Starting an Ebay Business

[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 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.

[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?