February 2023

Just Married: How to Fill Out Your W-4

Big life events often trigger tax changes, and getting married is one of them. Though often overlooked, one of the most important steps you should take after getting married is updating your Form W-4 with your employer.

Should I fill out a new W-4 when married?

Yes! Your W-4 tells your employer how much tax to withhold from your paychecks. If you continue to list “single” on your W-4, your employer will likely withhold more tax from your paychecks than they would if you checked “married.”

Updating Form W-4 will ensure you and your spouse have the right amount of taxes withheld, potentially giving you more money in your pocket throughout the year.

How do I fill out a W-4 when married?

When you get married, your financial situation may change, and you’ll need to account for this on your W-4.

Here’s what you need to keep in mind.

1. Update personal information

The name on your tax return must match your name on file with the Social Security Administration (SSA). If you plan on changing your name but haven’t filed for a name change with the SSA, make sure you use your pre-married name when filing your taxes.

If your address changed after marriage, you can file a change of address, Form 8822, with the IRS.

2. Determine your filing status

Will you be filing as married filing jointly, married filing separately, or head of household this tax season? If you’re not sure yet, check out I’m Married, What Filing Status Should I Choose?.

2: Account for multiple jobs

Do you and your spouse both work? If so, you need to note this on your W-4. This will ensure you don’t have too much income tax withheld and possibly give you bigger paychecks throughout the year.

Some tips:

If you both work one job and make roughly the same amount, you should check box 2(c) on your W-4. Make sure both of you check this box on your respective W-4s.
The spouse with the highest paying job should fill out steps 2 through 4 on the W-4 (the other spouse can keep those steps blank on their W-4).
If you have a second job and your spouse also works (three or more jobs between you), you can account for this on page 3 of your W-4 — the Multiple Jobs Worksheet.

3: Claim any dependents

If you and your spouse have kids and your total joint income is less than $400,000 (or $200,000 if filing separately), you likely qualify for the Child Tax Credit (CTC), which can be worth up to $2,000 per child. To account for this, one of you will want to note your children as dependents on your W-4. The form will have you multiply the number of qualified children under age 17 by $2,000, and your employer will adjust your withholding accordingly.

Only one spouse is allowed to claim dependents — typically, the spouse with the higher income.

Can I claim my spouse as a dependent?

No, the IRS does not let you claim your spouse as a dependent. Some examples of dependents include children, stepchildren, siblings, or parents.

4: Change your withholdings (optional)

Step 4(c) allows you to record any additional tax you want to be withheld from your paychecks. If you are concerned about having too little withheld, this is your chance to accommodate for that.

The Multiple Jobs Worksheet can also help you determine how much extra you should withhold.

Get help filling out your W-4

If you’re still not sure how to fill out your W-4, don’t sweat it. By answering a few questions, our Refund Booster1 and W-4 calculator can help you fill out a new W-4 to get your desired results — whether that’s a bigger refund at tax time or more money in your paychecks throughout the year.

This article is for informational purposes only and not legal or financial advice.

All TaxAct offers, products and services are subject to applicable terms and conditions.

1Refund Booster may not work for everyone or in all circumstances and by itself doesn’t constitute legal or tax advice. Your personal tax situation may vary.

The post Just Married: How to Fill Out Your W-4 appeared first on TaxAct Blog.

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How to File a 1099-K on TaxAct

Did you receive a 1099-K tax form this year? If you’ve never seen this form before and are unsure what to do with it, don’t freak out — we can help you understand your Form 1099-K and guide you through reporting any necessary income.

How do I use my 1099-K when filing my tax return?

TaxAct® takes accurate tax reporting seriously. That’s why we’ve spent much time and care optimizing our 1099-K reporting this year. We’ve added more detailed questions about what your 1099-K was for so we can help pull the proper tax forms for you.

First, we’ll ask you for information about what types of income you’ve earned this year:

As you can see from the screenshot above, Form 1099-K appears in more than one place — typically, this form is used for those who are self-employed, operate a side hustle, or sell personal items online. You could also receive a 1099-K for real estate rentals and royalties or farming.

If you received a 1099-K for goods you sold as a hobby, there is also a third option, “activities not for profit,” as shown below.

As you go through our 1099-K reporting process, we’ll ask you comprehensive questions about your payment transactions and who sent you the 1099-K. If you have more than one 1099-K, we’ll go through them one at a time. It’s possible you could also have multiple businesses on a single 1099-K — if so, we can help walk you through that process as well.

