Since these are collectibles, couldn’t you report 1099 income on schedule D and report as short/long capital gains? If you don’t consider yourself a business, but consider sales as investment income from the sale of collectibles, wouldn’t schedule D work in lieu of schedule C?
Prefacing my comment with: I’m not a tax/legal advisor, and always do your own research.
I’m in the same situation. I’m working with my accountant on this, but this year, my sales and purchases are pretty much even (if anything I bought more). So you will have to report your income, however, you can also report your purchases to deduct from your taxable income.
I would suggest working with an accountant to see if that’s an option for you as it might save you a bit of headache (and cash)! Keep us updated 
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Seems plausible but all the sources I see pertaining specifically to MTG/Pokemon/Sports cards are using schedule C. Not sure if trading cards aren’t recognized as investments or not. Maybe someone else can weigh in but I’d need to do a lot more research and not aware of the tax benefits of doing it one way or the other besides potentially capping the taxes at 28% but that doesn’t pertain to me.
One thing I’m still struggling with is the cost basis for long held assets. About 6k of my sales were from a coin collection I had for 20 years. I had read vaguely somewhere the cost basis can sometimes be the current market value of an item in this situation but I’m going to more or less assume I’m eating the full taxes on these sales as I have no receipts.
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Cost basis is how much you paid for it back then. It’s not how much it is worth now otherwise you could just say you sold for market value and you’re net even. If you don’t have receipts, you’re gonna have to guess. Thanks for this post as I needed a reminder to make a spreadsheet for all this info.
Edit: reading your post again, if you don’t have a receipt and you mean using market value at the time you bought to estimate cost basis, that would make sense
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Preface: I am not a tax advisor and nothing I say below should be considered tax advice. Mostly discussing to hear others’ thoughts.
Trading cards meet the criteria of a Collectables. I guess my thinking is with Schedule C you are identifying as a business. Even though you’re profiting off collectible sales, you’d be doing so in the capacity of a dealer if you utilize schedule C. With that you have to pay self-employment tax and you are supposed to pay taxes quarterly through the year. Benefits here include extra business deductions, home office deductions etc.
With Schedule D you claim your sales as short or long capital gains. Just like how if you buy and sell stocks you’re not considered a business, you’re doing it as investment income. You can still include cost basis (item cost, PSA grading fees etc.), but can’t include other deductions like home office. With this you don’t have to pay quarterly or pay self employment tax, however you will be subject to max of 28% long term capital gains rate or your personal tax bracket rate if lower than 28%. Short term capital gains is just treated as income.
What I don’t understand and what I should confirm with a tax advisor is when the IRS would consider your activity as business income or investment income, like is it number of transactions, is it your intent with your activity? I that part comes down to your personal choice.
It seems most people use Schedule C, but there is a sense to me that Schedule D is far simpler for the collector/investor who sells some of their collection, but isn’t running it as a business (not sole source of income, no storefront, no website, no eBay store). There are benefits and drawbacks whether reporting Schedule C income Schedule D.
Anyone care to weigh in with further insight? This is rather new to me as I mostly haven’t sold much in the past to report as anything other than miscellaneous ordinary income, but that’s going to change this year.
As far as cost basis @pokeaddict84 for this long term items, I believe you can try to find data of the cost of those items when you acquired them. I don’t think you need receipts, you just need some data that proves what the fair market value was in the year you acquired them. I wonder if an appraiser could help unarchive that data for you.
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This is my understanding as well after speaking with my tax advisor. I didn’t sell enough for a 1099, but I did sell enough to warrant reporting the income. I’m planning on going with the Schedule D and capital gains route, since I didn’t have the overhead or deductions to warrant a business (most items I’ve had for at least 5 years). Instead, I put together a spreadsheet of acquisition costs, grading fees, and selling/shipping expenses (cost basis) to subtract from the gross sales to determine net profit. Definitely not excited to pay the taxes, but that’s just part of life. Best wishes @pokeaddict84!
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Take it with a grain of salt, but this site classifies people has either hobbyist, Investor, Trader, or dealer with tax implications for each. Trader seems to be the best scenario but not sure if you can argue I fit that category.
bradfordtaxinstitute.com/Content/Coin-Stamp-and-Baseball-Card-Activities.aspx
As it pertains to schedule C vs D I found this quote in regards to choosing D: "The downside to reporting this way is that you get no loss deduction for the sale of “capital assets held for personal use.” Additionally, If you have expenses unrelated to the purchase or sale of a specific item, you would need to consider yourself a business (and use Schedule C) to deduct them.
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Just to reinforce (understanding that I am not your tax advisor):
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If you are just a collector in the US you are dealing with hobby income. You report your gains and losses with all your Capital Gains and Losses. You get to deduct direct costs to purchase items against the revenue from selling them. You are not allowed to apply losses against normal earned income (I think you can carry forward losses, or apply them against other capital gains), and your cost basis is somewhat restricted (you can’t take certain deductions the way a business can). But you don’t need to Pay self-employment taxes (Medicare and Social Security) on Hobby Income.
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If you are running a business. You can deduct a variety of business-related costs that a collector (hobby) cannot. You report your revenue and expenses as a business and then drop your net profit as income. You must pay self employment taxes on business income. If self employed, you may be able to deduct 20% of your self-employment earnings from income (up to $20K annually, if I remember correctly). If you don’t have health insurance through an employer, you may be able to deduct some or all of your family’s health insurance expenses (depending upon your profit).
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That’s my thinking as well. Schedule C allows for more deductions (home office, part of your electric bill, internet bill, gas to drive to the post office etc.) where Schedule D only allows cost basis (original cost of item, ebay/PayPal fees, shipping costs, PSA grading fees).
