Having a passion for special collectibles can inspire you to start earning extra money by purchasing and selling them, but regardless of what you want to trade, such as vintage comic books or limited-edition sneakers, always remember to consider the taxes. IRS views this kind of income as taxable, and people who don’t properly report it could receive penalties.
This guide breaks down what you need to know when taking on such an endeavour. We’ll cover how profits are taxed, what deductions you can take, and how to stay compliant with the law. This way, you can safely reinvest your earnings into your favorite hobby, playing at the ideal online gaming platform, Playamo!
How the IRS Treats Income from Collectibles
If you sell something unusual for money, the IRS considers it your income. The tax rate for your income depends on how long you’ve owned the item and whether you’re regarded as a hobbyist or a business.
Short-Term vs. Long-Term Capital Gains
Profit on a collectible sold above the original price is called a capital gain. Your tax rate will vary depending on how long you held an item before selling it.
- Short-term capital gains – If you own something for less than a year, and you gain profit, your tax rate may be as high as 37%, like your regular income.
- Long-term capital gains – If you owned the item for a year or more, the maximum tax rate on your profits is 28% (this is more than the usual long-term capital gains rate for stocks).
Example:
You bought a rare comic for $500 and sold it 8 months later for $1,500, so your $1,000 profit is a short-term gain, taxed as regular income.
If you had it for 14 months instead, the same profit would be taxed at the collectibles rate (up to 28%).
Hobby vs. Business: Why It Matters
The IRS distinguishes between hobby sales and business activities:
- Hobby Income – If this is just an occasional side gig, profits are taxable, but you can’t deduct expenses beyond the item’s cost.
- Business Income – If you’re regularly purchasing and selling for profit, the IRS may consider it a business. This allows you to deduct expenses (shipping, fees, storage) but also subjects you to self-employment taxes (15.3%).
Tip: Keep records of your costs and sales frequency, as the IRS may treat it as a business.
Deductions You Can Claim
If your sales qualify as a business, you can deduct certain expenses to lower your taxable income. Here are some common deductions:
1. Cost of Goods Sold (COGS)
This includes:
- The original purchase price of the item.
- Fees paid to acquire it (auction fees, shipping).
Example:
- You bought a rare vinyl record for $200 and paid $20 in auction fees.
- If you sell it for $500, your taxable profit is $280 ($500 – $200 – $20).
2. Selling Expenses
- Platform fees (eBay, StockX, Etsy commissions).
- Shipping and packaging costs.
- Marketing expenses (professional photos, ads).
3. Home Office & Storage Costs
If you store or manage sales from home, you may deduct:
- A portion of rent/mortgage (if you use a dedicated workspace).
- Storage unit fees.
Warning: Hobby sellers cannot claim these deductions… only businesses can.
How to Report Collectible Sales
Failing to report income from collectibles can trigger an IRS audit. Here’s how to stay compliant:
For Occasional Sellers (Hobby Income)
- Report profits as “Other Income” on Schedule 1 (Form 1040).
- You don’t need to file if you sell at a loss (but keep records in case of an audit).
For Frequent Sellers (Business Income)
- File Schedule C (Profit or Loss from Business) to report income and expenses.
- Pay self-employment tax (15.3%) on net profits.
Pro Tip: Use apps like QuickBooks Self-Employed or TurboTax to track sales and expenses automatically.
Final Tips to Stay Tax-Compliant
- Keep Detailed Records – Save receipts, invoices, and bank statements.
- Track Your Holding Period – Short-term vs. long-term gains matter.
- Consult a Tax Pro – If you’re making significant profits, an accountant can help maximize deductions.
Marketing such items can be a profitable side hustle, but taxes can take a big bite if you’re not careful, so by understanding the rules, keeping good records, and reporting correctly, you can keep more of your hard-earned profits.
Aisha Noreen is an owner of a small business with more than 9 years of experience in the marketing industry. With the wisdom of an old soul, she always seeks innovation and mind-blowing ROI techniques. Her unique approach helped many small businesses thrive and she can surprise you in many ways as well. Believe it or not, her energy, passion, and creativity are contagious enough to transform your business and take it to another level.
