Starting an Ebay Business

[Gusturd]

Not sure if this is the correct spot for this type of question. My apologies if it's not. I was wondering what are the necessary steps to make the transition from being a casual ebay hobby seller to becoming a sports card/memorabilia business? I know there are many here who have businesses on ebay and I'm hoping they can share their knowledge.

If I decide to sell my collection in 2021 on ebay, how would this be classified? Can I become a business and pay taxes as a business or do I have to pay taxes as a hobby?

If it matters, this would be something I do in my spare time and I suspect it would take several years or longer to liquidate everything. And I don't rule out continued buying along the way as a way to make a few bucks as I enter retirement.

Any tips would be greatly appreciated.

[D. Bergin]

Speaking as "Not an accountant"..........you should probably talk to an accountant.

But..........If you plan on doing it long term, and showing a profit from year to year, it would probably benefit you to run it as a business, rather then a hobby. It will open you up to more write-offs against your gains.

Biggest question is, do you want to do all the extra paperwork and record-keeping that comes with that? Is that worth the hassle, rather then just boxing up all your stuff, sending it to an auction house, and paying the capital gains tax on top what you claim to have originally have paid for your collection.

[Directly]

Next year Ebay and Paypal will begin reporting sales over 600.00 to the IRS. That said if a seller sells say 10,000 on Ebay in 2022, which is easy to do--and didn't report sales from the past, this might create a RED FLAG for a future audit--??--enjoy your retirement!

[Gusturd]

Originally Posted by D. Bergin

Biggest question is, do you want to do all the extra paperwork and record-keeping that comes with that? Is that worth the hassle, rather then just boxing up all your stuff, sending it to an auction house, and paying the capital gains tax on top what you claim to have originally have paid for your collection.

This is the question I've been struggling with and trying to research the ramifications of either approach has left me more confused than anything else.

Someone please correct me if I have this wrong. The way I'm understanding it, if I took my entire collection to an auction house and it sold for 100K (wishful thinking but for simple math), I believe I'd have to report that all is income and thus pay approximately 28K in taxes!?!?! There would be no consideration or netting out what I paid for the item. Is that correct? Or is only the gain taxable?

[Gusturd]

Originally Posted by Directly

Next year Ebay and Paypal will begin reporting sales over 600.00 to the IRS. That said if a seller sells say 10,000 on Ebay in 2022, which is easy to do--and didn't report sales from the past, this might create a RED FLAG for a future audit--??--enjoy your retirement!

Thank you. I hope to.

Every new business has a first year don't they? Is that really a red flag?

[MooseDog]

Art - it's really not as hard as you would think. The main thing is intent...if you just set up a business for selling your collection over time, there is a (very small) chance you can run into problems in terms of hobby vs. business in the eyes of the IRS...now if you still continue to buy and selll, with the INTENT of making a profit, you're good so long as you show a profit in 2 of 7 years (I think, could be old info).

Basic steps:

1) Inventory your collection as it will be your starting inventory for your business. Record cost and market value for everything you intend to sell (no you don't have to do each individual common card but you can group things like (1956 Topps Baseball Commons 55 @ $1.50)

2) Spend a little money for an hour or two consultation with an lawyer, accountant or tax expert, in order of preference. Around my area it's easy to find a lawyer/CPA maybe not so much in yours. Explain what you want done, have them help you set up an accounting system and what records you need to keep. They can also explain what paperwork you need, what deductions you can take, etc. Best of all any fees they charge you are a business expense!

3) Keep hobby assets and business assets separate. Likewise, have a separate checking account for business.

The better records you keep and the more you "act" like a business the less likely you'll run into any issues.

[Gusturd]

Originally Posted by MooseDog

Art - it's really not as hard as you would think. The main thing is intent...if you just set up a business for selling your collection over time, there is a (very small) chance you can run into problems in terms of hobby vs. business in the eyes of the IRS...now if you still continue to buy and selll, with the INTENT of making a profit, you're good so long as you show a profit in 2 of 7 years (I think, could be old info).

Basic steps:

1) Inventory your collection as it will be your starting inventory for your business. Record cost and market value for everything you intend to sell (no you don't have to do each individual common card but you can group things like (1956 Topps Baseball Commons 55 @ $1.50)

2) Spend a little money for an hour or two consultation with an lawyer, accountant or tax expert, in order of preference. Around my area it's easy to find a lawyer/CPA maybe not so much in yours. Explain what you want done, have them help you set up an accounting system and what records you need to keep. They can also explain what paperwork you need, what deductions you can take, etc. Best of all any fees they charge you are a business expense!

