amatta Posted December 23, 2022 Share Posted December 23, 2022 Just curious as to if anyone here has (or has contemplated) setting up their hobby as a business so as to not have to payout sales taxes when they acquire new items, write off expenses, etc any thoughts? I would think those with truly significant active collections would do this - any input on the pros and cons? Link to comment Share on other sites More sharing options...
shadroch Posted December 23, 2022 Share Posted December 23, 2022 Starting a business strictly to avoid paying sales taxes is unethical and may be illegal. Pantodude 1 Link to comment Share on other sites More sharing options...
the blob Posted December 23, 2022 Share Posted December 23, 2022 On 12/23/2022 at 3:15 PM, shadroch said: Starting a business strictly to avoid paying sales taxes is unethical and may be illegal. I think that was just part of a list of things the OP was interested in jimjum12 1 Link to comment Share on other sites More sharing options...
Motor City Rob Posted December 23, 2022 Share Posted December 23, 2022 On 12/23/2022 at 3:15 PM, shadroch said: Starting a business strictly to avoid paying sales taxes is unethical and may be illegal. I think the OP was just using that example as one of the benefits of running a business. Then again, if the business strictly buys without selling anything, they won't be a business for very long... and they'll be back to paying sales tax with their hobby. jimjum12 and ttfitz 2 Link to comment Share on other sites More sharing options...
lizards2 Posted December 24, 2022 Share Posted December 24, 2022 I am thinking about starting a business to liquidate my collection, as from what I've read, the capital gains taxes are less for a business than they are for an individual collector. I've been meaning to sit down with an accountant to figure this out, but maybe someone here can illuminate the pros and cons. namisgr, WolverineX and Brandon Shepherd 3 Link to comment Share on other sites More sharing options...
Popular Post OuterBanks Posted December 24, 2022 Popular Post Share Posted December 24, 2022 I did this 2 yrs ago because of the new tax laws. So far it’s been less painful than I realized. I found a CPA who specializes in e-commerce sales to start doing my taxes. - I got a reseller certificate from my state and submitted it to the auction houses / eBay and don’t have to pay them sales taxes on purchases (since I’m using those goods for reselling) - I can expense some standard stuff related to the hobby - I track my inventory costs and do all the selling strictly via eBay (paid for a store to reduce the fees) to keep things easy. eBay fees some would argue are bad but I get shipping discounts and tend to sell more expensive books where the fees are around 5%. So far so good, my big concern was screwing up taxes and the amount of paperwork involved. But that’s been manageable. awakeintheashes, Brandon Shepherd, amatta and 4 others 6 1 Link to comment Share on other sites More sharing options...
ThothAmon Posted December 24, 2022 Share Posted December 24, 2022 Other than not paying sales tax when purchasing inventory I’m curious as to what other benefits there are? I’ve always accounted for eBay fees and grading costs when determining profit from sales even as a hobbyist seller. If you are setting up at shows I can see the benefits but not so much as a purely online pursuit. Link to comment Share on other sites More sharing options...
Popular Post rsouxlja7 Posted December 24, 2022 Popular Post Share Posted December 24, 2022 (edited) On 12/24/2022 at 7:18 AM, lizards2 said: I am thinking about starting a business to liquidate my collection, as from what I've read, the capital gains taxes are less for a business than they are for an individual collector. I've been meaning to sit down with an accountant to figure this out, but maybe someone here can illuminate the pros and cons. 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. Edited December 24, 2022 by rsouxlja7 namisgr, 1Cool, amatta and 3 others 5 1 Link to comment Share on other sites More sharing options...
lizards2 Posted December 24, 2022 Share Posted December 24, 2022 On 12/24/2022 at 6:36 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 guess this is where my confusion is at - the articles I've read usually indicate that collectibles are taxed at flat 28% long-term capital gains rate for a non-business. (So maybe I'm reading those articles wrong - this is from a Forbes article:Capital Gains Taxes on Collectibles: If you realize long-term capital gains from the sale of collectibles, such as precious metals, coins or art, they are taxed at a maximum rate of 28%..) You're saying they are taxed at my marginal tax rate? (Which is quite a bit lower.) Link to comment Share on other sites More sharing options...
