stores will need these:

• Form 1125-E – if you're a corporation and pay yourself as an officer: https://www.irs.gov/pub/irs-access/f1125e_accessible.pdf

• Form 941 – if you have employees; reports payroll tax: https://www.irs.gov/pub/irs-pdf/f941.pdf

• Form 940 – annual unemployment tax, if you have employees: https://www.irs.gov/pub/irs-pdf/f940.pdf

• Form W-2 and W-3 – year-end employee wage forms: https://www.irs.gov/pub/irs-pdf/fw2.pdf, https://www.irs.gov/pub/irs-pdf/fw3.pdf
  
  

Step 1: Organize Your Records and Reports

Before diving into forms, get all your financial records in order:

• Gather Financial Documents: Collect your income and expense records for the tax year. This includes: sales reports, inventory records, expense receipts, payroll records (if you have employees), and prior tax returns if available.

• Leverage ConsignCloud Reports: Log in to ConsignCloud and pull the key reports:

  • Sales Summary (Menu > Reports > Sales Summary) for the year – this provides total sales, discounts, surcharges, and taxes collected​.

  • Item Sales (Menu > Inventory > Item Sales) for detailed transaction data – you can filter by the tax year and export a list of all items sold, including dates and prices​.

  • Accounts Balance History (Menu > Accounts > Balance History) for consignor payouts – this shows how much you paid out to consignors over the year​.

  
  

• Expense Records: Gather receipts or statements for all business expenses (rent, utilities, marketing, insurance, supplies, etc.) and bank/credit card statements for any purchases made for the business​. If you use accounting software, export an expense report for the year.

• Consignor Agreements (Optional): Ensure you have copies of consignment agreements or terms with your consignors. While not filed with taxes, these documents clarify the revenue split and can support how you report income (store commission vs. consignor share)​.
  
  

Taking time to organize now will make filling out tax forms much easier. With your ConsignCloud reports and expense documents in hand, you’ll have a complete picture of your store’s finances for the year.

Step 2: Calculate Total Sales and Gross Receipts

Your total sales (gross receipts) is the starting point for your tax return (reported on Line 1 of Form 1120 for corporations, or on your Schedule C for sole proprietors). This figure should include all revenue from your consignment shop:

• Use the Sales Summary Report: In ConsignCloud, run the Sales Summary for the entire tax year (“This Year” date filter). This report includes every transaction processed through the point-of-sale, including consigned item sales, any surcharges or fees, discounts, and sales tax collected​. The Gross Sales line on this report shows the total pre-tax sales amount. This is the number you’ll report as gross receipts on your tax form (Form 1120, line 1a)​.

• Include All Revenue Streams: Make sure the sales total includes all revenue streams your store had during the year. ConsignCloud’s report naturally captures consignment sales, but if you had any other income (e.g. fees for special services, or online sales from other platforms), ensure those are included. (ConsignCloud’s Sales Summary focuses on its built-in POS; for any external sales channels, gather those separately or use the Item Sales report to combine data​.)

• Verify with Item Sales Detail: For a detailed breakdown, use Item Sales (under Inventory). Filter the sold date for the year and export the data​. By summing the sale prices of all items sold, you can double-check the total sales figure. This detailed report is helpful if you need to reconcile any discrepancies or provide itemized data to your accountant.

• Returns and Allowances: If your store had returns or discounts, the Sales Summary’s “Net Sales” reflects those adjustments​. On Form 1120, you’d report gross sales and then subtract returns/allowances to get net sales (line 1c). ConsignCloud already does this math, but keep records of any large returns in case you need to note them.

• Sales Tax Excluded: Remember that the sales figures for income tax should not include sales tax collected. Sales tax is not income; it’s money you collected for the state. ConsignCloud’s Gross Sales and Net Sales exclude the tax (tax is shown separately as “Taxes Collected” in the report​). So when you use the Sales Summary values, you’re correctly using the pre-tax sales numbers.
  
  

Checkpoint: After this step, you should have your total gross sales for the year. For example, if ConsignCloud’s Sales Summary shows $200,000 in Gross Sales for the year, that’s the number that will go on your federal tax form as total income (before any deductions). Keep a copy of the Sales Summary report in your records as supporting documentation.

