Are you looking for ways to earn additional money this summer? The extra cash will no doubt come in handy, but it could affect your tax return.
Here's what you need to know about reporting requirements for common sources of secondary income.
- One-time sales. Generally speaking, all income is taxable. For instance, say you're an amateur horologist and you sell your personal collection of vintage pocket timepieces. The difference between what you paid for the watches and the sales price is a capital gain.
What about that single mid-summer house-cleaning garage sale? When you sell stuff you used personally for less than you paid for it, the sales need not be reported because the loss is not deductible.
- Sometimes sales. Depending on the items sold, you may have capital gains or ordinary income.
Periodic sales that generate income can also raise the question of whether you're operating a business or engaging in a hobby. The difference? If you're in business, you can generally deduct all your business expenses and even incur a loss. Hobby rules limit your deductions.
- Recurring sales. Will you be buying goods in bulk to re-sell for a profit? Do you intend to continually replenish your stock with thrift store or garage sale items?
Regular sales activity may mean you've started a business and have ordinary income. That's true even if you sell via on-line auction and never receive an informational statement reporting the sales.
Contact us before you establish any new venture. We'll be happy to answer your questions about the tax issues.
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