Hello. For this year (2024) I began buying packs of Pokemon trading cards in large quantities and opening them up. I am having certain cards professionally graded and hanging on to them as investments. I started also selling the cards i’m not grading on eBay a few months ago and have made about $2,000 in over 250 orders. I plan to continue buying and selling cards at this pace for the foreseeable future I realize there will be tax implications for this.
I have two main questions here. For one; I don’t know if this would be classified as a hobby or a business. I am leaning toward hobby because I have spent way, way more
money buying the packs than the value I’m getting back for selling them. However the long term value of my graded cards is uncertain and if they appreciate significantly this hopefully will be profitable for me.
my next question would be how to account for the cost of goods sold when doing my taxes next year. My understanding is that if this is a hobby, I cannot deduct anything beyond the cost of goods sold. The tricky part here is that I’m buying sealed packs of cards and not individual cards. For example, let’s say I purchased a box with 10 packs of cards for $50. Each pack has 10 cards inside of it (9 common worthless cards and one rare potentially valuable card) I open all 10 packs and there are two rare cards worth selling and I sell them for $10 each while the rest of the cards go in the trash.
so in this scenario, I spent $50 and am getting $20 back. Obviously I did not make any money from buying this box. However I don’t know the rules for how to account for this. I’m thinking it would be logical to consider the cost basis of each pack to be $5, since there are 10 of them I bought for $50. And so I could deduce $5 as the cost basis from
each of the $10 cards I sold. Hopefully this makes sense. And would this method be different if I was filing as a business vs a hobby? Thanks so much.
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You are engaged in an activity to make a profit. You therefore have a business. Don’t overthink it. You have income from sales which you report on Sch C and you have expenses like the cost of the cards which you also report on Sch C along with any other expenses like postage if applicable. Your net income will be taxed at your marginal tax rate and you will pay 15.3 percent for self employment tax.
Thank you for the reply. Do you agree with my method of calculating cost basis? Is there a different way that this should be done? Thanks.
Buying and selling cards deals with cost of cards and income from sales. Cost basis deals with an asset held as an investment such as art, gold, stocks and bonds. A collectible such as a Pokémon card held for appreciation is an asset and its cost basis is what you paid for it. If included in a bunch of other cards your cost basis is what you paid for the lot.
Thank you. I’m struggling because I don’t buy the card itself, I buy many packs of cards in hopes of obtaining cards worth selling. So I might buy a lot of 10 packs at $5 per pack for $50, and only one pack has a card worth selling in it and the rest I throw in the trash. Can I deduct the full $50 for that one card sale in this example? Or do I need to account for the cards I disposed of in some way?
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