Current How To Properly File Federal Income Taxes on Hobby sales thread

[oddstuff]

Originally Posted by shrevecity

Last year Ebay did not add the taxes to your totals but did add the fees you paid for it so you were able to deduct them.

I still need to figure out where to deduct the state taxes that Paypal collected during 2020 to remit to my state but also included in my 1099K. I've seen one article say to put that as an expense under "Taxes and License"...but from the description in my software program, doesn't seem to fit...but I doubt there is a custom field anywhere in the program that was created to accommodate this one time occurrence at least for me. Curious where some of you enter that amount since my Paypal income is overinflated with the sales tax included in the gross.

[mjohnatgt]

https://www.blowoutforums.com/showthread.php?t=1440973

Much of the discussion that has occurred in the baseball forum thread was wrong (including some things I thought were true), but it looks like it's pretty solid near the end.

If you're wanting to treat your income like a business in order to take deductions beyond cost-of-goods-sold, you do not have to be registered as a business, just treat card investing like a business. This requires a level of involvement and paperwork retention to prove original prices paid, sale prices, shipping, paypal fees, grading fees, etc.

Otherwise, for cards you bought and sold with the intention to resell at a profit, you can use a schedule form to treat them like investments, and then reduce the taxable amount to the profit margin.

Read that thread, but also remember to check with your own CPA/tax advisor.

[Nebulus]

Got my first 1099K this year from paypal for selling > 20k in mostly collectibles. It's been a real struggle and many hours of research trying to figure out how to deal with this. About 6k sales were coins I was "gifted" from my father I had no cost basis for. Another 12k were trading cards and the rest personal household items.

Here is what I ultimately decided on..After going back and forth whether to fill out a schedule C or D I decided to go with D. All the trading card sales I'm going to treat as investments and report those gains minus fees/asset costs/shipping. Those are going to be a mix of short/long-term gains. Since the coins weren't inherited and I have no cost basis for them I'm going to use my best estimate at the cost of the proof set ect. at the time of purchase or use the face-value of the coins. These will then be treated as long-term capital gains minus expenses. Personal sales of household items included in my 1099K Im just not reporting as virtually everything was reported at a loss..

Thought on this plan?

[Rictor]

Originally Posted by saintsfan9

Got a 1099K from paypal for about 22k, all from paypal for cards.
I tried to enter my sales as a HOBBY with offsetting expenses (bought 50k worth of boxes/breaks) and sold about 22k worth of cards. New tax law as of this year does not allow hobby expenses to offset sales, meaning this has to be filed as a business. Now i have 28k of losses on my "business" and would be getting a large refund. Doesnt seem right but they are making me do it this way...
I'll consult someone before I actually file this, but I think there are going to be a lot of people with similar issues this year because of the tax law change.

This assumes you sold 100% of those $50k worth of cards from boxes/breaks and kept nothing. Anything you kept would be considered goods on hand, the value of which would be considered an asset.

So if you spend $50K on cards with a value of say $75K, sell $22K worth and keep the rest, you haven't lost any money.

[jetcollectibles]

Originally Posted by Rictor

This assumes you sold 100% of those $50k worth of cards from boxes/breaks and kept nothing. Anything you kept would be considered goods on hand, the value of which would be considered an asset.

So if you spend $50K on cards with a value of say $75K, sell $22K worth and keep the rest, you haven't lost any money.

Of course speak with an accountant to get advice from someone qualified, but here is my experience from today. I spoke with a CPA online from my tax software talking about this exact thing. They also suggested I file as a small business. You will still have to count for that inventory if you didn't sell everything from packs/boxes/breaks, but since prices fluctuate it can be tricky assigning values. Technically, you could operate at a loss and still have inventory. For me, I have so many cards stuck at PSA that I will be behind this year, but should pull pretty far ahead once they get back in hand this year. They pointed out that a business is expected to be profitable, so if you continue operate at a loss after three years, the IRS will likely send a letter telling you that your "business" is now considered a hobby.

[boxbuster7]

If you used ebay bucks on a purchase should you subtract this from the item total?

For example $30 card used $10 ebay bucks. Would you say the expenses were $30 or $20?

[khauser86]

What's up guys? I started my sole prop July 22nd and I'm driving myself insane trying to properly file a schedule c. I feel like I'm over complicating things...just under $10K gross sales.

