Selling Coins As A Hobby
BAJJERFAN
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If you sold coins or other items AS A HOBBY, the IRS says that you should report your income on schedule C. If you received a 1099-K through eBay, Mercari, etc. is it sufficient to report your 1099-K income on line 1 and your accumulated expenses on line 42 and leave everything else blank? Not claiming any business expenses other than gross cost of merchandise which includes item cost, sales tax, listing fees. PP fees and shipping.
If you sell on eBay and take PayPal will you get a 1099-K from both? If you get one from both should you only need to claim the income from one of the two?
I suppose the online filing places like TurboTax and IRS free file partners should already have the required items incorporated into their online software.
theknowitalltroll;
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I AM NOT A CPA OR TAX PREPARER AND OFFER KNOW ADVICE - just things that I find
From TurboTax
Example: Your business acquires an item for $25,000, sells it for $30,000 (accepting payment through PayPal), and pays $100 to ship it to the buyer. Your Form 1099-K from PayPal will only show the $30,000 in payments. However, you can subtract the $25,000 you paid for the item and the $100 for shipping from the total payment amount to arrive at your $4,900 of taxable income ($30,000 - $25,000 - $100 = $4,900) – which is your profit.
If you’re operating a business as a sole proprietor, the taxable portion of your PayPal 1099-K payments is calculated on Schedule C (Form 1040). That’s where you report all your business income and then subtract all your business expenses.
If you’re not a business owner, and you simply accepted payment through PayPal for an item you sold during the year, report any profit from the sale on Form 8949, which will carry over to Schedule D (Form 1040). That way, the profit will ultimately be reported as a capital gain on your federal tax return.
Successful transactions with : MICHAELDIXON, Manorcourtman, Bochiman, bolivarshagnasty, AUandAG, onlyroosies, chumley, Weiss, jdimmick, BAJJERFAN, gene1978, TJM965, Smittys, GRANDAM, JTHawaii, mainejoe, softparade, derryb, Ricko
Bad transactions with : nobody to date
26 USC 408: Individual retirement accounts
Text contains those laws in effect on January 28, 2025
From Title 26-INTERNAL REVENUE CODE
Subtitle A-Income Taxes
CHAPTER 1-NORMAL TAXES AND SURTAXES
Subchapter D-Deferred Compensation, Etc.
PART I-PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart A-General Rule
(m) Investment in collectibles treated as distributions
(1) In general
The acquisition by an individual retirement account or by an individually-directed account under a plan described in section 401(a) of any collectible shall be treated (for purposes of this section and section 402) as a distribution from such account in an amount equal to the cost to such account of such collectible.
(2)Collectible defined
For purposes of this subsection, the term "collectible" means-
(A) any work of art,
(B) any rug or antique,
(C) any metal or gem,
(D) any stamp or coin,
(E) any alcoholic beverage, or
(F) any other tangible personal property specified by the Secretary for purposes of this subsection.
(3) Exception for certain coins and bullion
For purposes of this subsection, the term "collectible" shall not include-
(A) any coin which is-
(i) a gold coin described in paragraph (7), (8), (9), or (10) of section 5112(a) of title 31, United States Code,
(ii) a silver coin described in section 5112(e) of title 31, United States Code,
(iii) a platinum coin described in section 5112(k) of title 31, United States Code, or
(iv) a coin issued under the laws of any State, or
(B) any gold, silver, platinum, or palladium bullion of a fineness equal to or exceeding the minimum fineness that a contract market (as described in section 5 of the Commodity Exchange Act, 7 U.S.C. 7) requires for metals which may be delivered in satisfaction of a regulated futures contract,
if such bullion is in the physical possession of a trustee described under subsection (a) of this section.1
Successful transactions with : MICHAELDIXON, Manorcourtman, Bochiman, bolivarshagnasty, AUandAG, onlyroosies, chumley, Weiss, jdimmick, BAJJERFAN, gene1978, TJM965, Smittys, GRANDAM, JTHawaii, mainejoe, softparade, derryb, Ricko
Bad transactions with : nobody to date
FYI, I sold a bunch of collectibles, mostly numismatic, on eBay several years ago. I was surprised with a 1099 or similar (I was naive). The items I sold did not have supporting documentation as they had been collected over many years. I contacted the IRS and they allowed me to estimate the cost of what was sold, they were very understanding, which was unexpected. I pretty much reported a break-even, which was a fair estimate as these were not investment quality items for the most part. I was a collector only. Don’t know if this is pertinent or if a response today would be different.