Knowing what the payments were for helps us determine whether you owe taxes on that income. Based on your answers, we’ll help you correctly report the income and enter any expenses to reduce your amount of taxable income, if applicable.

Here’s an example question:

This would be a good time to mention that not all the transactions on your 1099-K are necessarily taxable income. Form 1099-K only shows the gross amount of all your payment transactions, while you only owe taxes on your net income. For instance, if you sold a personal item at a loss, no income would be recognized on the sale, and, therefore, no income taxes are owed.

TaxAct will help you decide which transactions are taxable and which are not based on the information you provide.

After you’ve entered all the applicable transactions from your 1099-K, we’ll review what you told us (shown below). At this point, you’ll be able to go back in and edit or add to each section if necessary.

After that, you’re done with your 1099-K!

Main takeaways

If you are a side hustler, self-employed, hobby seller, or someone who sells used personal items online, you could receive your first 1099-K this year. If so, knowing what this form is and how to use it is essential.

TaxAct makes the reporting process as straightforward as possible. When you file with us, you can rest easy knowing we’ll guide you through it step by step.

 

All TaxAct offers, products and services are subject to applicable terms and conditions.

This article is for informational purposes only and not legal or financial advice.

The post How to File a 1099-K on TaxAct appeared first on TaxAct Blog.

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How to Use eBay’s Form 1099-K to File Your Taxes

The IRS recently announced that it will delay the $600 threshold for Form 1099-K by one year. While this means you may get a reprieve for tax year 2022, many more eBay sellers will begin receiving Form 1099-K next year during the 2023 tax season.

Because of this, eBay has put together a handy guide for sellers to help you better understand your Form 1099-K and prepare for these upcoming tax reporting changes. This guide will be available for anyone who receives Form 1099-K for the 2022 tax year and beyond, whether you’re a small-scale seller or a large business seller.

Let’s break down how your eBay reports work and how to use them to report your Form 1099-K information in TaxAct®.

How to find your 1099-K reports

To begin, navigate to eBay’s Seller Hub or My eBay, and click on the Payments section.
Once in the Payments tab, click on another tab titled Taxes. On this page, you will see PDFs of all your Form 1099-Ks for previous years (if applicable).
Next, toggle to the 1099-K Details tab. Here you’ll be able to view CSV files that break down all the orders reported on your Form 1099-K for tax year 2022. Depending on how many transactions are in your 1099-K, you may see one CSV file or several files giving you a monthly breakdown of your transactions.
If you click Generate next to one of these files, eBay provides you with a CSV with all your relevant Form 1099-K payment transactions.

Using eBay reports to prepare for tax filing

You can use eBay’s guide to help you prepare for your taxes.

Click on the “Let’s prepare for your 2022 taxes” banner at the top of the Taxes page to view the guide     . On this page, you’ll be able to find how to access all the information necessary to help you file your taxes: your Form 1099-K gross amount, refunds, and expenses.

These three pieces of information won’t necessarily apply to all sellers who receive a 1099-K; it depends on what kinds of payment transactions you received in 2022.

If you’re unsure which Form 1099-K information applies to you, TaxAct’s Xpert AssistSM feature is a great resource. Our tax experts can assist you when filing and help you determine which information from your Form 1099-K you need to include on your taxes1.

Your Form 1099-K overview

In the Form 1099-K section, you’ll be able to download your Form 1099-K and your 1099-K Details report CSV. Your 1099-K Details report helps you further break down the information reported on your Form 1099-K.

On this page, eBay will help you reconcile your gross payments with your Form 1099-K. Head over to eBay’s guide and follow the steps provided to get started.

Your refunds report overview

In eBay’s refunds section, you’ll see a summary of your sales refunds (for item returns, order cancellations, payment disputes, etc.). On the right, you’ll be able to download your Refunds report, which breaks the information down for you in more detail.

When it comes to sales refunds given to buyers, you generally don’t have to worry about deducting anything. Since there is no income from the sale, you won’t have to report any income on fully refunded purchases. However, if you issued a partial refund on a sale, you’d need to report the un-refunded portion as income.

Your expenses report overview

Similarly, in eBay’s expenses section, you’ll see an overview of your total expenses that eBay has calculated for you. This is the total of your transaction fees, other fees (store subscription fees, ads, etc.), and shipping label costs that you can possibly deduct. Here you can download your detailed Expenses report to see a breakdown of all this information.

