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2011 Ebay income question, CPA's please come in...

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cmnkb8

New member
Nov 17, 2009
1,939
0
The Armpit of America: NEW JERSEY!
Hello all,

As most of you know,the IRS has imposed on Paypal for 2011, the requirement to issue 1099 forms for anyone with 200+ transactions AND $20K gross payments received - and I will be one of those, as I buy singles to flip (and some cases to rip and flip). Although for the past 2 years, I've been in the red (too many bad cases, not enough good singles), 2011 is the first year I expect to make a profit (cutting back on cases and focusing more on singles).

I've been pondering about registering with the IRS to get an EIN as a sole proprietorship and reporting my business expenses to offset any net income I make. Also, I would register with my home state (NJ) for a resale/tax license to buy cases from dealers at wholesale (of course, the resale license comes with the stipulation that I must collect sales tax from NJ Ebay buyers, which would in theory lower my sales to NJ buyers, but that's another discussion).

Now, here's some things about the related income taxes as a business that I've wondered about (CPA's please chime in):

I know that income from cards sold for investment profit are considered capital gains. At least for the average collector. If I become a business (in this case, an Ebay dealer) after I register for an EIN, can I still report the profit from cards sold (both singles and cards from case breaks) as capital gains?

Or does this profit now become ordinary income, and become subject to self-employment tax to boot?

OR, can SOME of the cards I sell - the singles, be considered capital gains, while the sales from case breaks are considered ordinary income?

Lastly, if I CAN report my sales as capital gains, can I still deduct business related expenses on a Schedule C AND file a Schedule D for the capital gains portion for the SAME cards? (Meaning deduct expenses related to the sale of the cards as a business, i.e ebay fees, mileage to PO, postage, etc. while still considering them capital gains.)

Thanks for any insight.
 

Jays_Cards

Active member
Jan 1, 2009
3,845
0
If you create a sole proprietorship that is focused solely on selling baseball cards, the cards that you sell become inventory and no longer can be classified as investments nor receive preferential capital gain treatment. As such, they are taxed as ordinary income at your highest marginal tax rate at the time of sale. The only advantage to this situation would be the ability to offset business expenses against the income generated.
 

cmnkb8

New member
Nov 17, 2009
1,939
0
The Armpit of America: NEW JERSEY!
Jays_Cards said:
If you create a sole proprietorship that is focused solely on selling baseball cards, the cards that you sell become inventory and no longer can be classified as investments nor receive preferential capital gain treatment. As such, they are taxed as ordinary income at your highest marginal tax rate at the time of sale. The only advantage to this situation would be the ability to offset business expenses against the income generated.

Aw, that's a bummer. I guess I'll stick to selling them as personal investments since capital gains aren't subject to self-employment tax. Thanks.
 
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