3) Keep hobby assets and business assets separate. Likewise, have a separate checking account for business.

The better records you keep and the more you "act" like a business the less likely you'll run into any issues.

Thanks for this. I will definitely engage a professional before starting. A couple things I was wondering:

1) I have kept a spreadsheet for about the past 10 years of what i've spent on most of my significant purchases. Can I use that to inventory my collection? I have virtually no receipts except for maybe old invoices for items won from auction houses. For items not on the spreadsheet, can I estimate what I paid?

2) If I only sell on ebay, do I have to pay self employment tax? That seems to be another sizable chunk out of the pie and makes me wonder what's left for me.

[Aquarian Sports Cards]

Originally Posted by Gusturd

This is the question I've been struggling with and trying to research the ramifications of either approach has left me more confused than anything else.

Someone please correct me if I have this wrong. The way I'm understanding it, if I took my entire collection to an auction house and it sold for 100K (wishful thinking but for simple math), I believe I'd have to report that all is income and thus pay approximately 28K in taxes!?!?! There would be no consideration or netting out what I paid for the item. Is that correct? Or is only the gain taxable?

Even as a hobbyist you can write off your original cost of acquisition so if you spent $60k and sold for $100k you would be taxed on $40k

[Gusturd]

Originally Posted by Aquarian Sports Cards

Even as a hobbyist you can write off your original cost of acquisition so if you spent $60k and sold for $100k you would be taxed on $40k

Ok...That's great info. Thank you. But what if instead of a one time event, I pieced the collection out a little at a time and instead sold $20K a year (say with 8K profit) for the next 5 years. Could I still be considered a hobbyist?

[hcv123]

1) As Scott said you are only supposed to pay tax on your gain/profit over what you paid for the item(s). Hobby = gain, business = profit. A consideration - if you have held the cards for longer than a year , I believe your gain would be taxable at the capital gains rate whereas if you have a business - income doesn't get capital gains rate treatment.
2) While receipts are better, a detailed list with as much detail as possible is a good second alternative - only comes into play IF you get audited.
3) THE important question - are you looking to sell your collection or really start a business? Probably not worth starting a business with the sole purpose of selling your collection. You need to give some serious thought to this.
4) SHAMELESS SELF PROMOTION - I accept private consignments on a commission basis - another alternative to doing it yourself or giving to auction co. Pm or email for more info.

[Gusturd]

Originally Posted by hcv123

3) THE important question - are you looking to sell your collection or really start a business? Probably not worth starting a business with the sole purpose of selling your collection. You need to give some serious thought to this.

This is something else I've been pondering quite a bit lately. My goal here is to simply realize as much money for my collection as I legally can. But quitting the hobby cold turkey seems a little too extreme at this point (to me...not my wife. She's 100% ready for me to sell). I figure piecing it out, would be a gentler exit, allowing me to downsize and free up some of the money, while not quitting overnight.

We've always viewed this collection as a means to someday enjoy retirement, travel, etc...so I'd like to choose the route that benefits us and that goal the most.

[Aquarian Sports Cards]

Originally Posted by Gusturd

This is something else I've been pondering quite a bit lately. My goal here is to simply realize as much money for my collection as I legally can. But quitting the hobby cold turkey seems a little too extreme at this point (to me...not my wife. She's 100% ready for me to sell). I figure piecing it out, would be a gentler exit, allowing me to downsize and free up some of the money, while not quitting overnight.

We've always viewed this collection as a means to someday enjoy retirement, travel, etc...so I'd like to choose the route that benefits us and that goal the most.

Problem is you just said two different things as goals.

1. Do it gradually and enjoy the process.

2. Sell it as a means to raise money and enjoy retirement.

There's a time value to money. The same reason the lottery offers you more if you take your win over time applies here. Again to use your round numbers $100,000 today is worth a lot more than $10,000/year for 10 years.

[TobaccoKing4]

I think it would only really benefit you to become a business if you were going to continue to purchase cards with the intent to sell them so that you could write off the purchase price as a business expense and not wait until you sell the card to make this official tax wise. If you're just selling off cards that you already have I don't think it will benefit you much.

[RL]

do not try to avoid the IRS. they will catch you eventually

[Gusturd]

Originally Posted by RL

do not try to avoid the IRS. they will catch you eventually

Thanks for the sound advice, but at no point did I or anyone responding imply that was the intent. The goal here is to make sense of the options I have before me. I've been a collector most of my life. Now I'm just trying to figure out how you go about getting rid of it legally while maximizing the value of your collection. People always get squirrely when this topic is brought up. Makes it very hard find useful information.