Step 3: Determine Cost of Goods Sold (COGS)

Cost of Goods Sold (COGS) represents the direct costs of the merchandise that was sold. Consignment stores have a unique situation: you might sell items you own (inventory you purchased outright) and items owned by consignors. The treatment of COGS will depend on this:

• Buy Outright (BOR) Inventory: If your store purchases some inventory to resell (e.g. you occasionally buy bulk items or take wholesale merchandise), you need to calculate COGS for those goods. ConsignCloud can help:

  • Go to Inventory and include the Cost Per column in your item list​. Filter or export items sold during the year that were buy outright items.

  • Add up the cost of each sold item (the amount you originally paid to acquire those items). This sum is your total COGS for purchased inventory​.

  • Example: If you bought a vintage dresser for $50 and sold it under consignment terms (you keep entire sale since you owned it), that $50 is part of your COGS.

  • On taxes, COGS is reported on Form 1125-A (which you attach to Form 1120) and the total flows to Form 1120 Line 2​. If you have any beginning or ending inventory for the year, you’ll account for those on Form 1125-A as well​. (Many consignment shops using cash accounting under a certain revenue threshold may not need to formally track inventory valuation​.)

• Consigned Inventory: For goods that were consigned (you didn’t purchase them upfront), do not include those items in your inventory or COGS calculation​. Since you didn’t pay for the item, it has no cost to you at the time of sale. Instead, the money you owe the consignor is treated as a commission expense (we’ll handle that in Step 4)​.

  • Note: ConsignCloud’s reports like Item Sales will show the sale price and the consignor’s share for each item​, but only the store’s portion is your revenue. The consignor’s portion will be recorded as an expense (not COGS) because it’s not inventory you bought.

• Calculate Total COGS: If you had no purchased inventory at all (all sales were consignment items), your COGS may be zero on the tax form (and you’ll instead deduct payouts to consignors as expenses). If you did have purchased inventory, finalize the total COGS number from adding up costs of those items. This will be used on Line 2 of Form 1120 (with details on Form 1125-A).

• Gross Profit Check: Subtract your COGS from your total sales to compute Gross Profit​. For example, if total sales were $200,000 and COGS (for purchased goods) was $20,000, then gross profit is $180,000. This corresponds to Form 1120 Line 3 (Gross profit = Net sales minus COGS).
  
  

Checkpoint: You should now know whether you need to fill out a COGS form. If you have any COGS, ensure you’ll complete Form 1125-A​ with details (such as inventory at start of year, purchases, inventory at end of year, and direct costs). If consigned goods made up all or most of your sales, COGS will be low or zero, and that’s normal – the consignor payouts will be accounted for as expenses instead.

Step 4: Compile Your Business Expenses and Consignor Payouts

Next, gather all deductible expenses. Deductions will reduce your taxable income, so you want to include everything applicable. Common expense categories for a consignment store include:

• Rent or Lease Payments: If you rent your store space, total up the rent paid over the year​.

• Utilities and Insurance: Sum up electricity, water, internet, and any insurance premiums for the business.

• Marketing and Advertising: Costs for advertising, promotions, or your website.

• Supplies and Maintenance: Bags, tags, office supplies, cleaning or repairs – any supplies used for the store.

• Employee Wages and Benefits: If you have employees, gather W-2 forms or payroll records showing total salaries and wages paid. These wages (minus any federal employment credits) will be deductible (Form 1120 Line 13)​. Also note any employer payroll taxes you paid (those are business expenses too).

• Officer Compensation: If your store is incorporated and you draw a salary as an owner/officer, that salary is an expense (Form 1120 Line 12 for officer compensation).

• Professional Services: Accounting fees, legal fees, or software subscriptions (like ConsignCloud itself!) used for the business.

• Other Operating Expenses: This could include bank fees, credit card processing fees, travel or mileage if you went to source inventory, etc. Keep these listed out.
  
  

Consignor Payouts (Commission Expense): A major expense specific to consignment businesses is the money paid to consignors for their sold items. This is essentially the consignors’ share of sales. You can find summary information of your payouts to consignors in the Payouts Summary report. The “Net Change to Consignor Balance” reflects total paid out vs. accrued:

• Retrieve Consignor Payout Total: In ConsignCloud, go to Accounts > Balance History and filter/export for the year. This will show all credits to consignor accounts (their portion of sales) and all payouts (settlements). Calculate the total amount paid to consignors during the year. You might use the “Net Change to Consignor Balance” or similar figure from the Accounts Summary report as a shortcut, which reflects payouts issued​.

