Summer is the season to finally clean out the toddler’s toy bin and rinse off your Aunt Erma’s “antique” china. Why? Because we love junk. In fact, the U.S. hosts over 165,000 yard sales every week. But did you know profits made on sales of personal items taxes come with a catch? If you’re making garage sale profits, that overhead is taxable as capital gains even if it is from your old clothes, toys, car, or blender. So, any money you earn by selling your personal items will need to be reported on your tax return.
Calculating Capital Gains
Capital gain is the difference between the original price of an item and the price at which you sold it. It applies to business done at a corporate level, or even to your garage sale profits. For example, if you bought an item for $90 and sold it for $150, the taxable capital gain in this transaction is $60. You will need to pay taxes on the $60 you received after selling it. A loss is the opposite. If you bought the item for $150 and sold it for $90, you’re not obligated to pay taxes on the transaction.
Selling Items for a Hobby
Selling lemonade on a hot day or calligraphy crafts to your friends qualifies as a hobby when it comes to your taxes. You can deduct any expenses you incurred as miscellaneous itemized deductions on Schedule A. Remember: this only applies if it is a hobby. You can only deduct losses up to the amount of income you made from the hobby. If you incur more losses than what you have claimed to be your earnings from your craft, then you won’t be able to deduct the excess amount.
Reporting Seasonal Sale vs. Business
Things going well with your summer side project and ready to take it to the next level? The IRS may consider your growing hustle a business. If this is the case, you need to report your income and expenditures to the IRS on Form 1040. If you incur a loss, you can claim it, but be sure to fulfill all small business reporting requirements to the IRS.
Whether you’ve successfully wracked up garage sale profits or are able to do some entrepreneurial hobbies on the side, taxes come into play. The team at Tax Defense Network can help you figure out what and where you should report these wins or losses, then help you know what to do moving forward. You may want to think twice before adding zeros to your neon dot stickers.