[Gusturd]

Originally Posted by Aquarian Sports Cards

Problem is you just said two different things as goals.

1. Do it gradually and enjoy the process.

2. Sell it as a means to raise money and enjoy retirement.

There's a time value to money. The same reason the lottery offers you more if you take your win over time applies here. Again to use your round numbers $100,000 today is worth a lot more than $10,000/year for 10 years.

I see what you're saying and have considered that as well. I don't think either approach checks every box. I'm just trying to figure out which one checks the most.

I guess the unanswered question for me is, can you sell for 10 years making 10K per year without the IRS saying hey wait a minute...You're a business. I don't know if they're as concerned about that scenario. At the end of the day, isn't the hobbyist paying higher taxes than a business would (assuming equal sales)?

If that's the case and if the net result (ie net gain) of one over the other is relatively close, but one saves me a lot of additional record keeping, then I guess I'll have my answer.

[RL]

Originally Posted by Gusturd

Thanks for the sound advice, but at no point did I or anyone responding imply that was the intent. The goal here is to make sense of the options I have before me. I've been a collector most of my life. Now I'm just trying to figure out how you go about getting rid of it legally while maximizing the value of your collection. People always get squirrely when this topic is brought up. Makes it very hard find useful information.

No way I took it as you were trying to beat IRS. I do apologize that you may have taken it that way.

All payment processors issue a 1099k and report to IRS when certain thresholds are met. Some people mistakenly think if they did not get a 1099k they are exempt from claiming the income.

If you decide you want to be a business seller instead of a hobby seller, register as a sole-proprietor or a LLC, and you can use schedule C when you file your tax's. Lots of things you can write off. Hobby sellers can not file a schedule C.

Whatever way you go, good luck with your venture.

[MooseDog]

To point #1 for the most part yes, that's great that you have that. The lawyer/accountant/tax pro can advise you on valuation. Generally cost basis is what you go with. You may also be able to aggregate the inventory as a whole into your new business and not have to deal on a one off basis for each item. Depends on if your inventory is high $$$ or not, or a mix.

2) You will have social security tax on an net income. The amount is 15.3% I believe, but it's not based on 100% of the income and I think is around 92% of the net income and capped at around $145K income. But about half of SSI tax comes back as a credit elsewhere on your tax return so what that is worth depends on your tax bracket.

To both points it will pay to learn some accounting tricks for the sole proprietor. Bottom line is take every legal deduction and tax credit to which you are entitled and always keep good records!

Originally Posted by Gusturd

Thanks for this. I will definitely engage a professional before starting. A couple things I was wondering:

1) I have kept a spreadsheet for about the past 10 years of what i've spent on most of my significant purchases. Can I use that to inventory my collection? I have virtually no receipts except for maybe old invoices for items won from auction houses. For items not on the spreadsheet, can I estimate what I paid?

2) If I only sell on ebay, do I have to pay self employment tax? That seems to be another sizable chunk out of the pie and makes me wonder what's left for me.

[btcarfagno]

Technically the gain on the sale of collectibles (which sports cards certainly qualify as) is taxed at either your current tax rate or up to a maximum of 28% if your tax rate is above that percentage. So it would not be considered a long term nor a short term gain. Just a collectibles gain.

If done as a business on Schedule C the tax rate would be whatever your tax rate is, but you will also get hit with self employment tax on the profits (either Social Security and Medicare tax or, if you have already gone above the income threshold for Social Security tax, then just Medicare tax). However, as a business you are able to deduct expenses that you are not able to by simply selling the collectible itself for a gain. These would include travel, subscriptions, supplies, collectibles insurance, a portion of your cell phone bill if you use the phone for the business. Some expenses such as eBay/paypal fees or grading fees can be used as an expense in either instance.

Hope this helps a bit.

[Gusturd]

Originally Posted by btcarfagno

Some expenses such as eBay/paypal fees or grading fees can be used as an expense in either instance.

Hope this helps a bit.

Thank you. Yes very helpful. I just want to be sure I understand this last sentence. Are you saying ebay and PayPal fees are deductible for either hobby or business?

What about shipping?

[RL]

Here is where you can get your answers. There are some posts on this thread giving you false information.



https://www.taxslayer.com/blog/busin...-hobby-income/

[MooseDog]

Shipping yes, but keep in mind expenses are ONLY deductible in a business.

This is where people run into trouble...if the IRS determines your activity to be a "hobby" they can disallow those expenses. That's why it's important to keep good records and operate in a business-like fashion.

