Selling Online and Taxes

MULLINS5

The other day I hit $40,000 in online sales this year. Go me!

Hoping to bring in $10,000 this holiday season. So I should be at $40-$50k in online sales for the year.

Any idea what taxes will be like?

Raulsmaster

Depends what the profit margin is

MULLINS5

<< <i>Depends what the profit margin is >>



Profit = about 26-35k

Davis

Patrick, nice work. That's a lot of work! I hope you tracked the cost of the cards you sold. Your taxes will be completely dependent upon the difference in sales price (less fees) and your total cost of the cards sold. I would recommend tracking it in a spreadsheet.

Davis

Cards held longer than a year: your profit is taxed at 28%.
Cards held less than a year: taxed at your personal tax rate (depends on how much income you've earned this year).

mtcards

<< <i>
Any idea what taxes will be like? >>




They will be like Swimming in a pond of peanut butter eating pirahna with Jif smeared all over your winkie

MULLINS5

<< <i>Patrick, nice work. That's a lot of work! I hope you tracked the cost of the cards you sold. Your taxes will be completely dependent upon the difference in sales price (less fees) and your total cost of the cards sold. I would recommend tracking it in a spreadsheet. >>



Thank you Davis. It's been a full time job on top of my full-time job.

Unfortunately I didn't track sales in a spreadsheet, but I am planning on doing that next year.

I had a feeling it would be ugly, so in March I had my full-time job take out an additional $75/week in taxes. Hopefully that helps a little.

This May I'll finish my certification to teach and once I'm able to find a teaching job I'm planning on scaling my online shops WAY back, so I'll only have this year and next to worry about this!

MULLINS5

<< <i>Cards held longer than a year: your profit is taxed at 28%.
Cards held less than a year: taxed at your personal tax rate (depends on how much income you've earned this year). >>

lahmejoon

<< <i>Cards held longer than a year: your profit is taxed at 28%.
Cards held less than a year: taxed at your personal tax rate (depends on how much income you've earned this year). >>



If this is a business activity, the cards are inventory, so you would be taxed at your ordinary rate regardless if you held them long-term (plus self-employment tax).

Gball16

Do you have a website for your cards?

Dboneesq

<< <i>

<< <i>Cards held longer than a year: your profit is taxed at 28%.
Cards held less than a year: taxed at your personal tax rate (depends on how much income you've earned this year). >>



If this is a business activity, the cards are inventory, so you would be taxed at your ordinary rate regardless if you held them long-term (plus self-employment tax). >>



THIS! Unless you have another business entity established for the card business, you would file a Schedule C on your 1040. And that S/E tax, based on the net profit you mentioned, will eat up all of that additional $75/week you are having withheld.

Griffins

Agree with Doug and Lahmejoon. This isn't investment that is taxed as capitol gains, this is a business and as such a Schedule C should be filed for it.
HOWEVER-
the advice here is no substitute for that of a paid tax preparer. The money you spend on one will more than pay for itself, and if you don't have one you should find one now- they will often meet with you as part of their fee in December to discuss strategies. Shifting or legally delaying sales until after the new year can save you money, as can accelerating expenses.
Remember, as self employed income (Sched C) you have to pay tax on both the profit and SE tax of approx 15%- although some of that gets credited back on your 1040.
In other words, hire a tax guy. It's the cheapest thing you can do.

raiderguy10

<< <i>

<< <i>

<< <i>Cards held longer than a year: your profit is taxed at 28%.
Cards held less than a year: taxed at your personal tax rate (depends on how much income you've earned this year). >>



If this is a business activity, the cards are inventory, so you would be taxed at your ordinary rate regardless if you held them long-term (plus self-employment tax). >>



THIS! Unless you have another business entity established for the card business, you would file a Schedule C on your 1040. And that S/E tax, based on the net profit you mentioned, will eat up all of that additional $75/week you are having withheld. >>



Doug is correct. At $26,000-35,000 your SE tax ALONE (before any federal income taxes) will be $3,674 - $4,945. If you are a 25% marginal rate taxpayer you'd also owe $6,500 - 8,750 federal income taxes for that level of income. So total tax of $10,174-$13,695 for that wide range of income you provided.

Dboneesq

<< <i>Doug is correct. At $26,000-35,000 your SE tax ALONE (before any federal income taxes) will be $3,674 - $4,945. If you are a 25% marginal rate taxpayer you'd also owe $6,500 - 8,750 federal income taxes for that level of income. So total tax of $10,174-$13,695 for that wide range of income you provided. >>


Then you have to add in STATE INCOME TAX!

Davis

Question for those with experience:

If he didn't set up a business and treats his card buying & selling as collectibles, can he avoid the self-employment tax? The rates for the sale of collectibles are what I referenced in my earlier post and they seem to be lower than the rates for a "business" which would flow through to his ordinary rate via Schedule C, correct? However, I do see how he could have additional expenses to deduct from gross profit (home office, computer, internet bill, etc) that may make the formation of a "business" worth it.

My logic:
+ $Sales price less selling costs (ebay, paypal fees)
- $purchase price and shipping
- any grading fees
= Net Profit
x 28% (held longer than 1 year)
= Estimate Tax Bill

mtcards

Set up an "S" Corporation

raiderguy10

I am a CPA that prepares tax returns - and yes Doug is right - if your state has an income tax you'd also need to factor that in as well.

S corporation income flows to your 1040 - just as a sole prop. business does - unless you elect to be taxed as a corporation.

frankhardy

I used to do a spreadsheet. Starting January 1 of 2014, I started tracking using Quicken starter edition. I highly recommend it. I track every expenditure, purchase, sale, and fee on it.

MULLINS5

Thank you for the advice guys. All I know is that this tax season is going to be a nightmare, especially with it being smack in the middle of me finishing up my certification to teach.

For those who have asked: I don't sell cards. I think the last card I sold was when I got out of the hobby circa 2010? Anyways, I sell books via eBay, Etsy, Amazon, Half, Abebooks and Biblio with an inventory around 7,000 and, unfortunately, growing (running out of space!)