Starting an Ebay Business

[btcarfagno]

Technically the gain on the sale of collectibles (which sports cards certainly qualify as) is taxed at either your current tax rate or up to a maximum of 28% if your tax rate is above that percentage. So it would not be considered a long term nor a short term gain. Just a collectibles gain.

If done as a business on Schedule C the tax rate would be whatever your tax rate is, but you will also get hit with self employment tax on the profits (either Social Security and Medicare tax or, if you have already gone above the income threshold for Social Security tax, then just Medicare tax). However, as a business you are able to deduct expenses that you are not able to by simply selling the collectible itself for a gain. These would include travel, subscriptions, supplies, collectibles insurance, a portion of your cell phone bill if you use the phone for the business. Some expenses such as eBay/paypal fees or grading fees can be used as an expense in either instance.

Hope this helps a bit.

[Gusturd]

Originally Posted by btcarfagno

Some expenses such as eBay/paypal fees or grading fees can be used as an expense in either instance.

Hope this helps a bit.

Thank you. Yes very helpful. I just want to be sure I understand this last sentence. Are you saying ebay and PayPal fees are deductible for either hobby or business?

What about shipping?

[RL]

Here is where you can get your answers. There are some posts on this thread giving you false information.



https://www.taxslayer.com/blog/busin...-hobby-income/

[Gusturd]

Originally Posted by RL

Here is where you can get your answers. There are some posts on this thread giving you false information.



https://www.taxslayer.com/blog/busin...-hobby-income/

Yes I had actually read this already and it's why I feel like I've been going around in circles on this topic (even before I decided to ask here). Nothing I read in this thread will replace the professional advice I receive. I'm just trying to wrap my head around how it works in the mean time.

Reading that article it sounds like nothing is deductible. Ebay fees, PayPal fees, shipping are all expenses aren't they? Therefore not deductible for the hobbyist?

[MooseDog]

Shipping yes, but keep in mind expenses are ONLY deductible in a business.

This is where people run into trouble...if the IRS determines your activity to be a "hobby" they can disallow those expenses. That's why it's important to keep good records and operate in a business-like fashion.

Originally Posted by Gusturd

Thank you. Yes very helpful. I just want to be sure I understand this last sentence. Are you saying ebay and PayPal fees are deductible for either hobby or business?

What about shipping?

[btcarfagno]

Originally Posted by Gusturd

Thank you. Yes very helpful. I just want to be sure I understand this last sentence. Are you saying ebay and PayPal fees are deductible for either hobby or business?

What about shipping?

An expense that is so directly related to the sale that it becomes part of the cost basis is, and always has been, allowed as a deduction for the sale of a collectible even if not considered part of a business. I have been involved with enough IRS audits in my line of work to know this to be true.

Thus the eBay and PayPal fees for the sale of a collectible are part of the cost of sale, as are grading fees for the card.

Now that Taxpayer article is certainly correct, if a bit simplistic, regarding your motivations for selling. If you are selling items year after year, it is likely going to be viewed as a business. If you have 20 cards in your collection and decide to sell them in one year, that will be considered a hobby and thus a gain on the sale of collectibles taxed at either your tax rate or 28% whichever is lower. And if you have these 20 items graded and sell the sale involves a sellers fee, these are part of the cost of sale for each item and thus will increase basis. This doesn't mean you get to deduct grading fees on other items or any such thing. But a direct cost associated with the sale of a specific item will increase its basis for sale regardless of whether or not the IRS deems the sale to be part of a business enterprise.

[btcarfagno]

Originally Posted by Gusturd

Thank you. Yes very helpful. I just want to be sure I understand this last sentence. Are you saying ebay and PayPal fees are deductible for either hobby or business?

What about shipping?

An expense that is so directly related to the sale that it becomes part of the cost basis is, and always has been, allowed as a deduction for the sale of a collectible even if not considered part of a business. I have been involved with enough IRS audits in my line of work to know this to be true.

Thus the eBay and PayPal fees for the sale of a collectible are part of the cost of sale, as are grading fees for the card.

Now that Taxslayer article is certainly correct, if a bit simplistic, regarding your motivations for selling. If you are selling items year after year, it is likely going to be viewed as a business. If you have 20 cards in your collection and decide to sell them in one year, that will be considered a hobby and thus a gain on the sale of collectibles taxed at either your tax rate or 28% whichever is lower. And if you have these 20 items graded and the sale involves a sellers fee, these are part of the cost of sale for each item and thus will increase basis. This doesn't mean you get to deduct grading fees on other items or any such thing. But a direct cost associated with the sale of a specific item will increase its basis for sale regardless of whether or not the IRS deems the sale to be part of a business enterprise.