The point I’m trying to make is they used to have an exception for hobbies in the USA and there was a rationale for this. Likewise, there is a rationale for why people don’t have to pay income tax on gifts they receive for a wedding or birthday. As evidenced by the constant delay in lowering the 1099 thresholds, it’s a disaster and the IRS and Congress know it.
I hope and wonder if the hobby loss rules will return in 2026 when the TCJA expires.
Here is what they used to be:
(a)General rule
In the case of an activity engaged in by an individual or an S corporation, if such activity is not engaged in for profit, no deduction attributable to such activity shall be allowed under this chapter except as provided in this section.
the deductions which would be allowable under this chapter for the taxable year without regard to whether or not such activity is engaged in for profit, and
(2)
a deduction equal to the amount of the deductions which would be allowable under this chapter for the taxable year only if such activity were engaged in for profit, but only to the extent that the gross income derived from such activity for the taxable year exceeds the deductions allowable by reason of paragraph (1).
Whether you reach the threshold for a 1099-K or not is irrelevant. You must report all income, whether it was generated from a hobby or a side hustle - it doesn’t matter to the IRS. Not receiving a 1099-K does not absolve you from reporting your hobby income.
The 1099s are in place to encourage people to follow the law and to make the auditors’ lives easier when people break the law.
I am unaware of any law/rule that excepted hobby income as reportable under federal income tax codes. To my knowledge, the current rules pertain to whether you operate as a self-run business that would be subject to additional taxes (e.g., self-employment tax), but both hobby and business pay tax on income and always have.
These are rules in reference to itemized deductions (Title 26 → Subtitle A → Chapter 1 → Subchapter B → Part VI). This does not comment on whether or not you pay income tax.
What I have been meaning to say, and perhaps I haven’t been clear, is the law was such that you were allowed certain deductions(“hobby losses”) that could offset the income tax you would owe on hobby sales.
For any people who do not operate as a business, they should absolutely not report pokemon sales income if they do not reach the threshold and do not receive 1099’s. Don’t have any scruples. This is one of the most F’d up things the US has ever done in the past 20 years to the small person (the proletariat if you will). People cannot afford to have sudden 1-5k tax liability when virtually all of the people tasked with such a debt are among the classes of americans who have no savings and work paycheck to paycheck.
In the US all major corporations (at least those publicly traded) don’t make their money on business revenue. They pay little to no tax because of our completely exploited and messed up tax laws. They raise company value by increasing share value so their owners and investors make money. They increase value by spending most income on expansion and leave all tax liability to the working class people. And that’s not even to mention how the majority share of tax revenue is squandered on things we normal people can’t even begin to imagine, and how the people running the show are only looking out for themselves and then pressuring taxpayers to pay their “fair” share by trying to make it a moral issue. Don’t give them your money if you don’t have to.
I understand, but this is still allowable under Capital Gains and Capital Losses Schedule D (Form 1040) in a sense. If you sell cards at a loss, you can claim those losses on the appropriate form which will offset your overall tax burden associated with sales for that year. You cannot include other amounts spent on the upkeep of your hobby (e.g., storage, insurance, materials, etc.) unless you file as a business (subject to self-employment related taxes).
So under that same logic, I never broke the law for speeding because I’ve never been caught?
Just because you aren’t caught doesn’t mean you didn’t break the law. Regardless of your personal feelings on the matter (of which, I tend to agree with you that it is awful), you are required by law to report income from sales even if you do not receive a 1099. If you do not and you get audited, you will be fined.
Do you believe all laws posted are moral? Because if you do there is no point in going on further. However if you believe otherwise then everyone should think for a second that we are discussing a law that is not policed or enforced. A law that people who literally are the government do not follow. As my CPA family member would remind you, you cannot be audited for documentation that doesn’t exist. It isn’t possible.
So that you broke the law doesn’t matter in the slightest for anything other than if you feel it is a moral issue. Some laws are very good and important, others are made for no purpose other than someone else’s benefitting at your expense. Fundamentally wrong, in other words.
Things can be a bit different depending on how you “view” (or the IRS views) the assets.
If you acquire “collectible” cards and sell them after 365 days (invoking long-term capital gains), you can actually end up paying more taxes, due to the IRS taxing collectibles at the highest rate they’ve set (28%). In this case, a “collectible” sold in the short-term would incur a tax rate equal to your normal income, but a long-term gain would be taxed at 28%. (And I would think most people’s ordinary tax rate is probably lower than 28%). Also, if the cards are considered “investments,” then you can claim capital losses, but if the items were for personal use, then you can’t (according to this site–see “Losses realized on disposition of collectible assets”). A lot of this depends on how you view and use these assets and the intent upon acquiring them, which is subjective and ambiguous.
In the situation @eeveeteam pointed out, I don’t think you could claim that a capital loss, as you are keeping a part of that card lot for personal use.
Overall, it’s very confusing.
(Obligatory “I am not a tax professional” statement. Please talk to an accountant or tax professional if this all pertains to you, and you want to know you’re filing everything correctly).
It’s important to note here that you are taxed on the net gain, not the gross gain. Meaning that if you sold a $2,000 card for $2,400, you would be taxed on the $400 and not the $2,400. I think most people believe it would be the latter. These taxes are meant to take a portion of the profit, not of the whole transaction.
I agree that it is very confusing, which is why being transparent with your account is crucial.
i am proudfuly and actively avoid taxes. im not US citizen. but when i need something middled to me from a seller in the US i will 90% of the time get the seller to sell it to me off ebay. he then saves on ebay fees and i dont have to pay tax. ebay will always force you to pay taxes. i will also ask sellers in japan that i buy for to mark the package on graded cards/decks/etc for 40$ so i dont pay tax. sue me or call the police i dont care
I have some more questions regarding tax and pokemon sales.
I am in the US. I did not recieve a 1099 from ebay/goldin/pwcc etc
Using turbotax to do my taxes. The cpa near me is too expensive(500$)
I have a regular job and do this more as a side job. I have done for example 10k in profit, with majority of the work not really shipping/traveling/printing/using home, just buying and selling from vaults, etc. So its not exactly a lot i can do for deducting expenses if I were to calc all that if i file as sole-prop besides cost of good sold.
Should i file as this as hobby income (revenue from selling the item minus cost of the item. Taxed as income) vs business(revenue from selling the item minus cost of the item + expenses. Taxed as income +15% SE)
My gut says just do hobby since my expenses to deduct dont outweigh the additional 15% SE tax, but reddit, articles, internet, and turbotax suggest i do as a business.
I’m curious if others in the same frame as me are just doing hobby or business(not llc).