Originally Posted by Gusturd

Thank you. Yes very helpful. I just want to be sure I understand this last sentence. Are you saying ebay and PayPal fees are deductible for either hobby or business?

What about shipping?

[Leon]

Originally Posted by Gusturd

Thanks for the sound advice, but at no point did I or anyone responding imply that was the intent. The goal here is to make sense of the options I have before me. I've been a collector most of my life. Now I'm just trying to figure out how you go about getting rid of it legally while maximizing the value of your collection. People always get squirrely when this topic is brought up. Makes it very hard find useful information.

When I sold my first collection 5 yrs ago, after collecting it for around 20 yrs, I had a cost basis for each card. I then gave that and the final tally sheet from the AH I consigned it to, to my CPA. He did the rest. It was easy.
.

[Gusturd]

Originally Posted by RL

Here is where you can get your answers. There are some posts on this thread giving you false information.



https://www.taxslayer.com/blog/busin...-hobby-income/

Yes I had actually read this already and it's why I feel like I've been going around in circles on this topic (even before I decided to ask here). Nothing I read in this thread will replace the professional advice I receive. I'm just trying to wrap my head around how it works in the mean time.

Reading that article it sounds like nothing is deductible. Ebay fees, PayPal fees, shipping are all expenses aren't they? Therefore not deductible for the hobbyist?

[Gusturd]

Originally Posted by Leon

When I sold my first collection 5 yrs ago, after collecting it for around 20 yrs, I had a cost basis for each card. I then gave that and the final tally sheet from the AH I consigned it to, to my CPA. He did the rest. It was easy.
.

That does sound easy, but I believe the rules have changed within the last 3 years. Would your cost basis be the same today?

[chalupacollects]

If your state has the option, set up the business as an LLC. That way you can net out your expenses, profit and losses and your profit would be taxed as part of your regular income so your gains would be taxed at your normal 1040 rate. No capital gains to deal with... depends on your state though.

[buymycards]

You Tube has many tutorials for eBay start ups and for eBay updates. I have been selling on eBay since 1998 and I still try to watch an hour or two of YouTube tutorials every week to stay current and to learn new techniques.

[Aplyon86]

Originally Posted by Aquarian Sports Cards

Problem is you just said two different things as goals.

1. Do it gradually and enjoy the process.

2. Sell it as a means to raise money and enjoy retirement.

There's a time value to money. The same reason the lottery offers you more if you take your win over time applies here. Again to use your round numbers $100,000 today is worth a lot more than $10,000/year for 10 years.

Somewhat of an easy question to ask to help you decide. Do you think your collection will appreciate more or less than whatever portfolio allocation you'll put this into. As everyone has also said, even if your collection grows more, the taxes could be more, too, which could net to less.

Also consider how un-diversified your nest egg could potentially be by not selling if your collection makes up a material portion of your retirement. Nonethess, enjoy your retirement!!!

Sent from my SM-G991U using Tapatalk

[joejo20]

Originally Posted by Gusturd

Any tips would be greatly appreciated.

eBay can be quite frustrating. The BST here is a wonderful option. Joe

[btcarfagno]

Originally Posted by Gusturd

Thank you. Yes very helpful. I just want to be sure I understand this last sentence. Are you saying ebay and PayPal fees are deductible for either hobby or business?

What about shipping?

An expense that is so directly related to the sale that it becomes part of the cost basis is, and always has been, allowed as a deduction for the sale of a collectible even if not considered part of a business. I have been involved with enough IRS audits in my line of work to know this to be true.

Thus the eBay and PayPal fees for the sale of a collectible are part of the cost of sale, as are grading fees for the card.

Now that Taxpayer article is certainly correct, if a bit simplistic, regarding your motivations for selling. If you are selling items year after year, it is likely going to be viewed as a business. If you have 20 cards in your collection and decide to sell them in one year, that will be considered a hobby and thus a gain on the sale of collectibles taxed at either your tax rate or 28% whichever is lower. And if you have these 20 items graded and sell the sale involves a sellers fee, these are part of the cost of sale for each item and thus will increase basis. This doesn't mean you get to deduct grading fees on other items or any such thing. But a direct cost associated with the sale of a specific item will increase its basis for sale regardless of whether or not the IRS deems the sale to be part of a business enterprise.

[btcarfagno]

Originally Posted by Gusturd

Thank you. Yes very helpful. I just want to be sure I understand this last sentence. Are you saying ebay and PayPal fees are deductible for either hobby or business?

What about shipping?

An expense that is so directly related to the sale that it becomes part of the cost basis is, and always has been, allowed as a deduction for the sale of a collectible even if not considered part of a business. I have been involved with enough IRS audits in my line of work to know this to be true.