  
  
  

  

  
  

• How to Deduct Payouts: For tax purposes, consignor payouts can be treated as an operating expense – essentially a cost of sales or commission expense​. You will include this in your deductions (on Form 1120, it can be listed under “Other Deductions” on Line 26, described perhaps as "Consignor commissions" or "Consignor payouts"). This is important: it ensures you are not taxed on the portion of sales that didn’t belong to you. (If you were to ignore this, you’d be overstating your income.)

• Double-Check Payout vs. Sales: It’s a good idea to check that Gross Sales minus Consignor Payouts ≈ Store Revenue (before other expenses). For example, if you sold $200,000 and paid $120,000 to consignors, roughly $80,000 is what the store earned (before rent, wages, etc.). This check confirms you’ve captured the biggest expense correctly.
  
  

Once you’ve itemized all expenses and the consignor payouts, add them up. This total will be used to fill in the deductions section of your tax return. Keep your list organized by category, because on the tax form you will have to enter some categories separately (like wages, rents, etc.) and combine others into an "Other deductions" statement.

Checkpoint: By now, you should have a list of all your expenses and their totals for the year, including the grand total paid to consignors. These figures will directly feed into your tax form (lowering your taxable income). Retain the detailed list and reports (like the ConsignCloud payout export, and receipts/invoices for expenses) with your tax records​.

Step 5: Handle Payroll Tax Forms (if you have employees)

If your consignment store has employees (even just one or two part-time staff), there are additional filings beyond the income tax return:

• Quarterly Payroll Reports (Form 941): As an employer, you must file Form 941 quarterly to report wages paid and payroll taxes withheld (federal income tax, Social Security, Medicare)​. Ensure you have filed Form 941 for all four quarters of the year. Typically, Q1 covers Jan–Mar, Q2 Apr–Jun, Q3 Jul–Sep, Q4 Oct–Dec. Each form will show the wages you paid and taxes due. If you haven’t been doing this, you may want to consult a CPA as it is required for employers.

• Year-End Payroll Filings: At year-end or in January, you must provide Form W-2 to each employee (summarizing their annual wages and taxes withheld) and file W-3 (a summary of all W-2s) to the Social Security Administration. Additionally, most employers file Form 940 annually for federal unemployment taxes.

• Reconcile with Expenses: The total wages from your payroll records should match the wage expense you compiled in Step 4. Also, any payroll taxes the company paid (employer’s share of FICA, state unemployment, etc.) can be included in your expense total.

• No Employees?: If you have no employees (many small consignment shops are owner-operated), you can skip this step. Just remember, payroll taxes and filings are separate from income tax. For example, Form 941 is filed to the IRS quarterly, distinct from your Form 1120. ConsignCloud does not generate payroll forms, so use your payroll service or accountant to ensure these are handled.
  
  

Checkpoint: Confirm that all required payroll reports (941s, W-2s, state employer returns) have been or will be filed. This guide focuses on income tax, but payroll compliance is just as important. Mark this step complete when you’re confident your payroll obligations are met​.

Step 6: Prepare State and Local Sales Tax Returns

In addition to federal taxes, consignment store owners must deal with state (and sometimes local) sales taxes. Throughout the year, you likely collected sales tax on items sold and sent those taxes to the state revenue department. Here’s how to make sure you’re on track:

• Gather Sales Tax Data: Using the ConsignCloud Sales Summary report, note the “Taxes Collected” figure for the year​. This shows the total sales tax your POS collected from customers. Ideally, this should match what you’ve remitted to the state over the year.

• Filing Frequency: Determine how often you need to file sales tax returns in your state. Common schedules are monthly or quarterly, depending on your sales volume. For example, if you file quarterly, Q4’s sales tax return (covering Oct–Dec) may be due in January of the next year.

• Complete Sales Tax Returns: For each required period:

  • Report the taxable sales amount and the sales tax collected (which should equal what is due to the state).

  • Use ConsignCloud’s reports to double-check these figures. If the Sales Summary for Q4 shows $50,000 in taxable sales and $3,000 in tax collected, those numbers should go on the Q4 sales tax return.

  • If your state has an annual reconciliation or summary, use the yearly totals. Some jurisdictions require an annual sales tax summary in addition to periodic returns.

• Local Taxes: If your city or county has additional sales tax, ensure you’re reporting and paying those as well. ConsignCloud can track multiple tax rates (if you configured taxes in ConsignCloud), so your report may break out, say, state vs. local tax. Make sure to file any local returns (or the state return covers it, depending on your area).

