Hi guys,
I started collecting Japanese cards about a year ago, and set out with a budget of around $700. Basically I’ve been buying large collections, grading the cards that are worth grading, keeping the ones I want for my collection and selling the others, so I can buy more and expand my collection.
The goal I set to myself was to build my collection over time without ever having to spend any more than my initial investment, but by now I have far exceeded my own expectations, and am averaging $700 worth of sales every month on ebay. Not enough to pay bills for sure, but likely enough to raise some eyebrows with the tax office.
Now, this is what’s confusing me, and I hope more experienced members can provide some insight into. I use all the proceedings of my sales to buy more cards that I want add to my collection, and have never taken any actual cash profit.
Since I am using the proceedings of a collectible to buy another collectible, is it considered profit for tax purposes, or am I safe to keep doing this?
To sum it up, if I sold $8.000 of items within a year and bought $7300 worth of cards for my collection, should I declare it or do I only declare it if I eventually sell my collection?
This may sound like a silly question, but the way I see it, if I need to pay tax on those $7300 I might as well register as a business, pay myself a part time salary and use that salary to buy cards for personal use. On the other hand, if I don’t need to pay tax because I didn’t realise any direct financial profit, I’ll probably keep doing things the same way.
Thanks in advance for your advice.
Keeping goods that are worth money instead of money is still taxable profit.
If you buy a card for $5 and sell it for $10 you made $5 of profit on $10 gross sales. That $5 of profit is taxable at your rate regardless of whether you keep it as $5 cash or buy a $5 card with it. You can change those values to anything you wish and it still holds true.
Even if you buy a $20 “collection” of two cards and sell one card for the $20 you didn’t just “break even”. You actually had $20 of buys and $20 of sales yes. But figuring out your cost of goods sold you only had $10 towards that leaving you with $10 of taxable profit.
Id say give a big middle finger to “the man” and dont do anything unless they come after you. No sense in spending extra money if you have no reason to
That’s entirely up to you. Usually people register as a business and pay taxes if they do more than $20,000 sales and 200 transactions as paypal will report your earnings to the IRS. However, if you’re in Vermont or Massachusetts that threshold is a mere $600. If you see yourself meeting that threshold in the near future, it may be smart to start reporting your income now. You will also have certain deductions for shipping supplies, gas money, storage for your inventory, etc… Make sure you keep track of everything, especially local cash transactions.
Also, the example gottaketchumall gave is not entirely true. One card can be $18 and the other $2 earning you $2 profit.
There’s obviously some grey areas too, I don’t think even the most honest sellers report their actual profit for each transaction. If you buy a card for $10 + $8 grading and it somehow grades a 10 and you sell it for $500, do you really report you earned $487(minus fees)?
This is something I’ve been curious about. People already complain about fees, I’d be surprised they pay taxes on almost the full amount of a sale on top of that.
If you buy an item to sell for profit, you are a business. Whether you make profit or not, you are legally a trading business.
It sucks that your hobby is classed as a business even if you are buying and selling to sustain/grow your hobby without it affecting your income/day to day life and expenses.
I have been selling things on ebay over the past month or 2. In the UK I can legally sell my items without tax or being a business if I have had them for over a certain amount of years and if they werent specifically bought for profit(difficult to prove whether I did or didnt). I am currently selling old items I own that i no longer need or want…ranging from recent to 15+ years old. When/if i decide to start specifically buying to sell ( i already have too much sh** to sell at the moment heh) I will then have to register as a business if it becomes a consistent and regular thing. I wouldnt bother if it was a few sales here and there…becoming a business for peanuts a month is far too much effort…even though technically it should be done.
It can also depend on your other income sources and how you conduct the hobby/business. I cant really help mcuh with the US side of things as it will most likely vary state to state! Maybe do some research and see what pops up
Actually, I am in the UK, so your insight is extremely helpful. Would you have any official sources regarding the sale of old items without intent to profit?
Also, do you know at which threshold does Paypal or ebay report to HMRC?
Thanks for your help.
You could be classed as a trader if you sell goods or services. If you’re trading, you’re self-employed.
You’re likely to be trading if you:
sell regularly to make a profit
make items to sell for profit
sell online, at car boot sales or through classified adverts on a regular basis
earn commission from selling goods for other people
are paid for a service you provide
You’re probably not trading if you sell some unwanted items occasionally or you don’t plan to make a profit. You can’t use any losses you make as part of a hobby to reduce your tax bil
Just make 10 diff ebay accounts and do a lot of friend and family paypal deals, hire a few underlings for additional ebay accounts and keep all your pokemon moneys in safety deposit boxes. That’s what I would do.
@tnols has a pretty big pokemon venture going. Maybe he’d have a better answer
You may need to pay tax if you use websites and apps to sell services like:
renting out your home to tourists
renting out your business premises, home or any other property for business purposes
doing tasks, eg cleaning or odd jobs
renting out your personal equipment, eg power tools
This may not be your main job or business. Selling services online like this is sometimes called the ‘sharing economy’ or ‘peer-to-peer’ (P2P) business.
