Basketball Tickets and Sports Cards

[joshalee]

Hello,

I resell some of my professional basketball tickets I own and already have the 1099K details.   Additionally I sell online collectible cards.   For each, am I reporting on the net sales or income?

Example:  Cost of the tickets for a game are $200 a seat and I sell for $400 a seat.  Gross sales were $800, but income was $400.  What am I being taxed on?

[Laura_CPA]

Dear Joshalee, 

Hope you are having a good day 🙂! The 1099K reports gross income only, you'll report that income and any related expenses under a Schedule C (if you are in it with the intent to make a profit). To use your example, you'd report $400 as gross receipt and the cost of the ticket of $200 as an expense, net profit of $200 (will be subject to self-employment tax).

However, if you are not in it to make a profit, then this would be considered a hobby. You'd report your 1099K income on Schedule I, Line 8 of your 1040 tax return (the income will not be subject to self-employment tax). Unfortunately, under the new Tax Reform, you cannot deduct any expenses. 

Hope this helps you! Please let us know if you need any further information. 

[John-H2021]

Hello Joshalee,

There are 2 ways to report the income.

1. If it is a hobby then the income is reported on schedule 1 for the full amount of the 1099 no expenses allowed to be taken

2. If it is a business the it would be reported on a schedule C (self employed income). Yu would report the 1099 as income and then deduct the expenses you have againist making that income.

Here are a few helpful links

https://turbotax.intuit.com/tax-tips/small-business-taxes/when-the-irs-classifies-your-business-as-a...

https://turbotax.intuit.com/tax-tips/self-employment-taxes/4-tax-tips-for-money-making-hobbies/L89qz...

https://turbotax.intuit.com/tax-tips/self-employment-taxes/beginners-tax-guide-for-the-self-employed...

[Jefflatta]

I'm in a similar situation with reselling some of the football tickets that are part of my season ticket package for games I can't go to.

- What is the distinction that determines whether it is a  hobby or a business? Do they just take my word for it, or is there an income threshold or something concrete I can reference?

- To clarify - if it's a hobby and not a business, does that mean I don't get taxed on the money from reselling the tickets at all?

[John-H2021]

For it to be considered a business the IRS looks for the following

The IRS expects that if you start a business, you intend to make money at it. If you don't, your business might be a hobby. To determine if your business is a hobby, the IRS looks at numerous factors, including the following:

• Do you put in the necessary time and effort to turn a profit?
• Have you made a profit in this activity in the past, or can you expect to make one in the future?
• Do you have the necessary knowledge to succeed in this field?
• Do you depend on income from this activity?
• Are your losses beyond your control?

These are just some considerations that may, or may not, apply in determining if you have a business or a hobby in the eyes of the IRS.

If it is a hobby then you need to report the total income as other income on schedule 1 with no expenses allowed

Beginning in 2018, the IRS doesn't allow you to deduct hobby expenses from hobby income. you must claim all hobby income and are not permitted to reduce that income by any expenses.

[Jefflatta]

Thanks, John. But now I'm confused again - it sounds like it being a hobby is worse for me (in terms of taxes to pay) than if I called it a business, because if it's a business at least I can deduct the cost I paid for the tickets as a business expense. But if it's a hobby, I have to pay taxes on the entire amount I received as payment even though I had to pay most of that already to buy the ticket I resold?

Put another way - are you saying that if I (to use the original poster's example) buy a ticket for 200 dollars and sell it for 400 dollars:

- If this is considered a hobby I'm taxed on 400 dollars

- If this is a business I'm taxed on 200 dollars

So wouldn't I want to call it a business?

[John-H2021]

If you call it a hobby the $400 will be taxed at your normal take rate, If you call it a business the profit will be taxed at your normal tax rate plus and additional 15% self employment tax.

Example if you are in the 10% bracket taxes would be

Hobby $400x10%=$40

Business $200x10%=$20 plus $200x15%=$30 total tax $50

[Jefflatta]

Thanks, John, that definitely makes sense! Just one last question - if I am to call it a business, do I need to incorporate or do any paperwork to "be" a business? Or is it just going through the questions you listed and self-identifying as self-employed on my taxes next year?

[John-H2021]

No paperwork needed just report the business on the self employed section of the tax return

[joshalee]

Thanks for the responses.

So in the case of selling tickets and this is my "hobby".   If I sold $7500 worth of NBA games I didn't go to, but my cost is $5000, I'm going to report the $7500 vs $2500 profit made because I'm not a business?

So if my tax is 30% it's $2250 is planned taxes vs $750.

[joshalee]

Wait this is if I wasn't intending to sell these for profit.  I am because I'm not getting rid of the tickets like to friends, I'm trying to sell at a demand price.   So then I report on the profit only.

Josh

[Laura_CPA]

Yes, you got that right. You would report $7,500 on Schedule I, Line 8 (no expenses allowed). You would be paying ordinary tax rate, depending on your income level.

[Laura_CPA]

If intended for profit, then you would be allowed to claim the expenses related to the sale of the tickets, under Schedule C. 

Happy to help! 

[joshalee]

Yes these resales are intended for profit and also my sport trading cards on places like Ebay.   For the cards I don't know the cost so if I sold something for $25 I would report the full amount?

[John-H2021]

You can report the full amount but doing some research to find the cost would be benefical and save some taxes