Before I stopped working for The Man I was a marketer and writer for a tax resolution company; writing thousands of words on the U.S tax code. Along the way I grilled tax attorneys, certified public accountants and IRS agents extensively to come up with the following answers to your top tax questions.
Regardless, I'm not a tax attorney! Follow my sources links for confirmation from the official IRS website to conduct research of your own.
1. Do I Have to Report my Yard/Garage Sale Earnings to the IRS?
According to IRS Publication 525, NOPE! If you're not making more money than you paid for the items you sell at the garage sale, it is not a capital gain and you don't have to report it as income.
2. Sounds Good. But do I need to report my online reselling earnings?
According to the IRS (source) "If your online sales are the Internet equivalent of an occasional garage or yard sale, you generally do not have to report the sales if you did not receive more than you originally paid for the item you sold." If you're making a capital gain from your online reselling efforts, YES! You must report those earnings as a business profit.
3. Well that sucks. But can I take business tax deductions?
If your innocent reselling has evolved into a thriving business, you'd better take advantage of those delicious business tax deductions! Here's some ideas of what you can deduct to get you started:
Electricity/Internet the amount you use exclusively for reselling
Storage Space storage shed or office space rental costs
Mortgage/Rent a portion of your rent/mortgage for any area exclusively for reselling
Subscriptions related magazines, online subscriptions, and accounts for reselling
Cost of Goods the initial cost of the thrift scores you resell
Capital Expenses business start-up costs, assets, and improvements
Check out the IRS article on deducting business expenses for more ideas and information. Starting your business in a way that's A-ok with the IRS is a another article entirely, venture to Starting a Business.
4. Do my purchases from charity thrift stores count as a tax deduction?
Nope! You're making a purchase, not making a donation.
5. Do my donations to thrift stores count as a tax deduction?
Yes! Absolutely, as long as you itemize your tax deductions. Determine the fair market value of each item you donate, make a list, and get a receipt for your donation. The IRS has a detailed article on determining fair market value. For most things, this is the price the thrift store can sell them for. If you're donating pricey valuables, you need appraisals to prove the worth.
Conclusion: Taxes suck! But like a kick in the face from my hero Pimp Daddy Batman, they are unavoidable. Be a super genius ninja like The Batman and use the rules to your advantage. I've seen people successful deduct cat food, poodles, body oil, swimming pools, and boob jobs! So think creatively, and hire a trustworthy certified public accountant if you're in over your head.
Have a very specific question? Call the Taxpayer's Advocate at 1-877-777-4778, they have all the answers.
Fun Extras: The IRS has all kinds of Free Calendars for small business owners that tell you exactly when to pay your taxes and other helpful facts. Hang one on your wall if you're forgetful.
Anything to add? Any Questions? Let me know in the comments!
Wow- I'd like to know the details of that boob job deduction, lol. I'm sure it fits in what you said somewhere, but just wanted to shout out to people who print postage online- deduct the cost of printer ink! Man, that stuff goes fast and is expensive. Same with packaging/shipping supplies... oh, the bubble wrap. The humanity!
ReplyDeleteA famous example is "Chest Love" http://biznik.com/articles/court-allows-exotic-dancer-to-deduct-breast-implants
DeleteYou can see her on Jerry Springer, too: http://www.youtube.com/watch?v=b9_LfQ6Keec
The Humanity is right! The high, high cost of ink would make you think it's the precious precious waters of the Fountain of Youth or the Blood of Christ. And it goes so fast! The "little things" really add up in the end!
You're right-on-time with this information for me, thanks sooooo much!!
ReplyDeleteYou're welcome! Hope it helps.
DeleteSo helpful! I'm embarking on my first year of reselling tax returns, and I'm trying to do them myself. God knows I can use all the help I can get! :)
ReplyDeleteGlad to help! No matter how much I know or how much prep I do it's always a headache!
DeleteThanks for being awesome, Van :)
ReplyDeleteAw, shucks :)
DeleteGreat post! I've always been curious about how all this works. Thank you!
ReplyDeleteNo problem! I'll have to write more detailed ones to help out in the future.
DeleteWow thanks for the excellent info! Im not quite at the phase of being a "real" business yet but this is great information to learn and think about for when I do finally get there.
ReplyDeleteBTW - I can't imagine you writing tax stuff! If you can do that - you can do anything!
Victoria- I find that setting up an operating as a "real" business from the get-go is an excellent way to stay motivated. Get it, lady!
DeleteI'm a very versatile writer and marketer, but you can imagine I wasn't very fulfilled writing finance- even if some of it was fun or fluffy copy.
This is so timely - thanks! I just started my reselling venture (very part time, just for extra spending money). I started in January and have kept track of my purchases, sales, and net profit on a simple excel spreadsheet. I do have a question though, do I need to register as a business and do all that? Or can I resell as an individual and just have to claim those expenses?
ReplyDeleteYou can resell as an individual (sole proprietor) and claim deductions. You would report your earnings and deductions on the IRS's Schedule C form, attach this to your person income tax return. Don't forget to file 1040 SE to figure out social security and medicare tax which you'll also be responsible for on those reselling bucks! Uncle Sam wants his money!
ReplyDeleteThanks!! Ugh....darn Uncle Sam! ;-P
DeleteOops, personal income tax return* Typo :)
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