Are you set up as a business? 2 2

[jimjum12]

On 12/24/2022 at 4:47 PM, Dr. Love said:

The IRS is not fond of you classifying  your hobby as a business just because it suits you. They have a set of criteria that should be met in order to be allowed to file as such. One of the big reasons is that business losses, once they exceed gains, can be applied to personal income. Hobby losses can only be applied to hobby gains.

In our State you are only allowed to suffer a loss two out of every five years before you face becoming ineligible to renew the Business License. That's not as easy as it sounds. GOD BLESS... 

-jimbo(a friend of jesus)

Edited December 26, 2022 by jimjum12

[namisgr]

Sounds like Mike's going to have inventory primarily going out the door rather than coming in.  Any strategy that can change from a collectibles tax rate of 28% to either a long-term capital gain or net income (which can be significantly lower rate for a retiree than when working) sounds useful.  

I bit the bullet and paid the collectibles rate on the net gain years ago when selling the high grade Silver Age collection, but I was still working at the time and so the rate was similar to income tax from my job and investments.  Also, the selling was spread out over a >5 year period.

Edited December 26, 2022 by namisgr

[lizards2]

On 12/26/2022 at 4:31 AM, namisgr said:

Sounds like Mike's going to have inventory primarily going out the door rather than coming in.  Any strategy that can change from a collectibles tax rate of 28% to either a long-term capital gain or net income (which can be significantly lower rate for a retiree than when working) sounds useful.  

I bit the bullet and paid the collectibles rate on the net gain years ago when selling the high grade Silver Age collection, but I was still working at the time and so the rate was similar to income tax from my job and investments.  Also, the selling was spread out over a >5 year period.

What I'm hearing from all these threads is that my effective tax rate as an individual would be lower than that 28% capital gains rate.

Probably 22%, unless Sandi quits substituting, or I quit working seasonal wildfire assignments.

Also, I lose my social security supplement this year when I turn 62, and I was contemplating not drawing real Social Security until I am older - that would constitute a fairly significant drop in income. Hmmm...., maybe I need to crunch some numbers, as the Social Security "gap years" might prove a great time to sell a bunch, and only pay 12%.  Hmmmm....., 

[jimjum12]

On 3/2/2023 at 3:14 PM, benhlelsaw said:

I haven't set up my hobby as a business yet, but I've definitely contemplated it. I think the key would be to make sure you're actually running a business and not just trying to avoid taxes.

Around here, the entry level Business License is $50 for businesses that generate 50K or less in sales. You can write off expenses and forego sales tax on inventory acquisitions ... so far no laws against enjoying your inventory. Their expectation is that it will sell within a year, and that the License will be denied if there are losses in 3 out of 5 years .... so they kind of already weed out those who are only angling for a tax break. GOD BLESS ...

-jimbo(a friend of jesus)

Edited March 3, 2023 by jimjum12

[the blob]

I looked this up in New York, as expected, it ain't cheap to do because you need a certificate of authority at the least and the filing fee is like $300. Of course, they say you need to do this if you make ONE sale a year that would be subject to sales tax! So much for cash pickups via facebook market...

[Robot Man]

I am an expert in buying and selling junk. Not so much in keeping track of it. Takes all the fun out of it and just becomes a job. 

[universal soldier]

On 5/10/2023 at 5:24 PM, KanyChandler said:

Great question! I've thought about turning my hobby into a biz, but I haven't made the leap yet. There are advantages to running your own business, but there are also some potential disadvantages, such as the extra paperwork and responsibility for running the business. But as long as you're willing to put in the effort and stay organized, it could be worth it. It's just as essential to get your business noticed online and to do that, you need to focus on developing On-Page and Off-Page SEO to really boost your rankings. Overall, I'd say it's definitely worth exploring if you're serious about your hobby and looking to take it to the next level.

Nice attempt at a link drop that ties into the topic but reported... 

[Chisililltan]

I've actually considered turning my own hobby into a business too. It's tempting to explore the benefits of managing taxes and expenses differently. Like you, I've wondered about the pros and cons. On the one hand, it could be a way to save costs and invest back into what you love. But on the other hand, it might add more responsibilities to something that was once pure enjoyment. Finding that balance between turning your passion into a business and keeping the joy alive is crucial. And hey, if you're ever thinking about funding, Finding investors who share your passion can make all the difference. Have you checked out the founders shares guide? It could provide some valuable insights into navigating this journey.

Edited August 21, 2023 by Chisililltan

[OuterBanks]

On 8/18/2023 at 10:41 AM, Chisililltan said:

I've actually considered turning my own hobby into a business too. It's  tempting to explore the benefits of managing taxes and expenses  differently. Like you, I've wondered about the pros and cons. On the one  hand, it could be a way to save costs and invest back into what you  love. But on the other hand, it might add more responsibilities to  something that was once pure enjoyment.