[sickmantz]

Originally Posted by Nebulus

Got my first 1099K this year from paypal for selling > 20k in mostly collectibles. It's been a real struggle and many hours of research trying to figure out how to deal with this. About 6k sales were coins I was "gifted" from my father I had no cost basis for. Another 12k were trading cards and the rest personal household items.

Here is what I ultimately decided on..After going back and forth whether to fill out a schedule C or D I decided to go with D. All the trading card sales I'm going to treat as investments and report those gains minus fees/asset costs/shipping. Those are going to be a mix of short/long-term gains. Since the coins weren't inherited and I have no cost basis for them I'm going to use my best estimate at the cost of the proof set ect. at the time of purchase or use the face-value of the coins. These will then be treated as long-term capital gains minus expenses. Personal sales of household items included in my 1099K Im just not reporting as virtually everything was reported at a loss..

Thought on this plan?

The gift allowance for 2021 was $15k and gift taxes in excess are paid by the giver.

If you received $6k worth of coins from your father as a gift, that's not taxable to either of you.

[sickmantz]

FYI, the capital gains rate for collectibles is 28%, so unless you're in the 32% bracket or higher, you'll probably claim gains as ordinary income.

[tribefan26]

Originally Posted by sickmantz

The gift allowance for 2021 was $15k and gift taxes in excess are paid by the giver.

If you received $6k worth of coins from your father as a gift, that's not taxable to either of you.

If he received them as a gift, his cost is what his father paid. If his father paid $3,000 for them, he has $3,000 income to report

[RatedRooki3]

Hoping someone can answer this question....

Let's say I purchased 30 Boxes of 2020 Panini Prizm Football (Retail). I personally opened 20 Boxes and have 10 boxes remaining in my inventory. I use quickbooks to process my bookkeeping etc. Now, when I first bought the 30 boxes, they would be in my inventory account as an asset on my balance sheet. How do you properly account for the opening of the product (20 Boxes)?

[Sets2]

Originally Posted by BigEd

Just because hobby losses aren't deductible doesn't mean you're carrying on a business. That has a very specific definition, but for simplicity, I will point out that the IRS has a safe harbor that any venture that turns a profit in three of every five years is considered a business. If you don't meet that standard, they can reclassify you as a hobby and disallow expenses in excess of income, which will result in a very large tax bill with substantial penalties.

There may also be a problem with your expense calculation, but since you said you'd consult someone, I'll let them hammer it out with you. I'm available via PM if you need more info.

Fine print: while I'm a licensed tax professional, anything I write here is my interpretation of tax law and shouldn't be considered actual tax advice. You gotta pay for that.

I was under the impression that a business can only have a loss 3 years in a row before becoming a hobby. is this correct?

[Lone Wulf]

Just throwing this out there to see what people respond with as I have zero clue myself on what is legit for the IRS and people operating within the hobby.

Last year I obtained a card at a card show with a sticker price of $1500, I traded a few cards and paid a little bit of cash to get it from the dealer. Fast forward to now, I graded the card myself, it came back a PSA 10, and sold it on ebay for a final price around $6500. I should be able to deduct the grading cost and the ebay fees if I understand things right. However I have no actual receipt for the cost of obtaining the card, the closest thing would be using the cash withdrawal line item on my bank statement showing the amount of cash I took out for that card show (but it wasn't all used on that card specifically). Is it even possible to deduct something for the cost to obtain the card in this instance? Can I transitively deduct the cost of what I paid for the cards that were traded in that transaction (I know what they are, I have the ebay purchase info from last year, but I also have no record of the in person trade transaction giving them up)? Or am I stuck just claiming that $6500 as income because I really don't have a good record of it? I guess the main point is: How do people claim deductions for in person transactions and trades, as there is no real record of what happened that I could produce for an audit.

Unfortunately I am not really operating as a card business, I have 4 ebay sales this year, and originally I was trying to stay under the reportable threshold so I wouldn't have to worry about tax stuff, but then my one big card shot up in value and it seemed like the right time to sell. So I have like $7200 in total ebay sales at this point. If the response to the question above is that I can't really deduct much from that main $6500 sale, I am not sure how beneficial it is to talk to a tax professional and list business stuff on my taxes. Seems like I am weighing the uncomfortable interaction (and fees) to talk to a tax person for 4 card sales vs just listing my ebay sales as additional income next year and getting taxed at like a 25% rate whatever it is.

