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If you are concerned about taxable income and your consignment selling, finding answers can be a bit challenging. I wanted to share a quick link to the IRS.gov fact sheet about Reporting Auction Income and the Tax Gap. Here is an excerpt from that document that outlines what is taxable.
Note: You should ALWAYS consult a tax professional with questions! This post will just help you become more informed and ask the right questions!
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Many people don’t realize the income they earn from auctions and consignment sales may be taxable. This fact sheet, the 16th in the Tax Gap series, will help taxpayers better understand what income they are required to report and what deductions they may be entitled to take.
The tax gap, or the amount of tax that goes unpaid each year, results from taxpayers underreporting their taxable income. Fortunately most people want to pay their fair share of taxes and many simply need a better understanding of their obligations.
What’s Taxable
All income from auctions, traditional or online, and consignment sales is generally taxable unless certain exceptions are met. This income is usually considered either “business” or “ordinary” income. In certain circumstances such income can qualify for capital gain treatment. There are also some exceptions where income can be excluded from taxable income.
Business income resulting from an auction or consignment sale is subject to the same taxes as the income of any other retail or service business. That may include income tax, self-employment tax, employment tax, or excise tax. A retail or service business owner must include this income in his or her business income.
A person must report a gain from a sale whether he or she operates a business or not. A reportable gain is the income above the original cost or basis of the item. These gains may be business income or capital gains.
Income resulting from auctions akin to an occasional garage or yard sale is generally not required to be reported. However, there may be exceptions. If an online garage sale turns into a business with recurring sales and purchasing of items for resale, it may be considered an online auction business.
Some people sell a product or service online as a hobby. This income generally must be reported and deductible expenses are limited. The deductions cannot total more than the income reported and can only be taken if deductions are itemized on Form 1040, Schedule A, Itemized Deductions.
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You may also want to check out: Business or Hobby? Answer Has Implications for Deductions
Disclaimer: The information provided on this site is not legal or accounting advice, but general information on issues commonly encountered by consignment sale owners & participants. You should always seek the advice of a qualified professional.