If you’re in it for the profit or if it’s more than an occasional sale, you may be crossing the line.
You love holding garage sales, and selling on eBay and Craigslist. You’ve become expert at holding garage sales – friends seek your advice for success and you’ve cleaned out your attic and closets. You don’t want to stop, but you’ve run out of items to sell. “Maybe you can buy that sweet chair at the sale around the block and with a little *brush up* sell it for more than the neighbor asked? Um, maybe that lamp at the flea market could go for more if you added some beads…”
“Look out – you may be crossing a line,” says Leigh Mutert, CPA and Community Manager at H&R Block. “Whether sales occur occasionally or regularly, and if there is intent to make a profit are two factors that separate casual sellers from hobbyists and business operators,” says Mutert. Remember, most casual sellers are holding sales where the items are sold for less than the seller paid for the items – i.e. there isn’t a profit or gain.
A taxpayer with a hobby must report all income generated from sales.
- As a hobbyist, the taxpayer may deduct all related expenses, but not more than the total revenue from that hobby.
- This means that a hobby can’t generate a loss on your tax return.
- If your activity is a hobby, report your income on line 21, Form 1040. Check out a full list of Hobby Expenses Tax Tips.
- A hobby that supplements income could be considered a business by the IRS.
- An H&R Block professional tax advisor help you determine if you need to file as a business; get a free 30-minute tax consultation at an H&R Block office near you.
- If a taxpayer regularly buys and sells items to the extent that a business results, each sale has a tax consequence.
- If the taxpayer is the sole owner, purchases and sales must be reported on Schedule C.
- For example, if a business buys basketballs for inventory at a wholesale price of $3 each and sells them for $10 each, the business can deduct the $3 cost. The $10 sales price is revenue and the $7 profit is taxed. If a basketball is sold for $2, the $1 loss is deductible.
- Also, there are several Schedule C tax deductions the business owner may be entitled.
ALERT for Online Sellers: For 2011 returns, taxpayers who annually sell more than $20,000 worth of goods and have more than 200 electronic transactions will receive the new 1099-K Form, which will report payment card and third-party transactions, including PayPal and eBay payments.
For more expert tax advice on any topic go to H&RBlock.com. H&R Block At Home online and desktop solutions for tax filing make it easy to file from home., or you can find an H&R Block office near you.