5 Things Sneaker Resellers Should Know About Their Taxes
TurboTax CPA Lisa Greene-Lewis has provided 5 tips that sneaker resellers should know before they file their taxes.
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Over the course of the last few years, sneaker reselling has transformed from a hobby to make some quick cash to fund your collection to a legitimate full-time job for some people. Consignment boutiques are popping up left and right across the country. Other people move pairs online from the comfort of their living room. The sneaker aftermarket has become so big that there is now even a stock market for sneakers—most readers know it as StockX.
With so many self-employed resellers out there that are new to the practice, there may be some things for them to learn when it comes to handling their income. You might not realize it, but doing heavy reselling, whether it's online with GOAT or in person at Round Two, can actually save you some money when you go to file your taxes for the year.
Tax season is right around the corner. Ahead of the painstaking process this April, TurboTax CPA Lisa Greene-Lewis has compiled some tips for resellers to take advantage of when they go to file their taxes this April. Check out the 5 tips below.
You Can Claim Your Sales as Hobby Income
If you are a reseller that is not selling pairs on a frequent basis and your intent is not to make a profit then your reselling practices are considered a hobby by the IRS. That means that you can claim any income you have made off of sneakers as hobby income. However, you can no longer deduct hobby expenses on your tax form.
High-Volume Resellers Are Considered Self-Employed
The IRS considers high-volume resellers that are moving pairs much more frequently as self-employed. If you are continuously reselling sneakers in an effort to make a profit, your income must be claimed on Schedule C of your tax form.
Self-Employed Resellers Can Qualify for Business Deductions
Resellers that are considered self-employed by the IRS can also qualify for business deductions, which will lower their overall tax bill. That means that materials directly related to the reselling business like cleaning supplies and shipping costs can be deducted. Anyone who has ever resold sneakers knows that the cleaning up a pair of used kicks to sell or heading over to the post office to ship out a pair can take a little bit of money away from your total profit, so being able to deduct these costs at the end of the year is a silver lining for your troubles.
You May Have to Claim Inventory as a Capital Asset
We have all seen the photos on social media. One of Virgil Abloh's hyped-up Nike collabs drops and a few hours later as you are coping with your L you see a reseller with 50 pairs posing on Instagram. Any big-time reseller is sure to have some pairs sitting around that do not sell immediately. Sometimes they even do so on purpose to see if the sneaker increases in value over time. What resellers might not know is that they may have to claim their inventory as a capital asset when they file their taxes. Any shoe that will be sold above retail is considered a capital asset. The cost of the item includes the retail price, sales tax, shipping costs, and any other costs used to improve the asset.
Third Party Providers Will Report Your Income
If you are conducting your business through a third party like PayPal or GOAT, they will be reporting your income to the IRS. Any reseller with more then 200 transactions and over $20,000 in sales will have a Form 1099-K reported to the IRS by a third party. However, if you do not reach the quota for a 1099-K, you still must report your own income from reselling.