Business sellers who file Schedule C have more options for deducting expenses. However, due to the Tax Cuts and Jobs Act that went into effect in 2018, the list of deductible expenses is limited for casual and hobby sellers.

Make sure you don’t only rely on eBay’s expenses report — you might have also had some expenses outside of eBay that will not show up in your eBay reports. We’ll go over some expense examples below.

First, let’s review the definitions of casual sellers and hobby sellers:

Hobby sellers participate in an activity for recreation and do not expect to make a profit. For example, you sell hand-sewn items on eBay, but you do it purely for fun, don’t always make a profit, and don’t rely on these sales to make a living. The IRS only considers your hobby a business if you make a profit in at least three of the last five tax years. For more details on this topic, check out Hobby Income vs. Business Income: What’s the Tax Difference?.
Casual sellers, as we refer to them, are those who sell used personal property. For example, you bought a TV in 2016, purchased a new one in 2023, and sold your old one on eBay. You’ll often end up selling the item for less than your cost basis (what you originally paid for the item), and in this case, you won’t have any income to report. But you’ll need to report your net profit if you sell the item for more than you originally paid.

Unfortunately, the IRS provides little guidance on what expenses you can and can’t deduct as a hobby or casual seller, but here are some general pointers:

You cannot take a loss on your income tax return for personal property sales.
Those with hobby income can deduct the cost of goods sold in figuring the gross income amount reported on Schedule 1 (Form 1040). You can still take certain expenses on Schedule A as a hobbyist if the expenses are related to your hobby income, like state sales tax, eBay fees, etc.
If you are a casual seller, you must treat your item as a piece of investment property. You’ll still be able to deduct eBay seller fees from your net income, but you won’t be able to deduct expenses like shipping costs if you paid for shipping the item to the buyer, for example.

If this sounds confusing, we hear you. Thankfully, filing with TaxAct makes figuring out your expenses a little easier because we’ll walk you through the reporting process step-by-step.

How to use eBay’s 1099-K report in TaxAct

If you choose to e-file with TaxAct, we will ask you for more details about the transactions listed on your Form 1099-K. This will help us pull the correct tax forms for you to report your income appropriately and determine whether you owe taxes on the income.

First, we need to know what kind of income you made:

You’ll check the box above if you are a casual seller. If you are a hobby seller, you’ll need to click Continue to get to the page below:

Here you can click Activities not for profit if you are a hobby seller, as shown above.

Personal item sales

We’ll go over how to report your income from personal item sales below.

After you’ve answered questions about your types of income, we’ll have you tell us more about who sent you the 1099-K and what it was for.

Next, we review any personal items you sold (clothes, furniture, collectibles, etc.). We’ll ask if you sold the item for a gain (more than you paid for it) and the other details like your cost basis, if the item was a collectible, the sale amount, and how long you had the item before selling it.

Your answers to these questions will help us understand which of your Form 1099-K transactions are taxable.

After that, we’ll review all the personal items you told us about:

Less common income sources (hobby income/activities not for profit)

If you have hobby income to report, we’ll ask you to enter your total income from not-for-profit activities.

Here are some more examples of hobby income:

You make handmade jewelry or other crafts and sell your creations online.
You sometimes do photography for friends and family who pay you a small fee, but you don’t expect to make money doing so.
You paint for fun and sometimes sell your work online, but your profit is just enough to cover the cost of your painting supplies.

Hobby income is not to be confused with side hustle income, which you report on Schedule C. Since the IRS considers a profitable side hustle to be a business, a business classification means you can benefit from more tax deductions. Deductions for hobby expenses are very limited, as we mentioned in the expenses section.

Your hobby could eventually turn into a side hustle if you start consistently making a profit and intend to make money from selling your goods or services. While being a business sounds more complicated, remember that you can take advantage of more deductible expenses than you would as a hobby seller.

Income review

Once we’ve gone over any personal item sales or hobby income, we’ll show you a review screen where you can see all your income categories and edit them as needed:

Main takeaways

Using eBay and TaxAct in conjunction with each other this tax season will help you prepare for your 2022 taxes and file your Form 1099-K correctly. Start with eBay’s guide in your Seller Hub and follow the steps to download and view your 1099-K documents. If you are eligible to receive a 1099-K      this year, you would have received an email from eBay letting you know before Jan. 31, 2023. In this email, you’ll be given a link to your 1099-K reports on eBay’s website.