Thus the eBay and PayPal fees for the sale of a collectible are part of the cost of sale, as are grading fees for the card.

Now that Taxslayer article is certainly correct, if a bit simplistic, regarding your motivations for selling. If you are selling items year after year, it is likely going to be viewed as a business. If you have 20 cards in your collection and decide to sell them in one year, that will be considered a hobby and thus a gain on the sale of collectibles taxed at either your tax rate or 28% whichever is lower. And if you have these 20 items graded and the sale involves a sellers fee, these are part of the cost of sale for each item and thus will increase basis. This doesn't mean you get to deduct grading fees on other items or any such thing. But a direct cost associated with the sale of a specific item will increase its basis for sale regardless of whether or not the IRS deems the sale to be part of a business enterprise.

[BobC]

Great question regarding what to do/report regarding taxes when one starts thinking about selling their collection, or some part of it. Unfortunately, everyone's situation and circumstances are different so there are no "one size fits all" type answers. And in this thread, like in the many similar threads over the years that discuss what to do regarding taxes when someone starts selling off their collection, lots of people start jumping in with answers and advice that don't know all the specific facts and circumstances, and end up giving advice and answers that aren't always accurate or the most advantageous to the person asking the question. The one piece of advice that is given that does make 100% sense is for the OP to consult with a tax professional regarding their own unique set of facts and circumstances in regards to the proper reporting and tax treament when he does start to sell off his collection.

The idea of whether someone is in a business or a hobby is not cut and dried and in certain situations can be elected/decided upon by the person starting to sell. You have to take into consideration the specific facts and details of each person's overall tax situation in making such a decision though, and then use that to decide the most advantageous and proper way to handle and report such sales for tax purposes. Even that reference and link to the Taxslayer site regarding the differences between a busines and a hobby isn't that helpful as it only gives "ifs" and "maybes" depending upon ones answers to the various questions posed, and likely raises even more questions than gives any definitive answers.

One thing I did want to point out though is that everyone seems to keep referring to two alternative treatments for the selling of their cards, either as a business or a hobby. There are actually three different alternatives, each with different tax treatment results. For the record, you can be a Dealer (in business), a Collector (in it as a hobby), or an Investor (someone into cards and holding them for appreciation and eventual sale for profit). So what exactly are each of you who are reading this thread? Chances are that from reading most of the posts and comments from a majority of the members on this forum over the years, they can be one, two or all three of these alternatives, all at the same time. For those of you that stick cards in your safe deposit box and keep them there for years, those would arguably be Investments. Then there are others who often post pictures of displays of their cards/collectibles they have in their home/office. Those would arguably be a hobbyist's personal collection as a Collector. And then there are others with boxes/binders of cards that they have acquired over the years from purchases and trades that they aren't so enamored with that they will treat as their inventory to sell and trade on an ongoing basis to fund other purchases or swap for other cards/items they want. Those would arguably be the inventory of a Dealer. So in reality, depending on how well someone keeps their records and items separate and accounted for, they can actually have different parts of their collections treated as Collectibles, Investments, or Dealer inventory, all at the same time. And this is why this can be so confusing and virtually impossible to give a simple answer to that covers everyone.

A few more thoughts and ideas to help and possibly correct some not always accurate advice given in this and other threads:

Collectors and Investors can treat gains on the sale of their cards held for one year or more like other long term capital gains, subject to a maximum federal tax rate of 28%. (The maximum long term capital gain tax rate on regular investments like stocks is 20%.) The gain on the net profit from cards sold is not taxed at 28% though if the seller's total taxable income on that year' return, including the long term gain from cards sold, leaves them in a tax bracket that is less than 28%. The seller would only end up paying tax on the long term gain from cards sold at the tax bracket rate they end up in, if it is under 28%. Often in threads people answer the question about tax on the sale of Collectibles and simply say they're taxed at 28%. It makes it sound like all the long term Collectibles gain is taxed at a flat 28% tax rate, which is not always true.

Also, if cards sold as Collectibles or Investments are not held for twelve months or more, any gains/profits from their sales are taxed at rates like other ordinary income (wages, interest, etc.) and there is no 28% maximum cap on the federal tax rate. You end up paying tax at whatever bracket rate you end up in, up to the current 37% individual max rate.

