As April 15 approaches ... more tax questions

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Posted By: Matt

Joann-
While putting the income from the sale of your cards on the “Other Income” line is better than not putting the income on at all, it is not the proper place to put the income from a business or investment sales.

If you do consider your sales a business the income should go on a Schedule C. If you consider the income sales from investments it should go on Schedule D.

If you put the sales on Schedule C, you show your total sales on the income line and subtract the cost of goods sold (your purchase price and expense of sale). You would also deduct all your expenses relating to your business. (see the hobby loss rules from the other post, but as long as you have net income the hobby rules won't matter)

On Schedule D you show your sales price in the “proceeds” box and your “basis” in the cost box. Your basis is what you paid for the card plus any cost holding the card (grading fees) and any expenses of the sale (ebay and shipping).

As for the Code section you mentioned -1250- it does not apply here. That section (and 1231 and 1245) deal with the sale of assets “used in a business”. If you consider your sales a business these are not assets “used in a business” but rather inventory. For instances if in your baseball card selling business you owned a display case or a trailer to haul around your cards to shows and you decided to sell these assets, you would be selling assets “used in your business” and not inventory. Inventory sales are ordinary income and assets used in a business may receive “capital gains” rates.

Eric – I agree, since the difference between “personal use” and investment is merely intent, then at the time of sale, your intent would be "held for investment". So baseball cards should be considered “investment property” (unless it is a sale of inventory - see other post)

As for whether to report or not, everyone is entitled to their opinion, but as a licensed CPA I can only recommend all sales, no matter how small should be reported. The chance of being audited, no matter how small, should have no effect on your decision (i.e. playing the audit lottery) on what to report. This is a self reporting system. You won’t win any points with the IRS by doing what is required by law. And ignorance of the law is no excuse for not reporting.

The most important thing to do is keep good records of your purchases in order to prove your “basis” with the IRS. Otherwise you run the risk of the IRS claiming that the entire sales proceeds are gains as opposed to just the difference between the sales price and what you paid for the card (and expenses of sale) being the gain.


Hope this helps and let me know if you have any other questions.

(edits for spelling)

(As required by new U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this post, including attachments, is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.)