When you pay tax
You pay tax if your income is more than your tax-free allowances and any reliefs you’re eligible for.
You can deduct allowable expenses of providing your service from your taxable income.
When you don’t need to pay
You don’t pay Income Tax on money you get from occasionally selling personal possessions online (but you may need to pay Capital Gains Tax).
You usually don’t pay Income Tax on anything you do where you just cover your costs, eg car pooling.
You can contact the Income Tax helpline if you’re not sure whether you should be paying Income Tax on any of your earnings.
If your just selling some of your own cards here and there then dont bother. If your buying more and more with the intention of reselling and continuing to grow the “business” then thats when you should be registered.
Theres no need to register an actual business / ltd company if your just starting out or early stages. It is best for when you want limited liability or using to your advantage for taxable pay (using salary and dividends as profit distribution) It does include having to complete more complicated accounting returns.
Yea VAT/tax code registered, sole trader. I wasnt meaning fully set up as a ltd company :pthe hmrc just need to know you are trading to make profit and that they receive a tax return with your overheads, costs, inventory, purchases, profit/loss etc to make sure it is on the up and up.
Doing what I currently do, which is sell my old toys, football shirts, collectables and cards etc is fine. The minute I buy to sell and frequently trade then i need to be registered as a sole trader, and submit tax returns etc. Fun stuff!! Small time seller isnt a problem imo.
Yeah, a lot of good info here, and also a lot of info that I would recommend that you take some time and find a good attorney and/or accountant to speak with in your area. You’ve got to do what’s legal.
If your primary goal is to make a profit, you’re a business. However, if you’re just selling off a part of a collection, that’s not considered taxable at least here in the US as you’re just selling personal belongings.
As has previously been mentioned the main cutoff is whether you are buying with the express purpose of selling. If you do get audited by the IRS they’ll look at what items you have, how long you kept those items before you sell them, whether you maintain any type of “inventory,” etc. If you claim to just be a collector and occasionally selling items you no longer want but you’ve got 1000 items for sale on eBay, that’s a red flag.
That being said, I’m pretty sure the tax man has bigger and better things to do than go after us for the extra income we make from flipping a card here or there. The only reason I think it would be an issue is if (a) you hit the $20k/200 transaction threshold and paypal reports your earnings to the IRS, upon which you don’t pay any taxes or (b) you don’t pay your taxes to begin with and the IRS is already poking around your finances.
Do you live in another world? haha
I would tell you not to interest yourself in worrying to pay anybody anything more than you can unless you need to.Evading paying taxes is part of business too, it happens from drug dealers all the way to corporations.Flipping cards, especially at only a few hundred dollars. Keep your money!
Edit: let me also say you are not in a position of liability where other could seek damages from you. In those cases a business is essential to protect your personal assets.
Even though direct financial profit is not my intent, and I would much rather keep this as a ‘headache free’ hobby, it seems like this is the right way to go. I’ll seek advice from an accountant next month.
Now, another question comes to mind. If after I am registered as a business and buy a collection in which there are a couple of cards I want for my personal collection, would it be safe for me to just take them? Or would I need to register them as a sale to myself at current market value?
Tim recommending to do what’s legal is honestly good advice and anything else would be irresponsible. Now does any entity follow that to the letter? Some do, some don’t. But you have to advise in the affirmative.
Dont quote me on it but I believe you cannot claim or keep items for personal use if you are claiming VAT back on them.Like say you buy a computer and get your VAT back on it because it is for your business.Then you keep it and dont use it for the business purpose, same with buying booster boxes and product. If you pay the standard price you can keep it. If that makes sense ha? I cant claim business expenses and claim vat back on a new sofa because i get it cheaper using the perks of being a business. However I can claim for a printer I use to conduct my online business or say stationary/paper used. I am pretty sure you are cool buying a collection online and keeping stuff for yourself aslong as you keep a record of what you bought, what it cost and you sold for(just take stuff you want to keep out of it). For example, spent £200 on collection of cards, sold x amount and received £350 back for them, still have 15 cards to sell. That is how I would track it put simply, so you know your profit and stock aswell as for tax purposes.
Dont hold me to it just a few things I picked up when i was wanting to get into buying and selling on the side as my hobby. It doesnt need to be complicated, especially as a sole trader. It is just keeping track of everything, receipts, business costs and so on. You can get alot of breaks as a small “business” owner and can claim for lots of things…if as I said…they are for business purpose. Of course no everyone sticks to it to a tee, as Gary said.
my laptop is being super slow and laggy so I need to close some processes
just a few things I picked up when i was wanting to get into buying and selling on the side as my hobby. It doesnt need to be complicated, especially as a sole trader. It is just keeping track of everything, receipts, business costs and so on. You can get alot of breaks as a small “business” owner and can claim for lots of things…if as I said…they are for business purpose. Of course no everyone sticks to it to a tee, as Gary said.