Taxes

General
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Regarding eBay taxes:

My understanding is that eBay will generate a 1099 for me after the end of the year. How do I report taxes on my net income if eBay is reporting my gross?

Example: I buy card for $1,000, grade it, and sell it for $2,000. Now I am in the deal for $1,300 after my cost (purchase price, grading, shipping) so my profit is $700. eBay reports that I made $2,000 but really I only made almost a third of that.

I’m just trying to wrap my head around how this process works and what I need to do.

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nice try IRS

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Ebay reports your total income. You report the expenses. You pay tax on the profits. That’s generally how it works.

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I honestly have zero clue how taxes work on collectibles and cards fully, because the definitions on many things are all over the place it seems. In my country (Canada) we have a thing called “Personal Use Property” which may or may not apply to Pokemon cards, it simply refers to items as “Prints” with no underlying definitions specifically for trading cards within. Basically, anything under $1000 in sale does not need to be reported (which is great because many of my cards are under this price).

However, it also has this weird grey area where it comes down to sale frequency (i.e. are you a regular buyer/seller) and then when you have a lot more transactions all of a sudden you are considered a “business” selling cards instead of just an individual/casual seller and the tax implications change drastically.

For anything over $1000 I’ve sold through PWCC or privately under the table. When I sold through PWCC, it just went into my vault account and I bought more cards :joy:. However, when I import the cards I do have to pay taxes on them technically.

So I think this is the way the Govt deals with it because they can’t clearly define taxation on this stuff accurately. I’ve talked to locals and many people I know have never reported taxes on cards or at least that is what they’ve claimed because it’s very difficult to define, and the Govt has made no effort to clarify things yet. They’re more worried about fine art and items over $100K in value it seems.

Here a paragraph I saved when I looked into this:
Personal Use Property
Under the tax rules, where an item is used primarily for your
personal use or enjoyment, it is called “personal use property.”
Many collectibles will fall into this category. When you
ultimately dispose of the item, or if it is still held at the time of
your death, a capital gain (or loss) may arise. When calculating
this gain or loss, if the cost of the property was less than
$1,000, then it is bumped up to $1,000. Similarly, if the amount
you received for it at the time of disposal is less than $1,000,
then your proceeds for tax purposes are also bumped up to
$1,000. Effectively, this means that no capital gain will arise
should you sell personal use property for less than $1,000.
Capital losses on personal use property, however, are deemed
to be nil, unless the item falls into the special category of
“listed personal property,” which is discussed later in this document.

I know this has no use to you as an American, but I just wanted to share my experience in case someone ever comes across this thread in the future.

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I’m not a CPA, so disclaimer this is not financial advice (see a CPA):

1. Track All Expenses with an Itemized Spreadsheet.
You are entitled to deduct certain expenses, more or less depending on what type of “business structure” you file as. Cost of Goods (purchase price) and item improvements (grading/shipping) are generally deductible regardless of which method you choose.

2. Determine Type of Business
Consult a CPA here, since the definitions of different structures are a bit tricky. Usually, people file as either a Sole Proprietor/LLC (Schedule C Tax Form) or file their sales as Capital Gains (Schedule D Tax Form). There are advantages and disadvantages to each, and both forms walk you through what you’re eligible to deduct. However, having documentation for everything is important.

In short the 1099 from eBay will go to you and the IRS, so the IRS will expect to see income reported on your 1040. It’s then up to you and your CPA to report that income along with the necessary deductions/expenses (usually on Schedule C or Schedule D) to derive your Net Income . . . thus determining how much taxes you owe. Having detailed/itemized spreadsheets will help your CPA figure out how best to file this income. It will also protect you in the event of an audit, since you will have documented receipts, rather than just making up numbers or guessing. Finally, I’d suggest visiting your CPA before the end of the year; hundreds of thousands of people are going to get blindsided in early 2023 not knowing what to do with their 1099’s, so finding a tax professional may be difficult and costly this coming tax season.

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Grading fees are a pretty grey area it seems as an “expense” to write off.
You have to prove it was an ordinary and necessary thing to do.

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I don’t see why this would be the case (pun intended) that grading fees shouldn’t be a consideration. If you sell graded cards, grading is a business expense. Just like the cost of taking lumber and forming legs is a business expense for a tablemaker

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Guess that falls into whether your income is considered a business or a hobby. Just reading where you would have to classify income from selling as a business to get costs like shipping, etc written off.

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Grading fees are definitely a business expense.

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Grading fees should be included in the cost of your inventory and the transportation/insurance costs if there were any. It was an expense incurred directly while producing the item for sale.

You’ve taken a raw card, put it through a process that added value (hopefully lol), and had it transported back for its final sale.

Selling fees and shipping costs at the point of sale would just be regular business expenses. From a tax perspective, it is still just another expense to go against your profit.

Purchase price + Grading fees/upcharges + Shipping/Insurance back to you +Import taxes = Inventory cost

Inventory cost + Shipping cost + Selling fees = Final cost

Sale price - Final cost = Profit (taxed potentially idk for personal collectibles)

That’s just what I remember from learning IFRS Accounting in school. A simple spreadsheet could save you a lot of headaches down the road.

Here is an example of a sale of mine.

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Cost - All expenses getting the card from the seller to in my hands
Sale Price - Gross $ amount before expenses
Shipping Cost - Cost of shipping to the buyer
eBay fees - Selling fees
Net profit - Amount that would potentially be taxable

[Not advice] [Not advice] [Not advice]