Collectibles are subject to a special tax rate of 28%, which is higher than the maximum capital gains tax rate of 20% for other types of assets. Additionally, if a collectible is held for less than a year before being sold, any gains are subject to short-term capital gains tax rates, which are even higher.
Successful transactions with : MICHAELDIXON, Manorcourtman, Bochiman, bolivarshagnasty, AUandAG, onlyroosies, chumley, Weiss, jdimmick, BAJJERFAN, gene1978, TJM965, Smittys, GRANDAM, JTHawaii, mainejoe, softparade, derryb, Ricko
Bad transactions with : nobody to date
Thanks for sharing your good experience with the IRS
boston
Successful transactions with : MICHAELDIXON, Manorcourtman, Bochiman, bolivarshagnasty, AUandAG, onlyroosies, chumley, Weiss, jdimmick, BAJJERFAN, gene1978, TJM965, Smittys, GRANDAM, JTHawaii, mainejoe, softparade, derryb, Ricko
Bad transactions with : nobody to date
From the IRS
https://www.irs.gov/businesses/what-to-do-with-form-1099-k#sell
Report Form 1099-K payments and other income on your tax return
You must report all income you receive on your tax return. This may include the gross payment amount on Form 1099-K and amounts on other reporting documents like Form 1099-NEC or Form 1099-MISC. It should also include amounts not reported on forms, such as payments you receive in cash, property, goods or digital assets.
Here's where to report Form 1099-K payments on your tax return for goods and services you sold:
Gig worker, freelancer, hobby seller and other self-employed – You're considered a sole proprietor and should report Form 1099-K payment information on – Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship).
Partnership – Use Schedule E, (Form 1040), Supplemental Income and Loss.
Corporation – Use Form 1120, U.S. Corporation Income Tax Return or Form 1120-S, U.S. Income Tax Return for an S Corporation.
Rental income may be reported on Schedule E or Schedule C.
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So for those that know does one simply fill in lines 1 and 42 on Schedule C and call it good or is there more?
I believe that ST gains are currently at 28%.
I'm not surprised. Contrary to the cultural zeitgeist, IRS agents tend to be very reasonable and helpful. Every contact I've had with them has been wonderful.
Short term capital gains just get included in your ordinary income, and taxed at whatever bracket you happen to be in.
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Hobby income is taxable, Hobby expenses are Misc. Itemized deductions, and not deductible anymore.
Business income is taxable, ordinary and necessary business expenses are deductible.
I report my Ebay sales as ST capital gains and estimate my costs. Been doings this for 8 years and no problems.
Either sell your collection items as investments or try to be a business. Hobby selling comes with no deductions, not even cost of goods sold; all income is just ordinary income, win or lose.
(Not tax advice, but I did pass a test on this subject today)
I just want to make sure that I get the right info to the right spots on Schedule C. I don't care about anything else. The person I'm helping will have have his 1099-K and has kept track of his costs. I expect that the online software knows where to put it as well. Thanks for the comments.
It’s going to be an interesting year. Selling on whatnot I got a 1099k from both stripe and PayPal. I’m sure a large portion overlaps.
My Ebay Store
The person I'm helping is getting 2 1099-Ks and I don't believe there is overlap so he'll be summing them.
Why would they overlap? Shouldn't there only be one payer to you?
If they do, that will be a mess.
Yes. All my payouts were through PayPal. The stripe surprised me. While doing my CE there was sections on how to handle overlapping income when, say a vendor is paid with CC. Therefore they may get a 1099k and a 1099NEC. I guess I’m going to have to go back and read.
Typically I don’t worry about the 1099k because my sch c is always higher than just the eBay 1099k. And I thought this year maybe I wouldn’t need an extension.
My Ebay Store
I am impressed you do your own taxes. I have a Jenny at Kinner & Co.. I just turn over documents and let her do the voo -doo. Good luck. wish I was more helpful James
When filing as a business how detailed is it necessary to be on Schedule C?
The schedule C itself lumps things into categories. Office supplies, cost of good sold etc. You don't have to detail each item specifically. It’s your records to justify the deductible expenses that should be as detailed as possible. As well as knowing what is actually a deductible expense.
Keep good records and logs.
This should not be considered tax advice.
Years ago I had a boss that was a shop owner and invented a tool for the automotive industry. He was audited and asked about his deductions for a trip to Hawaii. Told the auditor that it was to have meetings with some manufacturers etc. The auditor told him to show one sale he could prove that resulted from the trip to Hawaii and he would allow the deduction.