And don’t forget, TaxAct’s free Xpert Assist available to eBay customers feature can connect you with a tax expert to help you verify whether you’ve reported everything correctly. Having an expert give your income tax return a quick review before filing is an even better way to achieve peace of mind amid all the changes happening this tax year.

 

All TaxAct offers, products and services are subject to applicable terms and conditions.

TaxAct, Inc. gets fees from some third parties that provide offers to its customers. This compensation may affect what and how we communicate their services to you.  TaxAct is not a party to any transactions you may choose to enter into with

eBay and its affiliates do not provide legal, tax, or accounting advice. This material is being provided for informational purposes only and is not intended as, and should not be relied upon for, legal, tax, accounting, or other professional advice. Please consult your own legal, tax, and accounting advisors for advice specific to your situation

eBay name and logo are registered trademarks of eBay and are used here with eBay’s permission.

1 Offer for Free TaxAct® Xpert Assist may expire at any time without notice. Xpert Assist is available as an added service to certain users of TaxAct’s online, consumer-prepared 1040 product. Service hours limited to designated scheduling times and by expert availability. Some tax topics or situations may not be included as part of this service. View full TaxAct Xpert Assist Terms and Conditions here.

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How Crypto Losses Can Lower Your Tax Bill

The value of Bitcoin and other cryptocurrencies has undoubtedly seen better days. But there’s a small silver lining — if you sold crypto at a loss in 2022, you might be able to save on your tax bill this year.

What is the definition of cryptocurrency?

Cryptocurrency differs from traditional currency, like the U.S. dollar, because it doesn’t have any intrinsic value. It is a decentralized currency, meaning it isn’t issued by an authority such as the government but instead distributed by a peer-to-peer network. This allows crypto investors to trade their coins almost instantly without relying on a payment processor as the middleman.

Cryptocurrency generally exists on a blockchain platform — a shared public ledger that records crypto transactions. Its value is highly volatile and depends on various factors, like the supply and demand of a particular digital currency.

How does the IRS define cryptocurrency?

For tax purposes, the IRS defines cryptocurrency as a digital asset and treats it as property, subjecting it to capital gains and losses rules.

What is the difference between capital gains and losses?

A capital gain occurs when you sell a capital asset (like crypto) for a profit. A capital loss occurs when you sell a capital asset for a loss. A capital gain counts as income, which you must report on your income tax return. However, you can use capital losses to offset your income from capital gains.

Capital gains and losses are divided into two categories: long-term and short-term.

Short-term capital gains apply to cryptocurrency you held for one year or less before selling. These gains are typically taxed as ordinary income determined by your maximum tax bracket (10-37 percent depending on your income).
Long-term capital gains apply to cryptocurrency you held for more than one year before selling. These types of gains have their own tax rate — 0, 15, or 20 percent, depending on your income level. Because of their lower tax rates, long-term gains are generally more favorable than short-term gains.

Long- and short-term losses work the same way, except instead of profiting and making a gain, you sell or trade your crypto at a loss.

How do cryptocurrency losses help me when filing my taxes?

Capital losses can be used to offset your capital gains — and possibly some personal income.

To claim a loss, you’ll need to have triggered a taxable event by selling, trading, or spending your crypto. This makes it a realized loss. You can’t deduct any losses for holding cryptocurrency, even if it has decreased in value.

Once you realize a loss, you can use it to offset any capital gains you may have had. If your losses are more than your gains, you can use the excess losses to offset up to $3,000 of your personal income as well. Any net losses over $3,000 can be rolled into future tax years.

When offsetting your losses, you’ll first use short-term losses to offset short-term gains before long-term gains and long-term losses to offset long-term gains before short-term gains.

What are some ways to calculate cryptocurrency losses on taxes?

Let’s review a few examples of calculating your losses and using them to offset your gains.

Scenario 1: You decided to start investing a couple of years ago. You purchased some stocks, as well as some cryptocurrency — we’ll go with Ethereum. In 2022, you decided to sell some stock for a gain of $2,000. You also sold Ethereum for a loss of $4,000.

Because you held the stocks and crypto for more than one year, they would be long-term gains and losses. In this example, you could use $2,000 to offset your $2,000 gain and the remaining $2,000 to offset your personal income.

Using the same example, let’s say you sold Ethereum for a capital loss of $6,000. You’d still use the first $2,000 to offset your capital gain, then $3,000 to offset your personal income. Since you cannot offset more than $3,000 of your personal income, you could roll over the remaining $1,000 to offset any gains or income on next year’s tax return.