Side note: This type of thing is the biggest turnoff to cards at the moment to me, taxes and fees. I like cards, I like collecting, But I don't have much fun doing messy tax stuff.

[khauser86]

“You may have heard about a new tax law that went into effect this year. We believe this new regulation just doesn’t make sense. It creates confusing and unnecessary paperwork for millions of casual sellers on eBay, who will now receive tax forms even when they don’t owe taxes.

To help support our sellers, we’ve been working to put pressure on Congress by bringing our community together to make their voices heard. We need sellers like you to speak out today and tell Congress to act in the interest of sellers across the US.
Here’s what’s happening

Companies like eBay are required to report sales to the IRS using a tax form called a 1099-K. Until recently, you would only get a 1099-K if you sold over $20,000, or more than 200 items. Starting this year, new legislation has lowered that threshold to just $600, even if that was from a single sale all year. Where it gets complicated is you’ll get this form even if you don’t owe anything, because not all sales are taxable–for example, if you sell something for less than you paid for it. That means millions of sellers will now get unnecessary tax forms, creating confusion and pointless paperwork–both for the IRS, and for small-time sellers who aren’t set up to deal with it.

Imagine selling an old bike for $800 that cost you $1,500 a few years ago. Since you didn’t make a profit, the IRS doesn’t consider that taxable income. But under this new law, you’re still going to get a 1099-K. And now you’ll have to prove to the IRS that you don’t actually owe any taxes on that sale, which makes for complicated accounting work.
Here’s what you can do

We’re asking our community to take action today. Recently, new legislation was introduced in Congress to raise the threshold and limit the number of sellers getting these unnecessary forms. But we need your support to make sure it will pass!

Go to our eBay Main Street website and tell Congress to act now to support Americans selling online. It will only take a few minutes, and if we succeed, it can save you, and millions of other sellers the hassle of needless tax forms for years to come.
Speak out today ➔

We’re committed to making sure all our sellers are set up for success, and will continue to keep you updated. Look for emails and alerts from us that will help explain what’s changed, and what you may need to do next. In the meantime, you can learn more in our FAQ about Form 1099-K and how it affects you.

Thanks for being part of the eBay community.”


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[cms11]

What’s taxable

If your sales are akin to having a garage sale — i.e., you unload belongings for less than what you originally paid — there typically is no reason to report what you pulled in, said Weston at the American Institute of CPAs. Essentially, there is no “income” to report.

https://www.cnbc.com/2021/03/26/its-...ine-sales.html

[bbogan99]

OK, in case anybody is still following this thread...

If this is covered somewhere in a past thread, my sincere apologies. It's Friday evening, it's been a long week and I'm just looking for a fast answer...

I had a professional tax preparer (a national chain who will at least for now remain nameless) do my taxes last year, so I could make sure they did the Ebay/capital gains part correctly, assuming I'd then use last year's return as a template to do mine myself in the future. Sat down the other night to do this year's. Figured out pretty quickly that they took my gross sales column and subtracted the basis column (ok, so far), then ADDED the total from the Ebay fees column. End result, I paid taxes on several thousand $ worth of income I didn't have. I call them to complain, then go in tonight to straighten everything out. Am told by the manager that she talked to her CPA boss who said everything was done correctly. After 15 minutes of arguing over whether a non-business "collector" can/can't deduct any Ebay fees, and over how in the world a negative number like a fee can possibly be entered as a positive adjustment, I end up leaving with a "promise" that the supervisor will call me to explain everything, but still with the implication that I have no clue what I'm talking about.

I have found several sites that state selling fees are supposed to go into the basis figure, which seems odd, but at least gets them counted as negative numbers. I also get that, as a collector, I can't count as adjustments things like maintenance/restoration expenses, which a "business" could. But, as far as seller fees being deductible by ANYBODY, am I nuts? If I'm not, can somebody please point me to a definitive resource/site/IRS publication?

Thank you in advance!!

[hxcmilkshake]

Originally Posted by bbogan99

OK, in case anybody is still following this thread...