He couldn’t show any sales at all, so they disallowed it.
My Ebay Store
Sorry, what I meant to ask was how detailed does one have to be about the business?
Like line F accounting method if other what do you put? no idea or just use accrual?
Part II expenses would be $0.00
Part III would be cost including cost of goods, sales tax, postage, selling fees, etc.
Why wouldn't the cost be used to calculate income. Are you saying if I bought a coin for $100 and sold for $125, my reportable income is $125 with no deduction for the cost? Doesn't seem right.
@coastaljerseyguy If you’re considering it a hobby for tax purposes, that is exactly what I’m saying. No expenses are deductible for hobby income. Doesn’t sound right to me, either, which is why don’t “sell as a hobby” when it comes to taxes.
You can sell for profit, and then your expenses count.
The main thing there is you’ll have to “prove” your business and profit motive if you ever want to claim a loss on your taxes (which is fine, you just have to prove to the gov that its not a hobby)
(Everyone check with your CPA before acting on any of this officially)
In this flat market many will have a loss.
If a seller use sch C. You may need to get with an attorney to get an assumed name certificate for the business. Set up a set of books for each month (excel works for me) to record inventory, sales , cost of sales, and expenses. Get familiar with IRS rules. I made an excel spreadsheet for sch C which is linked to GL. You will also need a business bank acct. Then some business cards. This is serious business. I set up an excel Sales Journal, Purchase Journal, etc. This allows me to design spreadsheets where can see big picture overview, a journal like SJ on one page / file.
In addition to reporting to IRS you may have to remit state sales tax for your state.
You're correct, very grey area and when we sell our collection, hopefully we are looking to make a profit. But I understand for some hobbies, if I like to paint and someone loves my painting and gives me $1,000, its all income with no deductions. The cost of the canvas, paint, etc is not deductible since I incurred those costs anyway for my hobby and pleasure. Didn't intent to turn it into a business, i.e. sell to make money.
I am a CPA with a tax practice and will provide the following info. I will not respond to any inquiries.
If you are making a net profit consistently doing anything, it is treated as a business. If you are actively involved in the business and did not set up a corporation, file a Federal Schedule C.
Buying and selling coins in this case is considered a stock in trade, you are not dealing with collectibles.
Collectibles code sections come into place if you have a few coin sales here and there.
1099-Ks report receipts from certain payment processors. They are NOT all inclusive re your gross receipts. IE., if you sell me a coin for $2,000, you're not getting a 1099-K, but you should include that $2,000 sale in your gross receipts.
Cost of coins should be listed under the cost of sales section. List other expenses individually on the expense portion of the Schedule C. More detail provided means less chances of getting a return pulled for additional inquiry.
"Seu cabra da peste,
"Sou Mangueira......."
In the case I'm dealing with he likely had more than 50 sales and actually made a profit, but I don't know details. Thing is he got at least one 1099-K so he has to do something with it. Don't think he would like declaring all of it as income.
If you use a online tax service like TurboTax you do not have to worry about the forms. Turbotax asks you questions(did you sell any stocks or bonds, did you sell any crypto, did you sell any other assets, etc) and from your responses provides you "cells" to input the raw data. TurboTax takes the information you input and inserts the data on the proper forms and lines within those forms for you. Having a basic knowledge of taxes is helpful to ensure the draft tax return is reasonable before finalizing the e-filing. Just sharing my experience, but certainly this is not meant to be tax advice. I am not a professional, but did sleep at a Holiday Inn express last night
If your not comfortable with this process you should consider using a professional tax practitioner.
I suggest being very very careful relying on TurboTax for any kind of sophisticated tax situation.
Sure, but this isn't
Agree
boston
Successful transactions with : MICHAELDIXON, Manorcourtman, Bochiman, bolivarshagnasty, AUandAG, onlyroosies, chumley, Weiss, jdimmick, BAJJERFAN, gene1978, TJM965, Smittys, GRANDAM, JTHawaii, mainejoe, softparade, derryb, Ricko
Bad transactions with : nobody to date
I've used TT twice, my first time and last time. Too expensive IMO. I understand that it's free [any complexity] if you join Credit Karma which is owned by INTUIT which also owns TT. However you still need to know your what's what in order to use it effectively.
TurboTax doesn't walk you through a Schedule C. You will be spending quite a bit of time on the IRS website the first couple years you do it and it's not a simple exercise to be put off until the day before taxes are due.
