Summer is the time for sales, but when you’re talking about saving, you might also consider the taxes from the sale of personal items. There are around 165,000 yard sales each week in this country, where thousands of dollars’ worth of business is done.
If you’re selling personal items and you make a profit, your profit is taxable as capital gains even if it is from your old clothes, jewelry, toys, dinnerware, etc. The sale of personal effects, be it a car or old clothing, is taxable. So, any money you earn by selling your personal items will need to be reported on your tax return as capital gains.
How do you calculate capital gains?
Capital gain is the difference between the original price at which you purchased an item and the price at which you sold it. For example, if you bought an item at $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 the item.
If you have a loss, say you bought the item for $150 and sold it for $90, you are no obligated to pay taxes on the transition. On the other hand, if you have a gain, you need to pay taxes on it. Sounds fair.
If you are not aiming for a profit…
If yard sales become your hobby or you are selling certain items you made yourself and your aim is not to make a profit, you can deduct any expenses you incurred as miscellaneous itemized deductions on Schedule A. Remember that you must be indulging in the activity as 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 unfortunately can’t deduct the excess amount.
Is it a seasonal sale or a business?
If you begin selling at a larger level and your primary aim is to make a profit, then the IRS may consider your endeavor 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 you need to fulfill various necessary reporting requirements to the IRS.