Cards sold as Collectibles or Investments have pretty much the same tax treatment as far as determing their cost basis, tax rate, and so on, with one major difference. If a card that is considered as an Investment is sold for a loss, you can offset that loss against gains from other Investments sold. If, however, you sell a Collectible card from your personal hobby collection at a loss, you cannot offset that loss against other Colllectible or Investment gains. You still report and pay tax on all the Collectible cards sold for a profit/gain, and end up eating the Collectibles losses.

This last thought is for those who like to also do trades. Technically the IRS considers all bartering transactions as sales and they are to be reported and taxed as such. So if you have someone who still has cards they got from buying and opening packs as a kid, if they were to trade one of those cards for another card(s) they now want from someone else, the current market value of the card(s) they traded for would be the selling price and the cost basis of the card they traded for it would be based on what they originally paid for the pack. That difference between the cost basis of the card being traded and the current FMV of the card(s) they got in return would be a taxable net profit/gain to handled and reported depending on if the item being traded was a Collectible, Investment, or Dealer inventory.

[Gusturd]

I can't thank everyone enough for chiming in and I can't believe there isn't more discussion of this topic on this forum. You'd think there'd be a permanent "How to" thread, as I'm guessing 100% of the people posting here (or their heirs) will face these questions at some point.

I've certainly learned a lot reading (and re-reading) the replies here and the clearer things become the more complicated they seem to become.

When it comes time to report these sales, would/could I actually report them three different ways? I'd see myself fitting all three categories. I have the cards I display, the cards I keep locked away and the cards I've just accumulated and don't care so much about that I would probably start selling with.

And I said I have a spreadsheet for most of my "significant" cards, but that doesn't cover everything. I've got plenty of memorabilia and lesser cards I'd have a hard time remembering where I got, never mind what I paid. How do you determine cost basis for that? Do you use "book value"? Ebay past sales? Guesstimate? What passes muster here and what doesn't?

Thanks again for the continued participation here. I'm sure I'm not the only one this information is helping.

[buymycards]

[QUOTE=Gusturd;2085300]I can't thank everyone enough for chiming in and I can't believe there isn't more discussion of this topic on this forum. You'd think there'd be a permanent "How to" thread, as I'm guessing 100% of the people posting here (or their heirs) will face these questions at some point.

There have been dozens of tax discussion threads over the years on this forum. Try a search for "taxes", "business taxes", etc.

[Gusturd]

[QUOTE=buymycards;2085301]

Originally Posted by Gusturd

I can't thank everyone enough for chiming in and I can't believe there isn't more discussion of this topic on this forum. You'd think there'd be a permanent "How to" thread, as I'm guessing 100% of the people posting here (or their heirs) will face these questions at some point.

There have been dozens of tax discussion threads over the years on this forum. Try a search for "taxes", "business taxes", etc.

No doubt there have been. But why have to go search, only to find each has ample amounts of outdated and/or inaccurate information? Why not have it pinned as a reference so people don't have to keep asking?

Thanks for your input.

[timzcardz]

Originally Posted by buymycards

No doubt there have been. But why have to go search, only to find each has ample amounts of outdated and/or inaccurate information? Why not have it pinned as a reference so people don't have to keep asking?

Thanks for your input.

The answer to your question is at the very top of the very page on this forum . . .

"Welcome to Net54baseball.com. These forums are devoted to both Pre- and Post- war baseball cards and vintage memorabilia, as well as other sports."


The business implications are about tax codes, not baseball cards.

And very seldom is there anything pinned to the top.

[Gusturd]

Originally Posted by timzcardz

The answer to your question is at the very top of the very page on this forum . . .

"Welcome to Net54baseball.com. These forums are devoted to both Pre- and Post- war baseball cards and vintage memorabilia, as well as other sports."


The business implications are about tax codes, not baseball cards.

And very seldom is there anything pinned to the top.

This thread is very much about baseball cards and I would think much more relevant than the "Worst type of Ebay guy" thread that's been very active for weeks now.

[RL]

irs....

https://www.irs.gov/businesses/small...-self-employed

[Gusturd]

Originally Posted by RL

irs....

https://www.irs.gov/businesses/small...-self-employed

Interestingly, If you click the "starting a business" link and then click "is it a business or a hobby", I believe the site provides obsolete information. Am I wrong about that?

[BobC]

Originally Posted by Gusturd

Interestingly, If you click the "starting a business" link and then click "is it a business or a hobby", I believe the site provides obsolete information. Am I wrong about that?

