What type of income would this be?

Forum|Forum|2 years ago
December 17, 2023
2 replies
0 views

I am needing to amend my '20 and '21 returns. In those years, I was buying unopened boxes/packs of sports cards from places like Walmart and Target, then reselling them via offerup, facebook marketplace, etc for a profit. I was unaware at the time that I needed to report the profits from these. But, I know now, so I'm gonna do it. My question, is what type of income it is?

My intention with buying them was to resell some and keep some for my son and I as a collector/hobbyist. Because I was actively buying at least some of them with the intent to resell for profit, it's my understanding that it would be considered business income rather than hobby income. Is this right?

(Although it sounds related to a recent question I posted titled "Figuring out hobby income amounts", this is unrelated, so if any one happens to read that one, don't conflate them)

Best answer by Bsch4477

You are a self employed business man who reports income and expenses on Sch C.

Opus 17

Employee

Se below for what the IRS says. I think you are probably a business rather than a hobby, but you make that final determination based on all facts and circumstances (and then be prepared to defend that determination if challenged).

If you decide it's a hobby, you can't deduct expenses but you don't pay self-employment tax. If you decide it's a business, you can deduct expenses, but you pay self employment tax on the net profit. The IRS can give you grief either way if they disagree. (For example, if you take a business and call it a hobby to dodge the SE tax, or if you take a hobby and call it a business so you can deduct unallowable expenses.) Just be sure you can defend your decision.

https://www.irs.gov/businesses/small-businesses-self-employed/business-activities

A trade or business is generally an activity carried on for a livelihood or in good faith to make a profit. The facts and circumstances of each case determine whether an activity is a trade or business. Some of the important facts and circumstances used to make this determination include:

regularity of the activities,
regularity of the transactions,
production of income, and
ongoing efforts to further the interests of your business.

You do not need to make a profit to be operating a trade or business but you do need to have a profit motive. The above list is not all inclusive in the determination of whether an activity is trade or business. For more information about making this determination, see Five Things to Remember about Hobby Income and Earning side income: is it a hobby or a business?

Part-time Business

You do not have to carry on regular full-time business activities to be self-employed. Having a part-time business in addition to your regular job or business also may be self-employment.

Example: You are employed full time as an engineer at the local plant. You fix televisions and radios during the weekends. You have your own shop, equipment, and tools. You get your customers from advertising and word of mouth. You are self-employed as the owner of a part-time repair shop.

Bsch4477Answer

Employee

You are a self employed business man who reports income and expenses on Sch C.

rwom1217Author

For the '20 and '21 NAICS codes, would 459999 be appropriate (reselling unopened packages of sports cards by advertising via Facebook Marketplace and Offerup then the actual transactions occurring in person)?