the blob Posted December 24, 2022 Share Posted December 24, 2022 On 12/24/2022 at 11:32 AM, lizards2 said: I guess this is where my confusion is at - the articles I've read usually indicate that collectibles are taxed at flat 28% long-term capital gains rate for a non-business. (So maybe I'm reading those articles wrong - this is from a Forbes article:Capital Gains Taxes on Collectibles: If you realize long-term capital gains from the sale of collectibles, such as precious metals, coins or art, they are taxed at a maximum rate of 28%..) You're saying they are taxed at my marginal tax rate? (Which is quite a bit lower.) 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. If you have already hit your income limit for paying SS taxes the self employment tax should not be an issue rsouxlja7 1 Link to comment Share on other sites More sharing options...
the blob Posted December 24, 2022 Share Posted December 24, 2022 So if you do this business with an existing collection the gains are calculated the same as before? If you incorporate doesn’t the business need to buy it from you? Link to comment Share on other sites More sharing options...
Ryan. Posted December 24, 2022 Share Posted December 24, 2022 On 12/24/2022 at 12:19 PM, the blob said: If you have already hit your income limit for paying SS taxes Link to comment Share on other sites More sharing options...
the blob Posted December 24, 2022 Share Posted December 24, 2022 On 12/24/2022 at 12:34 PM, Ryan. said: It is only $118k I believe. Link to comment Share on other sites More sharing options...
Ryan. Posted December 24, 2022 Share Posted December 24, 2022 $147k Link to comment Share on other sites More sharing options...
Bookery Posted December 24, 2022 Share Posted December 24, 2022 Capital gains are taxes on investments. If you are buying and selling as a business, they are not capital gains, they are your income. Regardless, for either you must have a record of what you bought and sold your inventory for. An advantage as a business is that you do not pay sales tax on stock meant for resale. With tight margins, this is a must. But they have to be for resale... they can't go into your personal collection. A disadvantage is that you'll have to collect and file sales taxes. Most businesses file monthly... if you're not doing much volume, you might only have to file quarterly, but it varies in each state. In my state, you also pay an annual $150 "commercial activities tax" as a business. As a business, you also cannot show perpetual losses (3 years max? Not sure.). If you're working from home, it can set off red flags if you're writing off a lot of office expenses, even if legit. Any business must have some level of professional accountant, in my opinion. greggy, Dr. Balls, alexgross.com and 1 other 3 1 Link to comment Share on other sites More sharing options...
PickleRick1216 Posted December 24, 2022 Share Posted December 24, 2022 The IRS recently announced they are pushing the 1099-K requirement for online sellers with revenues over $600 to 2023... That should give some of us hobbyist/small business owner hybrids another year to get it figured out. IRS will delay requirement to report $600 in gig work on taxes (msn.com) Link to comment Share on other sites More sharing options...
Dr. Love Posted December 24, 2022 Share Posted December 24, 2022 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. Poekaymon 1 Link to comment Share on other sites More sharing options...
rsouxlja7 Posted December 25, 2022 Share Posted December 25, 2022 On 12/24/2022 at 10:32 AM, lizards2 said: I guess this is where my confusion is at - the articles I've read usually indicate that collectibles are taxed at flat 28% long-term capital gains rate for a non-business. (So maybe I'm reading those articles wrong - this is from a Forbes article:Capital Gains Taxes on Collectibles: If you realize long-term capital gains from the sale of collectibles, such as precious metals, coins or art, they are taxed at a maximum rate of 28%..) You're saying they are taxed at my marginal tax rate? (Which is quite a bit lower.) Correct, if your marginal rate is lower it won't be taxed @ 28%. lizards2 1 Link to comment Share on other sites More sharing options...
lizards2 Posted December 25, 2022 Share Posted December 25, 2022 On 12/24/2022 at 1:47 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. Right. But I have been collecting most of my life, so have somewhere between 300 and 400 short boxes, and could legitimately stock a business for 5-6 years. It would no longer be a hobby, but a liquidation before I die. Link to comment Share on other sites More sharing options...
littledoom Posted December 26, 2022 Share Posted December 26, 2022 On 12/24/2022 at 5:40 AM, OuterBanks said: - I got a reseller certificate from my state and submitted it to the auction houses / eBay and don’t have to pay them sales taxes on purchases (since I’m using those goods for reselling) Link to comment Share on other sites More sharing options...