Most of us aren't natural tax geniuses when we start as a dealer like @jmlanzaf
This will be my first year with schedule C. Won't be using TT. Normally I download a Sched C from the IRS and fill it out ahead of time. The hard part is getting them to put the right info in the right place. If you do a Roth conversion and fill out an 8606 they put the amount from the 8606 into your income so you have make sure that you subtract the amount converted from your 1099-R or you will get whacked twice.
I will get in touch with support for the online tax service about making sure that the 1099-k info gets to the right line on schedule C and not just added to the filer's income willy nilly.
Looked at my forms again today. Whatnot sent one, PayPal sent one that included all of my whatnot payouts. If you got your payouts from whatnot through PayPal, you can probably expect the same.
My Ebay Store
Oh, that makes sense. No, i sent my whatnot payments directly to my bank account.
I use TurboTax and it walks me through Schedule C. I didn't claim to be a tax genius. Despite that, I've had no trouble using TT to fill out Schedule C.
Schedule C itself is fairly straight forward. Of course, I'm not very aggressive with things like home office deductions. It's really not that hard even for a tax moron. You've got purchases and inventory vs sales. Deductions are in several obvious categories: office, shipping, advertising, mileage etc.
What is the complexity that I'm missing?
Schedule C requires significant knowledge of IRS code. Most people’s tax experience prior to operating a business consists of uploading a few forms and letting TT spit out the correct answer. Schedule C is a different beast.
I bought a coin from Heritage for resale and was charged $15 shipping - is that COGS or shipping expense?
I traveled to a coin show for 3 days to buy from dealers for resale - do I use actual meal receipts or IRS daily meal allowance? Is my breakfast the morning I travel to the show a business expense? What if I pay my friend to help staff my table and pay for his lunch?
I bought a new high end camera to take coin photos for my website, Can I expense it or does it need to be depreciated?
I guess I am just a tax moron along with the 100,000s of others asking questions and complaining about TT functionality on the TT forums every year.
I will not be dealing with anything other than cost off goods sold plus shipping, PP fees, listing fees, any sales tax paid or supplies.
BTW are you taxed on unsold inventory?
We all know there isn't any money to be made selling coins, so maybe the IRS knows this as well
A person SHOULDN'T BE TAXED on used items anyway...that item was already taxed once or a non taxable item.
I sold some stuff on eBay, probably enough to get a 1099.
It was all stuff that has been sitting around the house for many years and who keeps receipts...I didn't sell as a hobby or business, just cleaned out some stuff and passed it on to another person.
The tax collector didn't help me move any of it.
You ARE NOT taxed on used items. You are taxed on PROFITS from selling used items. That profit was never taxed previously.
Yes and no. You are not taxed on unsold inventory per se. Inventory increases and decreases offset purchases. The tricky part is how to handle a lifetime accumulation that wasn't purchased in that tax year. Thec easiest thing, if you are selling it, would be to include the purchase price as a cost and then put in the inventory value which offsets it. You might want to do it on a coin by coin basis as it moves from collection to sales.
A new car was whacked sales tax when it was sold and will be whacked sales tax every time it was sold after that until you maybe give it away to a friend or family. Coins and bullion are exempt from sales tax in many place, but not exempt from tax on profit made from selling them. I wonder how many include the possible taxes they could pay when they figure a price for their item/s.
I was thinking of putting both starting and ending inventory as $0.00 The items are Lego bricks and not coins. I wonder if one of those "folks" who set up at WalMart would be capable of a simple business return. Joe Blow dba as Lego Joe.
If you don't carry any inventory, that works. If you are carrying inventory, it will fall apart at some point. If you buy $10k in Legos in December that you sell the following year, it's going to look like a loss in one year (audit warning) and a huge profit in the following year.
You can carry the inventory at cost. It's not complicated. You don't have to revalue it.
I might be wrong, but I don't believe the above scenario is true.
Expenses are not deductible for a hobby, but cost basis is used to calculate the taxable income - i.e. profit - on a sale.
My understanding is that you can't deduct the general or associated costs of your hobby, and you can't deduct losses on other items you sell. But the cost basis of one particular item would decrease the taxable amount for a sale that generated a profit.
Buy a coin for $100, sell it for $150, you owe tax on $50.
If he can provide plausible figures for beginning and ending inventory I'll include it. If there is a loss I'm leery of maybe getting flagged, but if it's small they might just pass. These days they have bigger fish to fry. He never intended to be a business, but kind of got caught with his pants down. I think he misunderstood which costs were allowed to offset sales prices.