If this is covered somewhere in a past thread, my sincere apologies. It's Friday evening, it's been a long week and I'm just looking for a fast answer...



I had a professional tax preparer (a national chain who will at least for now remain nameless) do my taxes last year, so I could make sure they did the Ebay/capital gains part correctly, assuming I'd then use last year's return as a template to do mine myself in the future. Sat down the other night to do this year's. Figured out pretty quickly that they took my gross sales column and subtracted the basis column (ok, so far), then ADDED the total from the Ebay fees column. End result, I paid taxes on several thousand $ worth of income I didn't have. I call them to complain, then go in tonight to straighten everything out. Am told by the manager that she talked to her CPA boss who said everything was done correctly. After 15 minutes of arguing over whether a non-business "collector" can/can't deduct any Ebay fees, and over how in the world a negative number like a fee can possibly be entered as a positive adjustment, I end up leaving with a "promise" that the supervisor will call me to explain everything, but still with the implication that I have no clue what I'm talking about.



I have found several sites that state selling fees are supposed to go into the basis figure, which seems odd, but at least gets them counted as negative numbers. I also get that, as a collector, I can't count as adjustments things like maintenance/restoration expenses, which a "business" could. But, as far as seller fees being deductible by ANYBODY, am I nuts? If I'm not, can somebody please point me to a definitive resource/site/IRS publication?



Thank you in advance!!

You're in luck. Blowout is THE foremost authority on tax preparation. Just wait for all the info to come flowing in.

Sent from my SM-G996U using Tapatalk

[bbogan99]

Originally Posted by hxcmilkshake

You're in luck. Blowout is THE foremost authority on tax preparation. Just wait for all the info to come flowing in.

Sent from my SM-G996U using Tapatalk

Well, I paid a "professional" several hundred dollars to tell me a fee deducted from my sales is income for me (added to the sales themselves); so, they can't do much worse than that, can they?

[BigEd]

Originally Posted by bbogan99

OK, in case anybody is still following this thread...

If this is covered somewhere in a past thread, my sincere apologies. It's Friday evening, it's been a long week and I'm just looking for a fast answer...

I had a professional tax preparer (a national chain who will at least for now remain nameless) do my taxes last year, so I could make sure they did the Ebay/capital gains part correctly, assuming I'd then use last year's return as a template to do mine myself in the future. Sat down the other night to do this year's. Figured out pretty quickly that they took my gross sales column and subtracted the basis column (ok, so far), then ADDED the total from the Ebay fees column. End result, I paid taxes on several thousand $ worth of income I didn't have. I call them to complain, then go in tonight to straighten everything out. Am told by the manager that she talked to her CPA boss who said everything was done correctly. After 15 minutes of arguing over whether a non-business "collector" can/can't deduct any Ebay fees, and over how in the world a negative number like a fee can possibly be entered as a positive adjustment, I end up leaving with a "promise" that the supervisor will call me to explain everything, but still with the implication that I have no clue what I'm talking about.

I have found several sites that state selling fees are supposed to go into the basis figure, which seems odd, but at least gets them counted as negative numbers. I also get that, as a collector, I can't count as adjustments things like maintenance/restoration expenses, which a "business" could. But, as far as seller fees being deductible by ANYBODY, am I nuts? If I'm not, can somebody please point me to a definitive resource/site/IRS publication?

Thank you in advance!!

If you're treating card sales as capital gains, the selling fees would fall under "expenses of sale", which is added to your basis to determine the amount that offsets the proceeds.

ex. You sell a card for $100, you paid $50 for the card, eBay takes $10 in fees, and you pay $5 for shipping. $100 - ($50+$10+$5) = $100 - $65 = $35 profit.

The downside with that is the IRS could consider them collectibles, and as such, the cap gains tax rate is 28%.

If you buy and sell cards as a hobby, you must claim the sales price minus the cost of procuring the item as income. When the TCJA was passed in 2017, deductions for hobby expenses went away.

ex. Same situation as above. The cost of purchasing the card is the only amount you can deduct, so your hobby income is $100 - $50 = $50. You can't deduct the eBay fees or the shipping anywhere on your return.