The loss deduction is only a worry of you sell your cards less than you bought them for. *knocks on wood* with how our hobby continues to grow, it’s highly likely that you can strategize every item to be sold at a profit meaning a loss deduction is irrelevant. Of course if you must sell a card at a loss then yes that would be a downside of Schedule D where you can’t offset that loss on your other taxes, where with Schedule C you can.
For me the Schedule D seems more logical since selling cards isn’t my day job, I have a 9 - 5 job and sell cards on the side. I miss out on the extra deductions, but I also don’t have to bother with paying quarterly tax or paying self-employment tax (meant to contribute to Medicare and Social Security). Also, if you do identify as a business and use Schedule C, the IRS actually has pretty specific qualifications for what constitutes business activity:
www.irs.gov/faqs/small-business-self-employed-other-business/income-expenses/income-expenses
Whether you carry on the activity in a businesslike manner and maintain complete and accurate books and records.
Whether you have personal motives in carrying on the activity.
Whether the time and effort you put into the activity indicate you intend to make it profitable.
Whether you depend on income from the activity for your livelihood.
Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
Whether you or your advisors have the knowledge needed to carry on the activity as a successful business.
Whether you were successful in making a profit in similar activities in the past.
Whether the activity makes a profit in some years and how much profit it makes.
Whether you can expect to make a future profit from the appreciation of the assets used in the activity.
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This is the gray area where again I think a tax advisor can help make the determination. For the collectors who don’t intend to sell their cards every year or only intend to collect and sell occasionally or inconsistently without a predefined intention to make a profit every year, I’m not sure if that would constitute a business. That’s why Schedule D makes sense in many cases. Especially if you have another source of income like a day job and your card selling is casual, with again, no storefront, no website, no inventory explicitly intended for resale.
*Again, everything I say is for discussion purposes only and is not intended to be tax advice as I am not licensed tax advisor… please see a tax advisor to figure out what’s best suited for you. *
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afaik in schedule D if your report a capital loss that loss can offset other capital gains?
I think so for the same year, I’m unsure if it carries to future years though or how it works exactly… I’ve only sold capital gains at a profit.
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If you are go the hobby or investment route, you can use capital losses to offset a capital gain (from cards, for example). Short-term and Long-term designations apply, as they do for all similar transactions.
For anyone considering going the hobby / investment route, make sure that you talk to your tax professional about what steps would be necessary if you want to switch in a future year (hopefully when your collection is worth substantially more). Many of the collateral costs of building and maintaining a collection are difficult to include in your cost basis years into the future unless you know what to keep track of now.
As far as all the earlier specifics regarding whether you are a “business” or not; most of those “business” guidelines are to prevent abuse in terms of tax losses. The ability to not only write off more expenses, but to apply business losses against other income immediately, has led to many tax abuses. So the IRS is very careful to try and weed out phony business schemes designed simply to generate tax losses.
On the other hand, if you claim you are running a business and the business makes you a profit, so long as you are honest about the finances (net profit) the presumption is usually that you are running a business. It doesn’t matter that you already have a full-time job. Or that you already have 10 other businesses. Claiming to be a business does require more paperwork, and better record keeping.
As to which is better, that depends entirely on your specifics and your tolerance to do the extra work necessary to be a business.
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What is everyone’s threshold to report this on your taxes? Any amount? 5000? 10000?
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I see that mew has used transform to become an IRS agent.
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Lol, just curious. . Not a cpa. Just trying to learn.
Also, anyone know of if there is anything similar to the 1031 exchange in real estate where you can defer taxes if you reinvest the profit, except applicable to collectibles/investments ? Would be nice if there was such a thing.
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There is no easy equivalent to the real estate allowances for collectibles. However, since you get to designate value in any transaction where there isn’t a listed buy and sell price (like on Ebay), you have flexibility when working on trades. If you trade an expensive card for $1,000 and a stack of less expensive cards, you have to value the card you traded at more than $1,000. How much more is debatable. You have the whole range of wholesale discount to high retail to work from. And if a card isn’t slabbed, you have a variety of choices on the condition of the card you traded away. If you undervalue the cards you got back that is only a tax issue when you get rid of them.
I have always reported all of my card sales. At least to me it isn’t worth hiding a tax liability. But I was always good at keeping track of all expenses associated with any cards I purchased.
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Preface I’m not a tax expert…Just to wrap up this issue I’ll share what I eventually decided to do.
After getting a 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 or so were trading cards sales and the rest personal household items.
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 at death I can’t use a pro-rated cost basis at the time of inheritance and thus I have no cost basis for them since it’s a gift that must use my father’s original cost basis from 25+ years ago. I’m going to use my best estimate at the cost of producs like the proof sets at the time of purchase or use the face-value of single coins. From my reading this should be sufficient for the IRS. These coin sales will then be treated as long-term capital gains minus expenses. Personal sales of household items included in my 1099K I’m just not reporting as virtually everything was sold at a loss…
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Bro I sold total of $40 in 2020 and I’m still nervous about it
@pokeaddict84 I am not a CPA, lawyer, financial advisor or anything like that and I don’t remotely know if it applies but I know that there are exemptions for certain types and amounts of gifts/inheritance and it may just be something you want to look into on the value of the coins. I am quite certain a gift or inheritance of ~$6k in cash (and often much more) from a parent to a child is almost never if at all a taxable event. Since yours was items then sold maybe that varies. At least worth a look.
Right receiving a small gift isn’t a taxable event, but as soon as you sell the gift you are liable to pay taxes on that sale. Im certain I have to pay taxes on those sales, and since they are valuables (collectibles) subject to the annoying 28% capital gains tax. Same thing with selling an inherited item, but calculations for the cost basis are completely different if the gifter didn’t die before the asset was recieved.