That is the downside to it - if you want to make a profit you'll have to make tough decisions (i.e. selling books you love).  In my situation - my CPA said based on the amount I was just selling/buying and trading anyway I should go down this path.  If you're selling a lot of books (or in my case - lower volume, higher dollar value) - his opinion was that the IRS would view the hobby as a business so I should just get ahead of it.

I'm glad I did it - CGC expenses, bags/boards, pressing fees, shipping/handling, GPA subscription, collectors insurance are all business expenses now.  My CPA specializes in e-commerce sales and basically - all my comic expenses (new purchases) can also be written off (the stipulation here is that stuff has to be sold at a profit or a loss at sometime).

So far all I have to do in addition to what I did before:

- Update a spreadsheet weekly with any expenses and save all my receipts in a folder

- Fill out a sales tax form on the Virginia state website once per month 

It was a bit of a learning curve but worth it IMO.

I now have comics in the "for business" and "for personal" categories.

 

[Addya]

Yes, I set up my hobby as a business primarily to benefit from tax advantages like writing off expenses and avoiding sales tax on new acquisitions. It has helped streamline my finances and make my collection more sustainable. However, it also comes with added responsibilities, like bookkeeping and tax filing, which can be a bit of a hassle. Overall, if you have a significant collection, it might be worth considering.

Another thing to keep in mind is the operational side of running your hobby as a business. Managing inventory, keeping track of sales, and ensuring timely shipping can be challenging. I’ve found that sometimes the process can slow down due to a bottleneck in operations management . This happens when one part of the process can't keep up with the rest, causing delays and inefficiencies. It's something to be aware of if you're considering turning your hobby into a business.

Edited June 14 by Addya

[the blob]

On 12/24/2022 at 9:36 AM, rsouxlja7 said:

Capital gains are taxed at the lesser of 28% or your marginal rate for collectibles (note: has to be long term, can’t be a comic you bought and sold in less than a year). If you put your sales on a Schedule C you'll be at your marginal rate + self employment taxes (~15%) but you have a lot more options when it comes to claiming expenses that you don't have with capital gains, such as claiming your cell phone, internet, QBI deduction, etc. There's also the ability to lower your taxes with the Sch C by utilizing a self-employed IRA. You don’t need to set up an LLC or anything to do this, by the way. 
 

Run the numbers both ways and see which way turns out better. 

Don't you not pay those self employment taxes if you are already making $168K from your real job and have already paid all your SS?

[the blob]

Hmmm, maybe the paperwork would be worth it if I did this for my junk selling hustle and my wife's consulting business (which barely brings in anything, but all she needs is one break, she keeps on getting calls about being an expert witness that don't pan out). You can have one LLC that does multiple things? My wife has been bugging me to set up her consulting business in the event she ever does get clients.

[the blob]

On 12/24/2022 at 9:36 AM, rsouxlja7 said:

Capital gains are taxed at the lesser of 28% or your marginal rate for collectibles (note: has to be long term, can’t be a comic you bought and sold in less than a year). If you put your sales on a Schedule C you'll be at your marginal rate + self employment taxes (~15%) but you have a lot more options when it comes to claiming expenses that you don't have with capital gains, such as claiming your cell phone, internet, QBI deduction, etc. There's also the ability to lower your taxes with the Sch C by utilizing a self-employed IRA. You don’t need to set up an LLC or anything to do this, by the way. 
 

Run the numbers both ways and see which way turns out better. 

I understand 3 minutes with an accountant would get me my answer, so your existing collection just becomes an asset of the business you've created, which you own? How does the accounting work for this "contribution"? Seems like putting $10K into business is a bit easier to objectively quantify for accounting purposes than a room full of funny books.

Edited June 11 by the blob

[rsouxlja7]

On 6/11/2024 at 3:31 PM, the blob said:

Don't you not pay those self employment taxes if you are already making $168K from your real job and have already paid all your SS?

That's correct

On 6/11/2024 at 3:39 PM, the blob said:

I understand 3 minutes with an accountant would get me my answer, so your existing collection just becomes an asset of the business you've created, which you own? How does the accounting work for this "contribution"? Seems like putting $10K into business is a bit easier to objectively quantify for accounting purposes than a room full of funny books.

If you're setting up an LLC and you have existing assets you're contributing to it the accounting is an increase to the asset and an increase to your equity in the business in the amount of your cost basis of the asset. So if you paid $10k over the years for your collection the journal entry in Quickbooks or whatever would be a debit of $10K to inventory and a credit to your equity. It's the same as any other asset.