Under the recent tax reform law the ability to deduct hobby expenses on Schedule A have been eliminated. But the necessity of reporting Hobby Income is still required.
A client was sharing that someone they knew was selling product on Etsy and Craigslist(?) and was thinking about starting on EBay. AT this point I am thinking that is they have two and possibly three sources of sales the level of de minimus sales may well be out the door. But the person was not reporting any of the income to the IRS.
My client was pointing out that they should be reporting the hobby income for tax purposes; probably filling out a Schedule C. The client was told that since it was a hobby the money was not taxable, like money from a garage sale.
Our client was correct, all business income is taxable. The other party is correct that garage sale income is not typically included in taxable income. Buying clothes for $50 and selling for less than a dollar is not s sustainable business model. Which is where the de minimus rules come into play.
But recurring active sales from multiple sources would be considered income that needs to be reported and taxed. It is also better to also have a business plan in place and current accurate records for the determination of being a business rather than a hobby. Then you can deduct the expenses from the business on your taxes.
For assistance in building a plan or recordkeeping please contact our office.