• Verify Payments: Cross-check that the total tax collected (from ConsignCloud) matches total tax paid to the government. If there’s a mismatch, investigate and resolve it before filing your annual income taxes – you want to ensure no sales tax collected is mistakenly kept (that’s liabilities to remit, not income).

• Other State Taxes: Be aware of any special taxes. For instance, some states have business gross receipts taxes or other fees. (E.g., Washington State has a Business & Occupation (B&O) tax on gross sales​.) Consult your state’s tax agency or a tax professional about any non-sales-tax obligations in your region.
  
  

Checkpoint: All sales tax returns for the year should be filed, and any payments due should be made. Save copies of these filings. While sales taxes are separate from your federal tax return, properly handling them ensures your “Taxes Collected” in ConsignCloud is zeroed out by payments, and you won’t confuse sales tax amounts with business income.

Step 7: Fill Out Your Federal Tax Return (Form 1120 and Related Forms)

With all the numbers in hand – total sales, COGS, expenses, and payroll – you can now tackle the federal tax return for your business. This guide assumes a corporation filing Form 1120 (as many consignment stores elect S-Corp or C-Corp status). If you are a sole proprietor or single-member LLC, you’d use Schedule C on your personal tax return, but the information needed is similar. Here’s how to proceed:

• Business Information: Complete the top section of Form 1120 (or 1120-S, etc.) with your business name, Employer ID Number (EIN), address, and incorporation date. Check the appropriate boxes (e.g., if this is a final return or an S-corp).

• Income Section (Lines 1–11 on Form 1120):

  • Gross Receipts (Line 1a): Enter the total gross sales for the year​ (from Step 2, ConsignCloud Sales Summary). If you had any returns/refunds, they go on 1b, and 1c is net sales.

  • COGS (Line 2): Enter the Cost of Goods Sold you calculated (Step 3). If you have any COGS, remember to attach Form 1125-A detailing the calculation​. (On Form 1125-A, list inventory at beginning and end of year if any, purchases of inventory, and direct costs; the final line is total COGS which matches what you put on line 2.)

  • Gross Profit (Line 3): This is automatically line 1c minus line 2. (Double-check it matches your calculation of gross profit from earlier.)

  • Other Income (Lines 4–10): Most consignment stores won’t have items like dividends or capital gains in these lines. If you do have any miscellaneous income not from sales (maybe interest on a business bank account, etc.), report it on line 10 “Other income” with an attached statement if needed.

  • Total Income (Line 11): Sum of lines 3 through 10 – essentially your gross profit plus any other income.

• Deductions Section (Lines 12–26 on Form 1120): This is where all those expenses from Step 4 go. The form has specific lines for certain categories:

  • Compensation of Officers (Line 12): If you, the owner, took a salary (common for S-Corps/C-Corps), enter that amount here (or attach Form 1125-E if required for detailing officer pay).

  • Salaries and Wages (Line 13): Enter the total wages paid to employees​ (not including the amount on line 12). Use the payroll records from Step 5.

  • Repairs and Maintenance (Line 14): e.g., fixing store fixtures, etc.

  • Rent (Line 16): Total rent for your store location.

  • Taxes and Licenses (Line 17): This can include property tax, business licenses, and employer taxes paid (but not income taxes or sales taxes remitted).

  • Advertising (Line 19): Your marketing and advertising costs.

  • Depreciation (Line 20): If you have any assets (computer, cash register, furniture) that you depreciate, include the depreciation expense (you’d need separate depreciation schedules, e.g., Form 4562). So instead of deducting the full $1,000 you spent on a new laptop this year, you might deduct $200 per year for five years. This shows how the item is being “used up” over time.

  • Employee Benefit Programs (Line 24): e.g., contributions to employee health plans or retirement, if any.

  • Other Deductions (Line 26): This is a catch-all line for any deductible expenses that don’t have their own line. Here’s where you include categories like utilities, insurance, supplies, professional services, and consignor payouts. You will typically attach a statement listing the major “Other” deductions. For example, your statement might list: Utilities $X, Insurance $Y, Supplies $Z, Consignor Commissions (Payouts) $W, etc., with the sum equaling the Line 26 amount. The consignor payouts figure should match what you got from ConsignCloud’s Balance History report​. This ensures you’re deducting the amounts paid to consignors so you’re not taxed on that portion of sales.

