Starting an Ebay Business

[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 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 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?

[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.

[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.

[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

[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

[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