Though the article on the IRS site regarding if it is hobby or a business notes that it was written in May of 2017, it is not necessarily obsolete. If you compare it to the Taxslayer article written in January of 2021 that was referenced and also linked to earlier in the thread, you'll note that there are 9 bullet points given to weigh and consider in that Taxslayer article, which just happens to be the exact same number of questions referenced on the IRS site from four years earlier. That isn't a coincidence. The person writing the Taxslayer article just re-wrote what was on the IRS site already, changing wording so it didn't look like a blatant copy job. The IRS site article from 2017 hasn't been changed or updated since it was originally posted because what it says still reflects all the pertinent points and considerations that the IRS and its agents look at when trying to determine if someone has a business or a hobby. The problem is that the answers to all those points/questions aren't always simple yes or no answers.

There's also no definitive measurement, like saying if you answer yes to 5 or more of those points/questions that you are definitely a business, and if 4 or fewer yes answers that you definitely have a hobby. You have to look at and weigh the facts and circumstances for each indivual taxpayer and their unique situation to make the determination of if you have a business, hobby, or investments. It is definitely a subjective question, and not an objective one.

Also, over time as specific facts and circumstances change, you can go from having a hobby to a business, and vice versa. So you must continually review what you are doing as well.

There is one sort of safe harbor the IRS lets you rely upon in determining if you have a business or a hobby, regardless of those 9 points/questionsy they tell you to look at, and that is what is known as the "Hobby Loss Rule". According to this unofficial rule, if you claim some activity is a business and not a hobby and in any 3 out of the last 5 years you reported a net taxable profit from that activity, the IRS will pretty much concede it is a bona fide business for federal income tax purposes.

[BobC]

[QUOTE=Gusturd;2085319]

Originally Posted by buymycards

No doubt there have been. But why have to go search, only to find each has ample amounts of outdated and/or inaccurate information? Why not have it pinned as a reference so people don't have to keep asking?

Thanks for your input.

An earlier poster accurately noted this is a forum about collecting cards and such, and not establishing and operating a business with all the tax concerns and issues that go with it. However, threads do come up with questions about taxes or business/hobby aspects time and again, and people try help and answer as best they can when they do. You don't really want to start adding links and resources concerning taxes and establishing/operating businesses on this site as in addition to not being a main purpose of this forum, you then would appear to be entering the realm of now offering tax and business related legal advice. There is no one actually going to be monitoring such information to try and make certain it is accurate. And because tax laws do continue to change over time, things that are being posted and shown on a forum like this will then need to be constantly monitered and updated as those changes occur. And who is going to take the responsibity to do that?

[BobC]

Originally Posted by Gusturd

I've certainly learned a lot reading (and re-reading) the replies here and the clearer things become the more complicated they seem to become.

When it comes time to report these sales, would/could I actually report them three different ways? I'd see myself fitting all three categories. I have the cards I display, the cards I keep locked away and the cards I've just accumulated and don't care so much about that I would probably start selling with.

Yes it can be very complicated and confusing, without any easy, clear-cut answers. Also why it may make a lot of sense to consult a tax professional to review a person's unique set of tax facts and circumstances.

And yes, someone can have card sales under all three different options/treatments (Dealer, Investor, Collector) in the same year. Would need to keep proper records and such to do so. Not even unique to selling cards either. Think of a guy who buys and immediately flips and sells a house. That is treated as a sale of inventory subject to profit being treated as ordinary income. For that he's a Dealer. Same guy sells another house he had rented out for a number of years. Gain on this sale would likely get taxed as long term capital gain. So for that sale he's kind of like an Investor. And finally, he sells the house he lived in for years. Most likely any profit on the sale wouldn't be taxable, but if sold for a loss, he wouldn't get to use/deduct the loss on his tax return either. So for that house he's kind of like a Collector selling a personal asset.

I passed the CPA exam back in the 70's, and have been practicing ever since, and as such know a little of what I'm talking about. So if you have any questions, you (or anyone else) can just PM me and maybe exchange phone numbers to discuss further. It would be a lot faster and easier than all this typing. LOL

[Aquarian Sports Cards]

Originally Posted by Gusturd

This thread is very much about baseball cards and I would think much more relevant than the "Worst type of Ebay guy" thread that's been very active for weeks now.

Kind of contradictory, no?

[Gusturd]

Originally Posted by Aquarian Sports Cards

Kind of contradictory, no?

Not really. Just goes to show people here are interested in topics on the fringe of the hobby as well. But there are a few "by the book" members who are easily puckered and compelled to "yell at the clouds" rather than just ignoring a topic that doesn't interest them. Every forum has them.

[Gusturd]

Originally Posted by BobC

Yes it can be very complicated and confusing, without any easy, clear-cut answers. Also why it may make a lot of sense to consult a tax professional to review a person's unique set of tax facts and circumstances.

