In recent years, people have discovered methods to generate additional money by selling things they no longer need or by flipping things they bought for less. As a result, reselling has grown in popularity. But the question of whether reselling is a hobby or a business still stands. And how much can be sold before taxes are due?
In order to respond to the first query, it relies on how frequently you resale and your goals. It can be seen as a pastime if you occasionally sell stuff for private purposes, like as clearing up clutter in your home or earning some additional money. However, it may qualify as a business if you constantly acquire and sell goods in order to make money.
The IRS has standards for classifying an activity as a business or a hobby. The IRS defines an activity as a hobby if it is done primarily for personal enjoyment or entertainment and not to generate cash. On the other hand, if the activity’s main goal is to generate revenue, it qualifies as a business.
You must disclose your income and costs on your tax return and pay taxes on your net profit if you are reselling as a business. However, if you are reselling as a hobby, you are exempt from reporting your income but not from the requirement to itemize your deductions.
How much can you sell before you have to pay taxes? is the second question that needs to be addressed. Whether you are reselling as a company or a pastime will determine this. You don’t have to pay taxes on your income if you sell things as a hobby unless you sell them for more money than you spent for them. You must include the profit on your tax return if you sell anything for more than you paid for it.
You must pay taxes on your net earnings if you are reselling as a business. Your tax bracket and the kind of your business entity will determine how much tax you must pay. For instance, if you are a sole proprietor, Schedule C of your tax return will be where you detail your business’s revenue and expenditures.
In conclusion, depending on the frequency and purpose of the activity, reselling can be both a hobby and a business. Reselling as a hobby exempts you from filing taxes, but it also prevents you from writing off any costs. You must disclose your income and costs on your tax return and pay taxes on your net profit if you are reselling as a business. In order to be sure that you are abiding by the correct tax rules, it is crucial to keep track of your earnings and outlays and to seek advice from a tax expert.