Scenario 2: Last year, you had $2,000 in short-term capital gains and $2,000 in long-term capital gains. You also had a long-term capital loss of $3,000. First, you would use your long-term loss to offset $2,000 of your long-term gain. Then you would use the remaining loss to offset $1,000 of your short-term gain. This leaves you with $1,000 in short-term capital gains that you would need to report as income on your tax return.

Does the wash sale rule apply to crypto?

You may have heard of the wash sale rule, which prohibits taxpayers from selling securities at a loss and repurchasing the same securities within 30 days. This prevents you from selling an investment just to claim a loss and then immediately repurchasing it.

There is currently a loophole for crypto. Since digital currencies are not currently classified as securities by the IRS, the wash sale rule does not apply. This makes something like tax-loss harvesting reasonably easy to do for crypto investors. You can technically sell coins that have fallen in value to lock in their loss, then turn right around and buy them back again.

However, legislators have been trying to close this loophole, meaning there may be better strategies to count on in the long run.

What are the consequences of forgetting to report cryptocurrency losses on taxes?

The IRS wants to know about your cryptocurrency gains and losses. Failing to report income from virtual currency can lead to an audit and possible penalties.

You don’t want to forget to report your crypto losses either — if you do, you could be leaving money on the table by missing out on offsetting your gains or other income.

Main takeaways

If you’re a crypto trader who had to sell coins at a loss last year, you may be able to leverage your losses to save on your tax bill this year.

There’s no need to be apprehensive about reporting your capital gains income and losses. TaxAct® has the resources you need to help you report your crypto transactions. We’ll help guide you through the process so you can rest easy knowing you’ve reported everything correctly this tax season.

 

This article is for informational purposes only and not legal or financial advice.

All TaxAct offers, products and services are subject to applicable terms and conditions.

The post How Crypto Losses Can Lower Your Tax Bill appeared first on TaxAct Blog.

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Why Is My Tax Refund Smaller This Year?

The IRS has advised that many people should expect smaller tax refunds for 2022. Here’s why your refund may not be as big as last year’s and some tips on what you can do to maximize your refund amount.

Why do you get a tax refund from the IRS?

Let’s review why we get a tax refund in the first place. What impacts the amount you receive when you file?

For many people, your tax refund is exactly what it sounds like — a refund of taxes that you overpaid during the tax year. This can be due to withholding more tax than you owe from your regular paychecks or overestimating your self-employment taxes.

Qualifying for a refundable tax credit may also contribute to your refund amount. When a refundable credit amount exceeds the tax you owe, you receive the leftover credit as a refund. For example, if you owe $400 in taxes and qualify for a $1,000 credit, you’ll receive the remaining $600 as a refund.

Why you might get a smaller tax refund for 2022

Reason 1: Expiring pandemic relief measures like the Child Tax Credit and more

This is the number one reason you may receive a smaller refund this tax season.

Due to the pandemic, many tax credits were expanded for tax year 2021, increasing credit amounts and making some credits refundable that previously weren’t. However, most of these enhancements expired in 2022, making some credits less valuable than the previous year.

We’ve put together a table comparing specific tax credit amounts altered by COVID-19 relief measures and how they have changed for 2022:

If you claimed one or more of the tax breaks listed above, you could see a significant decrease in your refund this year.

Reason 2: The current economic environment

Another factor that could affect your refund amount? The economy.

Here are some factors to consider:

Inflation – The IRS adjusts many figures for inflation annually, such as expanding the income ranges for each tax bracket. However, not all tax breaks account for inflation. A big one that may affect you this year is the capital loss deduction, which allows investors with net losses to lower their taxable income by up to $3,000 per tax year. This amount remains unchanged from the previous year, despite rising prices.
Layoffs – If you were laid off in 2022 and received a severance payment, it could affect your taxes. Severance payments are taxable, so receiving one could bump you into a higher tax bracket.
The stock market – If you were forced to sell off investments last year to cover expenses, you might have to pay capital gains taxes which can increase your tax liability (if you happened to sell the asset for a profit).

The above may have less of an impact on your tax refund, depending on your situation, but it’s still good to keep these factors in mind.

Tips to help you maximize your 2022 tax refund

So, what can you do to ensure you aren’t caught off guard with a significantly smaller refund or even an unexpected tax bill this year? Keep the following tips in mind as you file this season.

