Spec, Selling, and Taxes

I talked to several people lately and thought it would be a good idea to bring this up. This is especially timely, for me, as I just met with my CPA this weekend to have my taxes done. So, I decided to have an open, and hopefully informative, discussion on selling comics on eBay and paying taxes. The truth is, if you are selling on eBay, you could end up paying taxes.
First up, let me lay out what the basics are. eBay does not report your sales to the IRS. They do not have to. They are not handling the financial transactions. However, if you are getting paid through Paypal, there is a chance you could be 1099 Misc’d for your sales. Paypal is required to report the money you receive through their service if you hit the $20,000 and 200 transaction threshold. The key word here is AND. If you made 10 sales totaling $20,000, they don’t have to report you. If you make 200 sales and only earn $2,000, they do not have to report you. It is when you hit that threshold of 200 and $20,000 will you see a 1099 Misc on your account. So, does this mean that if you do not hit that threshold, they will not report you? No. They are not required to report your income if you do not hit the threshold, however, they still may. It is important to know where to find your Paypal tax info and check it during the month of February to see if you received a 1099 Misc.
So, if you do not hit the threshold and did not receive a 1099 Misc, you are in the clear right? Again, no. I have reported my comic sales income for several years now as I do my eBay sales as a business and not as a hobby. This is an important distinction which I will cover later. Talking to any CPA or tax professional, they will tell you that while you have not received a 1099 Misc, you still should report the income. Here is why. If you ever are audited, you will have to explain your cash deposits into your bank account. If you are withdrawing money from Paypal and depositing into your bank account, you would have to explain where the money came from. Unreported income could lead to fines and penalties. Granted, this is only if you get audited, but still, you should talk to your tax professional (if you use one.)
So, as I mentioned before, there is a difference between running a business and selling as a hobby. The big difference is expenses. If you are selling as a hobby, your expenses (bags, boards, shipping supplies, etc.) are not deductible. That means all income you receive would be potentially taxable as hobby income. Furthermore, mileage to cons, shops to buy comics, and more are deductible but only if you are operating as a business. There is a big upside to operating as a business. The downside is, even if you operate as a business, the IRS could declare you are a hobby seller. Again, talk to a tax professional if you have questions.
I also, mentioned the Paypal 200 transaction and $20,000 threshold. This does not include money sent as “friends and family”, which is an option a lot of people like to use when selling comics on groups like Facebook or G+. While Paypal does not include this income into your threshold, the money still could be counted as income. Especially if there are a large amount of transactions.
The other factor I would like to bring up is that Paypal does not deduct things like postage from your sales. If you sell a book for $10 plus $3 shipping, $13 is added to your threshold. You would have to later subtract out all your postage costs from your total received to find your net taxable income. Paypal fees are not taken out for the threshold either. In the $13 example above, you will incur fees from Paypal for processing the transaction. The full $13 is added towards your threshold and you would later have to subtract out the fee as a deduction to get your net income. I use Paypal for all my sales, both to receive money (including the fees which are deducted) but also to pay for all supplies, inventory, shipping, and all the other sundries that go into selling. This makes it easy to track at the end of the year by just printing out the monthly statements and taking them to the accountant.
This all seems scary at times, but trust me it is not. When you get into selling a lot of books like a lot of us do, you can hit the $20k threshold quickly. Feel free to ask any questions, but remember, talking to a tax professional is always best.

22 thoughts on “Spec, Selling, and Taxes”

  1. I wouldn’t know what I’d do with myself if I ever made $20K doing this! lol
    Great write-up, Tony. This is one of those things that most sites don’t cover but the information is invaluable.

      1. When I spec, I spec in low quantities then have a tendency to hold onto things too long. I’m such a comic hoarder. I have about 3 long boxes full of stuff I’ve picked up over the past 2 years with the purpose of selling and either haven’t put them up, are letting them simmer a bit more, or completely missed the boat and now I’m stuck with them. But when I get up to your level, I’ll remember these words of wisdom!

  3. Don’t forget your expenses! Cons aren’t cheap to attend…it’s like any trade show, so you should be able to rite off your hotel stays,zairfare, meals-50%, and transportation….when it becomes a business, Write off all legitimate expenses that are associated with generating that revenue. As always…consult your tax professional.

    1. Correct. There are a lot of write offs you can take if you are operating as a business. And yes, contact your tax professional.

  4. Nice write up Tony. I think I only made $500 last year or less lol no ware near the 20k mark. But I did added them into my taxes just incase anything fishy happens lol.

    1. I’m going through the process now. It adds up quick when you sell enough. Most accountants want to know the estimated cost of your collection in the beginning of the year and at the end of the year to determine the difference when they account for your sales. This was the most difficult part because not many of us actually keep exact numbers on inventory and cost paid. I would add that you should definitely keep a travel log to account for miles. Comics are largely a cash business so accounting for what you paid is hard without a receipt. Purchasing through eBay is much easier since Paypal keeps good records of your expenses paid via eBay. It’s ok to itemize your expenses to try to balance the net made, but be careful if you continually take a loss. Uncle Sam will interpret your business as a hobby instead. Hope this little bit of info helps. Don’t be afraid to sell your books, you just have to be careful.

  5. Thank you. I’ve been wondering about this as I have been considering getting a business license so I can try to grow a bit. So I guess that is the question as well. Do you have a license and if so which type? I understand it probably varies from state to state but I feel like a goon just wandering into the office with no direction.

    1. I have a traders license. Effectively buying with the intent of selling. I got one a while ago because I was also selling in antique stores.

  7. Got a 1099-k for the first time this year.
    I will say this, try NOT to reach that $20k limit, or if you’re close, STOP SELLING until next year.
    Being surprised and paying taxes on this is not a pleasant thing.

  8. Keep track of your expenses no matter what guys! If you sell your books as a hobby you can still write off expenses to the extent of your income, you just can’t write off losses.
    -source 4 years of Accounting classes in college, 2 years in the field

  9. This is a much needed article not many of us were thinking of. Thanks for the great info!

  11. Hello All, my father in law is my accountant, how should I approach this conversation after I have had over 100 comics graded this year and have generated a 1099, can the formula be: 1099 – grading fees – postage – paypal cut = taxable income?

    1. More along the lines of (collected money – cost of book – cost of grading – cost of postage – eBay fees – PayPal fees = taxable income) also can claim any materials purchased for the purpose of shipping such as boxes, bubble wrap, mileage to and from post office, let’s not forget postage to grading company

      1. Yeah, really can’t claim bought books you got slabbed unless like Anthony stated, you bought a comic, paid to get it slabbed, then sold it at profit.

        So yes, like Anthony stated, Payment minus Book-Cost/Slabbing-Cost/Postage-Cost/Fees = Taxable Income.

        Honestly, call a Tax expert if you’re not sure. We are not tax experts here and are not liable for any tax advice.

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