And yes, someone can have card sales under all three different options/treatments (Dealer, Investor, Collector) in the same year. Would need to keep proper records and such to do so. Not even unique to selling cards either. Think of a guy who buys and immediately flips and sells a house. That is treated as a sale of inventory subject to profit being treated as ordinary income. For that he's a Dealer. Same guy sells another house he had rented out for a number of years. Gain on this sale would likely get taxed as long term capital gain. So for that sale he's kind of like an Investor. And finally, he sells the house he lived in for years. Most likely any profit on the sale wouldn't be taxable, but if sold for a loss, he wouldn't get to use/deduct the loss on his tax return either. So for that house he's kind of like a Collector selling a personal asset.

I passed the CPA exam back in the 70's, and have been practicing ever since, and as such know a little of what I'm talking about. So if you have any questions, you (or anyone else) can just PM me and maybe exchange phone numbers to discuss further. It would be a lot faster and easier than all this typing. LOL

That's a gracious offer Bob. Thank you.

[Gusturd]

Originally Posted by BobC

Though the article on the IRS site regarding if it is hobby or a business notes that it was written in May of 2017, it is not necessarily obsolete.

These are excerpted from the IRS article. Are these still accurate? I thought the rules changed this in 2018?

2. Allowable Hobby Deductions. Within certain limits, taxpayers can usually deduct ordinary and necessary hobby expenses. An ordinary expense is one that is common and accepted for the activity. A necessary expense is one that is appropriate for the activity.

3. Limits on Hobby Expenses. Generally, taxpayers can only deduct hobby expenses up to the amount of hobby income. If hobby expenses are more than its income, taxpayers have a loss from the activity. However, a hobby loss can’t be deducted from other income.

4. How to Deduct Hobby Expenses. Taxpayers must itemize deductions on their tax return to deduct hobby expenses. Expenses may fall into three types of deductions, and special rules apply to each type. See Publication 535 for the rules about how to claim them on Schedule A, Itemized Deductions.

[BobC]

Y

Originally Posted by Gusturd

These are excerpted from the IRS article. Are these still accurate? I thought the rules changed this in 2018?

2. Allowable Hobby Deductions. Within certain limits, taxpayers can usually deduct ordinary and necessary hobby expenses. An ordinary expense is one that is common and accepted for the activity. A necessary expense is one that is appropriate for the activity.

3. Limits on Hobby Expenses. Generally, taxpayers can only deduct hobby expenses up to the amount of hobby income. If hobby expenses are more than its income, taxpayers have a loss from the activity. However, a hobby loss can’t be deducted from other income.

4. How to Deduct Hobby Expenses. Taxpayers must itemize deductions on their tax return to deduct hobby expenses. Expenses may fall into three types of deductions, and special rules apply to each type. See Publication 535 for the rules about how to claim them on Schedule A, Itemized Deductions.

The gist of those comments and the articles was I thought more towards the question of if you had a business or a hobby, and that was what I was referring to when I said they weren't really obsolete. Those determining factors haven't changed. You are correct in that the tax law changes in 2018 did away with miscellanous itemized deductions, which is where hobby expenses would have been reported and deducted. So the tax change effectively made those hobby expenses totally non-deductible. Good news is that is only in effect from 2018 through 2025, after which that particular change expires with most of the other 2018 tax law changes.

[birdman42]

Originally Posted by TobaccoKing4

...if you were going to continue to purchase cards with the intent to sell them so that you could write off the purchase price as a business expense and not wait until you sell the card to make this official tax wise.

That's not how it works. When you have a business, anything you buy goes into inventory. You only get to "write off" the cost of what you sell during the year.

Man, there's a lot of misinformation out there. I need to work up a business plan.

Bill

[birdman42]

Originally Posted by chalupacollects

If your state has the option, set up the business as an LLC. That way you can net out your expenses, profit and losses and your profit would be taxed as part of your regular income so your gains would be taxed at your normal 1040 rate. No capital gains to deal with... depends on your state though.

An LLC is a state entity. It has little to do with how your income gets reported. Here in Maryland forming an LLC means that you now have to file a personal property return each year, which has a filing fee of $300 in addition to the burden of preparing it.

When it comes to establishing whether you're a business or a hobby, having the LLC status is a point in your favor. But so are business cards, advertising, and regular activity.

I deal with sole proprietors who are LLCs, but also S-corporations.

Bill

[SAllen2556]

Have you considered just setting up a table at a local card show? If I was liquidating, this is the first thing I would try. All cash. No receipts. No IRS this or that. My only expense is the cost of the table. And it would probably be pretty fun.