1. Know what tax credits you qualify for

Make sure you know what tax breaks are available to you and how much each is worth this tax season.

Besides expiring pandemic relief measures, some new tax breaks are available this year — certain states are offering tax rebates or relief. Some states have even expanded their existing EITC and CTC programs or created new ones.

There have also been changes to some existing tax credits this year, such as the credit for purchasing certain electric vehicles.

If you e-file with TaxAct®, we can help you in this area — our interview questions are designed to pinpoint precisely what tax benefits you may qualify for, and we’ll help you fill out the necessary paperwork to claim them.

2. File your tax return early

Filing as early as possible helps in two ways: you’ll get your refund faster and have more time to prepare for and pay your tax bill if you owe taxes.

If you e-file, you should get your tax refund within 21 days. If you end up owing taxes, you have until the filing deadline, April 18 this year, to pay any taxes due. That’s why filing early can be beneficial if you end up with an unexpected tax bill — it gives you more time to plan for and pay the cost.

3. Contribute to a retirement account or health savings account

Another way to reduce your taxable income is to contribute to an individual retirement account (IRA) or health savings account (HSA).

Traditional IRA contributions may be deductible depending on your modified adjusted gross income (MAGI). You can contribute up to $6,000 for 2022, potentially reducing your gross income by that amount.

Don’t forget to max out your HSA contributions as well. In 2022 you can contribute up to $3,650 for a single plan and up to $7,300 for a family plan.

You have until Tax Day, April 18, to make IRA or HSA contributions for tax year 2022.

4. Use crypto and stock losses to your advantage

If you sold cryptocurrency or other investments at a loss last year, you could use your losses to offset any gains you might have had. If you have no gains to offset, you can deduct up to $3,000 in losses to reduce your taxable income.

5. Use our Refund Booster to prepare for next year

While you may not be able to change your tax situation this year, set yourself up for success next year by taking advantage of our Refund Booster1.

Form W-4 underwent modifications beginning in tax year 2020. The changes were intended to help you “break even” on your taxes — meaning you’d end up with a tax liability as close to zero as possible.

Refund Booster can help you fill out your Form W-4 to get a bigger refund at tax time or put more of that refund money into your paycheck throughout the year. Either way, you’re in control.

Know what to expect from your refund

Don’t be caught off guard by a smaller tax refund this year. Expiring pandemic relief measures and the economy’s state could drastically alter your refund amount compared to 2021, so keep these factors in mind when planning for your refund this season.

Most importantly, don’t expect your refund to look the same as last year, especially if you claimed credits like the Child Tax Credit or wrote off charitable contributions. To maximize your 2022 tax refund, try contributing to an IRA or HSA or using capital losses to lower your taxable income.

And don’t forget to file early — this gives you more time to prepare for any potential tax bills on the horizon.

 

 

This article is for informational purposes only and not legal or financial advice.

All TaxAct offers, products and services are subject to applicable terms and conditions.

1Refund Booster may not work for everyone or in all circumstances and by itself doesn’t constitute legal or tax advice. Your personal tax situation may vary.

The post Why Is My Tax Refund Smaller This Year? appeared first on TaxAct Blog.

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Selling Collectibles on eBay: How to Report Your Income

Did you know that collectible sales come with their own tax rules? Here are the tax implications of selling collectibles and how to report the sale of a collectible asset on your income tax return.

Does selling collectibles count as income?

Yes, selling collectibles on eBay or a similar site counts as income that you need to report to the IRS. Collectible income is treated as a capital gain; however, collectibles come with their own unique tax rates and rules, which we’ll go over below.

What is a collectible?

The IRS defines a collectible as:

•       Any work of art

•       Any rug or antique

•       Any metal, gem, stamp, or coin (with limited exceptions)

•       Any alcoholic beverage

•       Any other tangible personal property the IRS determines is a “collectible”

If an item has an inherent value due to its market rarity, you should consider it a collectible and report it as such on your tax return.

eBay’s collectible page can also give you a good idea of what items fall into the collectibles category. Some common examples are sports cards, Funko Pop! items, comic books, etc. If you can find it on eBay’s collectibles page, it is most likely to be considered a collectible by the IRS as well. (One exception to this is something like NFTs, which the IRS considers to be digital assets and does not classify as collectibles.)

Can I deduct expenses for selling collectibles?