If you run your card selling as a business, your taxable income is the same as the capital gains example, but you have the ability to deduct more things than you otherwise could (advertising, home office, supplies, etc.). The downside to this is that if you have a net income, that income is taxed at your regular income tax rate plus 15.3%. If you have a net loss for 3 out of any 5 years, the IRS could come back and reclassify it as a hobby.

I meant for this to be much shorter, but there's just a little too much nuance here. I hope that helps and good luck.

Fine print, as always: while I'm a licensed tax professional, anything I write here is my interpretation of tax law and shouldn't be considered actual tax advice. You gotta pay for that.

[bbogan99]

Originally Posted by BigEd

If you're treating card sales as capital gains, the selling fees would fall under "expenses of sale", which is added to your basis to determine the amount that offsets the proceeds.

ex. You sell a card for $100, you paid $50 for the card, eBay takes $10 in fees, and you pay $5 for shipping. $100 - ($50+$10+$5) = $100 - $65 = $35 profit.

The downside with that is the IRS could consider them collectibles, and as such, the cap gains tax rate is 28%.

If you buy and sell cards as a hobby, you must claim the sales price minus the cost of procuring the item as income. When the TCJA was passed in 2017, deductions for hobby expenses went away.

ex. Same situation as above. The cost of purchasing the card is the only amount you can deduct, so your hobby income is $100 - $50 = $50. You can't deduct the eBay fees or the shipping anywhere on your return.

If you run your card selling as a business, your taxable income is the same as the capital gains example, but you have the ability to deduct more things than you otherwise could (advertising, home office, supplies, etc.). The downside to this is that if you have a net income, that income is taxed at your regular income tax rate plus 15.3%. If you have a net loss for 3 out of any 5 years, the IRS could come back and reclassify it as a hobby.

I meant for this to be much shorter, but there's just a little too much nuance here. I hope that helps and good luck.

Fine print, as always: while I'm a licensed tax professional, anything I write here is my interpretation of tax law and shouldn't be considered actual tax advice. You gotta pay for that.

I am putting the whole thing on the capital gains schedule. Nonetheless, your contention is that a hobbyist can't subtract the Ebay fees, but a "business" seller can, correct? This would be what I consider to be my worst-case scenario; the Ebay fees don't go into the equation at all. The way these doofuses have done it, the Ebay fees are being counted as income for me, which is clearly absurd.

[BigEd]

Originally Posted by bbogan99

I am putting the whole thing on the capital gains schedule. Nonetheless, your contention is that a hobbyist can't subtract the Ebay fees, but a "business" seller can, correct? This would be what I consider to be my worst-case scenario; the Ebay fees don't go into the equation at all. The way these doofuses have done it, the Ebay fees are being counted as income for me, which is clearly absurd.

I'd have to see it to be sure you're reading it correctly, but if it's how you laid it out, the return is clearly wrong. They're right, however, that if you're claiming it as hobby income, then you can't deduct eBay fees. If you're going the collectibles route, then you can add the fees to your basis on Form 8949.

[bbogan99]

Originally Posted by BigEd

I'd have to see it to be sure you're reading it correctly, but if it's how you laid it out, the return is clearly wrong. They're right, however, that if you're claiming it as hobby income, then you can't deduct eBay fees. If you're going the collectibles route, then you can add the fees to your basis on Form 8949.

So, what's the difference between "hobby" and "collectible"? I was under the impression that the distinction is between "business" (which I clearly am not) and whatever the something else is. I guess I was interpreting "hobbyist" and "collector" as the same thing...

[BigEd]

Originally Posted by bbogan99

So, what's the difference between "hobby" and "collectible"? I was under the impression that the distinction is between "business" (which I clearly am not) and whatever the something else is. I guess I was interpreting "hobbyist" and "collector" as the same thing...

Hobby income is reported as regular income (Form 1040, Other Income). This is likely the most accurate description for most people.

Collectibles income is capital gains income (Schedule D / Form 8949). The IRS would use this for things like buying a smaller number of individual cards and keeping them for various amounts of time. Think of it like stock sales.

Business income is taxed as regular income plus self-employment taxes (Schedule C). This gives you access to deductions, but increases your taxes.

[darthpau3]

If you get a penalty, then don't hurry to pay it. Analyze it, go to a specialized law firm like Oberheiden P.C. if you must, but don't pay it. Most of the time, they're wrong.