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__________________
Net 54-- the discussion board where people resent discussions. ![]() My avatar is a sketch by my son who is an art school graduate. Some of his sketches and paintings are at https://www.jamesspaethartwork.com/ |
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That's my understanding of how it works, but I am not a tax professional. Last edited by Snapolit1; 02-06-2018 at 09:10 AM. |
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Here's a link to another article that nicely spells out what the IRS is looking for in determining if you are a hobby or a business, in more straightforward language. You have to look at the various considerations the IRS uses and review each situation separately for the specific facts and circumstances. https://www.kahnlitwin.com/blogs/tax...bby-a-business The big rule of thumb that is most often followed is the "3 out of 5 years of income" rule, which is what is most commonly referenced when someone talks about the "Hobby Loss Rule". But, even if you have fewer than 3 years of income in the prior 5 years, you can still argue that the intent was to be a business and be profitable if you can show a good reason why the losses occurred. Just not as easy an argument to win with the IRS. |
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Then the IRS has no clue as to how competitive the baseball card market actually is. |
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Virtually every business market is competitive. The IRS doesn't need to have a clue, nor care one iota. All they know is that if you have net income, regardless of what/where it is from, you should be reporting and paying them tax on it.
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http://www.flickr.com/photos/calvindog/sets |
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And flip the scenario around and say you bought the card for $800 and then sold it for $1,000. If you are considered to be in the card selling business, the $200 net profit you generated would be included as part of your taxable income, subject to ordinary income tax rates, at a maximum rate of 39.6% for 2017. Also, if considered as a business, this would also likely be considered self-employment income and you'd probably be liable for self-employment taxes (social security and Medicare taxes) on that same net income, on a combined employer and employee rate of as much as 15.3%. And that is in addition to what you would owe as income tax on that same $200 net profit. If you were considered to only being in a hobby instead, you would still have to include the $200 of net profit on your tax return but, now it would be considered a capital gain from the sales of a collectible, subject to a maximum income tax rate of only 28%, and there would be no self-employment tax owed. These are very simple examples assuming the individual is operating more or less as a simple, sole proprietor, and not operating as a corporation or other business entity. I'm quoting maximum and potential tax rates also. To determine how much someone would really end up owing, you'd have to go through all the items in their returns and add in everything to see where they really come out in the end. On a possible positive note, the new tax reform act may hold a benefit for those considered to be operating as a business. The new Section 199A calls for a deduction of up to 20% of the net income from pass-through entity businesses that meet certain requirements. To my knowledge, it appears that someone selling cards would be able to qualify for this. Again, you'd have to look at each person's specific tax facts and circumstances to determine the actual impact this may have on their returns starting in 2018. |
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