We are selling my husband's comic collections via Ebay as part of our retirement. This has been a hobby of his since he was around 10 or 11 years old, and he has been very active with this all his life (Now in late 60's). Since this has been a hobby and not a business, we do not have any idea of what he has paid for 98% of his books. Any suggestions on how to report the basis?
Also, would it be better to continue to report the sales as "long-term investment of comic collectibles", or would we save on taxes if we made it a business? He is not buying, just selling. Would a business be subject to self-employment taxes, such as Medicare/SS, local transit taxes, property taxes, etc.?
The IRS has specific guidelines for determining if an activity is a hobby or business. This is an article that discusses when your hobby is a business or vice versa: When the IRS Classifies Your Business as a Hobby If your sale of comic books would be classified as a business by the IRS, then income tax and self-employment taxes may be due on the net profit of that business. However, if your sale of comic books would be classified as a hobby by the IRS, then the income is not subject to self-employment taxes.
Collectibles are discussed in Internal Revenue Code Section 408(m). This code section lists items determined by law to be collectibles. Unfortunately, comic books are not specifically listed in this code section. Also, the IRS does not provide criteria about how to determine if an item you hold (comic books in this case) would be considered a collectible by the IRS and therefore, includable as a long-term gain or loss.
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