If you are in the business of selling collectibles, your expenses are deductible like any other small business. However, if you only sell collectibles as a hobby, any expense costs — such as restoration costs for refurbishing an old antique — are not tax-deductible as of 2018.

How do I determine my cost basis for collectibles?

Typically, your cost basis (or basis) for a collectible is equal to the price you paid for the item plus any associated transaction fees, such as fees paid to eBay when selling your item.

If you inherited the item, your basis would be determined by its fair market value (FMV) at the time of inheritance. A good way to determine an inherited item’s FMV is to get an expert appraisal and keep it with your records.

What if I don’t know the value of my collectible?

If you aren’t sure about the value of your collectible, it might be in your best interest to get an expert appraisal. This can prove the item’s value at the time of acquisition if the IRS ever asks for it.

If you can’t get an appraisal, a little research on your item goes a long way. Search for the same or similar collectibles online and look at the asking prices. This can help you determine the item’s fair market value and conclude your basis accordingly.

What is the tax rate on collectibles?

The IRS considers collectibles “alternative investments” for tax purposes, meaning you pay taxes on any net capital gains you earn selling collectibles. However, collectible capital gains tax rates are different from usual capital gains tax rates.

Here’s what you need to know:

Short-term capital gain: Holding the collectible for one year or less before selling it is considered a short-term capital gain. Short-term gains are taxed at ordinary income tax rates.
Long-term capital gain: In tax year 2022, if you held the collectible for longer than one year, your capital gain is taxed at 28 percent (or your ordinary income tax rate, if lower than 28 percent). This rate is higher than the typical 0, 15, or 20 percent tax rate on non-collectible capital gains.

How do I calculate a capital gain or loss on my collectible?

To determine your net capital gain (or loss) for a collectible, you must take the collectible’s sale price minus your basis.

Here are some examples:

Suppose you bought an antique for $3,000 a few years ago. You spent $500 restoring the item, adjusting your cost basis to $3,500 (if you only sell as a hobby, you would not be able to deduct these restoration costs). Now let’s say you sell the antique in 2022 for $5,000. eBay takes $500 in seller fees, increasing your basis to $4,000. Your net profit, in this instance, would be $1,000 ($5,000 – $4,000), which you’d report to the IRS.

Now let’s say you inherited the exact same item instead. The antique’s fair market value at the time of inheritance was $3,000, making that your cost basis even though you paid $0 for the item. You eventually sell the table on eBay for $5,000. You pay $500 in eBay fees, increasing your basis to $3,500. This would result in $1,500 in taxable income to report on your tax return.

Can I deduct a loss from selling a collectible?

Reducing your capital gains by your capital losses depends on if you sell collectibles as a business and how you use the collectible. If you used the item for personal use, such as displaying it or using it in your home, the IRS generally does not allow you to claim a capital loss on such sales, even if you sell collectibles for a living.

However, if you bought the collectible purely for resale purposes and didn’t use it for personal use — you kept the item in storage instead of displaying it, for example — you can reduce your capital gains by your capital losses, assuming you are a legitimate for-profit business. If you sell collectibles that you acquired for personal use and not for profit, you would be unable to offset your gains with your losses.

This gives professional collectible investors a tax benefit because you can time the sale of certain collectibles so that your losses offset your gains. For example, if you have $5,000 in capital gains to report this tax year, you can sell other collectibles that you expect to sell at a loss to reduce your taxable gains.

How do I report the sale of a collectible on TaxAct?

If you choose to e-file with TaxAct®, we’ll ask you interview questions about what kind of income you have. If you sold investments or had income from a hobby (also called “activities not for profit” in our software), you’ll be able to check the appropriate boxes. As you answer our interview questions about what you sold, we’ll determine what tax forms you need and guide you through the reporting process.

Collectibles recap

Selling collectibles means reporting any profits you made as capital gains. Collectible sales have their own tax consequences — a higher tax rate capped at 28 percent — and whether you can deduct expenses or losses depends on if you sell collectibles as a for-profit business or simply as a hobby.

Either way, TaxAct is here to help you correctly report any income from collectibles you sold on eBay. Get started by clicking one of the buttons below.

 

This article is for informational purposes only and not legal or financial advice.

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eBay and its affiliates do not provide legal, tax, or accounting advice. This material is being provided for informational purposes only and is not intended as, and should not be relied upon for, legal, tax, accounting, or other professional advice. Please consult your own legal, tax, and accounting advisors for advice specific to your situation

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