I’m considering selling for the first time. Because I never intended to sell, I have very little documentation for vast majority of cards I’ve accumulated over the years and quite frankly, I don’t have the slightest clue as to how much I paid for many of them. I also tend to do a lot of in person cash deals which doesn’t help and I’m starting to wonder if selling is going to be worth the hassle.
I’m curious how everyone goes about deducting the cost of the card/expenses and the level of documentation required to do so in certain situations. Obviously I’m not going to take any responses as professional tax advice. Just looking for general input from experienced sellers.
Questions below, thanks in advance!
Let’s say I purchased a card privately for $700 cash but don’t have any documentation to prove how much I paid for it. I then sell it for $1,000 and receive a 1099k. Technically I should only be paying tax on the $300 profit but since I don’t have any documentation proving what I paid for it, am I just SOL and on the hook for the entire 1k?
Let’s say a I purchased 20 raw cards from a shop and have a non-itemized receipt for the entire purchase. I then sell one of them. How would I go about proving how much I paid for the card I sold since the receipt isn’t itemized?
Let’s say I purchased a booster box for $300 & pull a card from it that I then sell for $300. The rest of the cards I pull are garbage and I don’t sell any of them or intend to in the future. Can I deduct the entire cost of the box in that situation or just the cost of one pack?
Obligatory not a tax expert, and not even all that experienced of a seller. However, I think a lot of your questions have the same root issues, which is (a) the difference between “proving” vs “tracking” and (b) selling as a hobbyist vs selling as a business.
Regardless of hobbyist/business, my understanding is that you do not need to “prove” anything unless you are audited. As long as you are operating in good faith and tracking your purchases/sales/costs/etc., you won’t need to upload receipts in order to get a deduction. Yes, you will have to fill out tax forms that list all of these which is why you need to track, but the IRS isn’t going to want 500 receipts to sift through with your return. So as long as it all checks out, you won’t have them knocking down your door. You should still keep receipts and detailed records of cost, sales price, profit, etc., but I wouldn’t worry if you’re missing one or two here and there and I doubt the IRS would either.
Some issues come into play when you’re mixing hobby buying (for a personal collection) with sales (for a business). So if that 20 card order from a shop had 15 you’re keeping for a collection and 5 you’re looking to sell, you could only deduct the cost of the 5 you intend to sell. You don’t need a perfectly itemized receipt (a general breakdown would probably be sufficient) but mixing hobby and business usually leads to issues. Same for the box, are the rest of the cards being used for your personal collection or are you going to sell them eventually (inventory)? As a hobbyist you could probably argue you needed to open the entire box to get the one card and deduct it all (you couldn’t know what pack the card would be in). However a business is much more straightforward, the entire box is deductible as inventory and you just have some parts that aren’t financially viable to sell at current market rates.
Keep in mind that regardless of whether you’re operating as a hobbyist or a business, if you are selling inventory you can deduct things like original purchase price, shipping/handling costs, eBay fees, PSA grading fees, mileage, and more. You have to track all of these but when all is said and done many small time and even medium to large sellers are able to get their tax burden down significantly.
1). You just pay tax on $300
2). You don’t have to prove purchase price as long as it checks out and if you’re doing genuine transactions.
3). Yes you deduct your entire purchase of the box and whatever you crack out of it is your net. For example if you spend $100 on a box and only make $50 out of it, your net is -$50.
I am not a tax expert and I am assuming you’re doing cash basis.
idk what tax bracket you are in, but if it’s a lower bracket Audits basically never happen unless you have a criminal history of like credit card fraud or other reasons to get audited. IRS is just not spending tax dollars on low profiles unless there is a decent suspicion or doubt.
I have 15+ yrs of audit experience but it’s all from big 4 public accounting and a large publicly traded company. I’m used to extremely stringent controls and documentation standards. I think my experience is making me over think the burden of proof required for a dude selling cardboard
This actually reminded me of something I forgot to ask in my original post. If I were to sell, I would be a small fry. In other words it wouldn’t replace my day job and the income would likely be filed alongside my w2 income. Are you able to implement cash basis accounting in that scenario? Or do you need to carve out a second entity and file separately to do so?
I do a 1099 and have a sole proprietorship with a name like “Triple TCG”. You don’t need to make an LLC. If you’re doing it as a hobby and not really as a store just list it on a 1099.
To add on, I think you can do either cash-based or accrual-based accounting up until you make like several million in revenue or something? After which, you have to do accrual-based accounting. Basically, as a small time seller, you can do either.
I don’t think there’s even a large difference for selling cards anyway, since you pretty much always receive payment immediately following the sale. Unless someone’s paying you with a payment plan or something
The question about cash basis was more so geared to how it applies if you file your cardboard income alongside your w2 income as opposed to filing as separate entities. I’m still trying to wrap my head around how that would jive with the IRS @triple s point of having a sole proprietorship is making sense to me.
No tax expert here (or am I? ), but I think you can do a sole proprietorship if you have some business-like intentions. If it’s purely hobbyist, I think you can just report your income on your normal 1040 tax form as “additional income.” Making income as a hobbyist vs sole proprietorship can be somewhat unclear, but the IRS has some methods of justifying whether you’re intending to be a business or not (see here). You do lose some benefits for not being “business-like” though (like deductions), but either way, you are taxed on your profit only.
Arr you trying to figure this out for this tax season?
), but I think you can do a sole proprietorship if you have some business-like intentions. If it’s purely hobbyist, I think you can just report your income on your normal 1040 tax form as “additional income.” Making income as a hobbyist vs sole proprietorship can be somewhat unclear, but the IRS has some methods of justifying whether you’re intending to be a business or not (see 
.
. Next season for sure. Hopefully some more after that. Time flies