  • Total Deductions: Add up lines 12 through 26. This is your total expense deduction.

• Taxable Income (Line 30): Subtract total deductions from total income. The result is the taxable income of your business (if positive). If you have a loss, it will be a negative number which can potentially be carried back/forward (Line 29a is where a Net Operating Loss deduction would be entered if applicable).

• Tax and Payments: Calculate the tax due on taxable income (corporate tax rate applies for C-corps; S-corps generally pass income through to personal returns, so Form 1120S would handle differently). If you made estimated tax payments, include them in the payments section.

• Sign and Date: Once everything is filled out and reviewed, the form must be signed by an officer of the corporation (or by you, if you’re the owner/officer).
  
  

Attachments & Schedules: Along with Form 1120, attach any required schedules:

• Form 1125-A (Cost of Goods Sold) if you had an entry on Line 2.

• Form 1125-E (Compensation of Officers) if required (generally if salaries to officers + others > $500,000, or as instructed).

• Any statements for “Other deductions” detailing what’s in Line 26.

• If you’re an S-Corp, you’d be using Form 1120S and providing Schedule K-1s to owners instead.

• If you’re a sole proprietor, you’d report all these numbers on Schedule C of your Form 1040 (sales, minus expenses, etc.), and you wouldn’t use Form 1120 at all.
  
  

Checkpoint: Congratulations – at this stage, you should have a completed federal tax return for your business! Double-check every line against your records. The Sales Summary report total should match your gross receipts on the form, the Inventory/COGS calculation should match your Form 1125-A, and the expense totals (including consignor payouts) should match what you entered as deductions​. If everything lines up, assemble the return with all schedules and it’s ready to file (electronically or by mail). Be mindful of the due date (for calendar-year corporations, usually March 15th for S-Corps or April 15th for C-Corps, unless extended).

Final: How ConsignCloud Streamlines Your Tax Filing Process

Filing taxes involves a lot of numbers and documentation – but using ConsignCloud throughout the year makes this process much easier and more accurate. ConsignCloud streamlines the whole tax filing process by organizing the key data you need:

• Centralized Sales and Payout Records: Every consignment sale is recorded with its details. With a few clicks, you can get an annual Sales Summary that includes gross sales, discounts, and taxes, as well as an Accounts/Payouts report showing consignor earnings and payouts​. This means no scrambling through piles of receipts – all your revenue data is ready to go in one system.

• Easy COGS and Inventory Tracking: If you have inventory you’ve purchased, ConsignCloud lets you record the cost of each item (Cost Per) and generate reports to calculate Cost of Goods Sold. You won’t miss a deduction because all the info is stored with your inventory records. For consigned items, the platform automatically tracks the consignor’s share, so you know exactly how much product was sold on consignment versus owned goods.

• Detailed Reporting for Deductions: Beyond sales, you can use ConsignCloud to track fees, surcharges, and other financials of each sale, which can help identify deductible merchant fees or other costs. The Accounts Balance History gives a clear total of consignor payouts, one of your largest expenses, ensuring you capture it fully.

• Accuracy and Compliance: By relying on ConsignCloud’s accurate record-keeping, you reduce errors. The system’s reports are designed with accounting in mind, so they capture what you need for tax forms in a succinct way​. This thorough documentation is exactly what you need for careful tax filing. In fact, having detailed, organized records is highlighted as crucial for consignment businesses to stay compliant​.

• Time Savings: What used to take days of compiling data from different sources can now be done in hours or less. ConsignCloud’s ability to “make, keep, and pull these records” easily means you spend less time on tedious paperwork and more time running your business. When tax season comes, you’re not starting from scratch – the reports are at your fingertips.

Consignment stores have unique needs, and ConsignCloud is built for those needs. It doesn’t just help you run daily operations; it also preserves the information you’ll need at year-end. By using a system that integrates consignment sales, payouts, and inventory, you minimize the chance of overlooking income or expenses. In short, ConsignCloud helps turn a once overwhelming tax filing process into a straightforward routine.

With this checklist and ConsignCloud as your toolkit, you’re well on your way to filing accurate, on-time taxes for your consignment store. Remember to consult a tax professional for any complex situations or state-specific rules, but rest assured that your organized ConsignCloud records have set you up for success​. Happy filing, and here’s to a financially sound year ahead!