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If you are anything like me, you spend a good chunk of change building decks and testing ideas. You watch EBay's "Ending soonest" list of Magic auctions every night in hopes that you might stumble across a good deal to pad your trade binder or finish a playset.

After a few months of this you realize that your trade binder is full of cards that you have left over from decks that didn't work out and random "good deals" that you found while scouring EBay (or even MOTL!).

So what do you do? You start selling off the random stuff in your collection. And you may not know it, but this make you the Sole Proprietor of your very own business. The money that you make (and spend) while playing your favorite card game actually is claimable on your yearly income tax return.

What you may be thinking right about now is: "Well I don't want to claim the money that I've made while selling cards because it will increase the amount of taxes I need to pay and in turn decrease my tax return". While your thought is correct, you might be missing an important detail.

Because your in business, you are entitled to claim your business expenses on your tax return as well. I'll let that one sink in for a second :-)

This means that all of the money that you spend to
"pad your trade binder" is considered a business expense. Not only that, but in theory, the gas money that you spend getting to your Gaming Convention, or even your LGS, is also considered a business expense and therefore balances against the "profits" your business realizes when selling pieces of your "inventory".

I recently was looking into creating a sole proprietorship, and came across the below referenced websites, and after reading I started developing the above thought process. I am unsure of the intricacies involved in accounting, but as long as you keep a register of your estimated current collection value, your "businesses" cash surplus, and profits. You will claim this on a Schedule C as a Sole Proprietorship along with your personal income taxes.

To close, here is a fictitious example to illustrate the points above:

You work at a day job and play magic on the side.
Your day job nets you $30,000 in taxable income.
You spend $1,000 and sell $300 worth of magic every year (as documented by your expenses and profits spreadsheet).

This means that your business, in an effort to make a profit, ended the year with $700 worth of expenses which are subtracted from your net earning of $30,000 from your day job.

Bottom line: instead of paying taxes on $30,000 you only pay taxes on $29,300 which means: A larger tax refund, all because you kept separate track of you Magic collections Net worth and claimed it on a schedule c at the end of the year. Cool huh?
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Again, please note that I am not an accountant or business/financial adviser. And as such cannot be held responsible for any ill fate that becomes you should you attempt to actually use any of the previous information. I guess you can say this is for the sake of the thought experiment and nothing more.

______________References_______________________________
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[url=http://www.nolo.com/legal-encyclopedia/how-sole-proprietors-are-taxed-30292.html]

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Originally posted by Volcanon:
Wait, so you're basically writing an article on: "How to cheat the tax man by telling him a hobby is self-employment"

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Originally posted by choco man:
They have a word for this, fraud.

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what do you suggest then, report the profits but no expenses?

His income isn't actually lower. He just spent some of his income on his hobby. It's fraud when a personal hobby "magically" becomes a business expense.

It's one thing for a retailer like SCG having an expense report for traveling to events. It's another thing when an aspiring binder grinder manipulates income for his personal hobby. I guess "padding his collection" and spending gas money driving to the LGS are legit?

If you run the buisness under your own name you don't need a buisness license. But you do need to keep track of everything you spend and everything you sell, the better records you can keep the easiser time you will have if you get an audit. Also the IRS will only let you run a small buisness claiming a loss for about 5 years before they will make you claim the whole thing as a hobby and not a buisness.

quote:

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Originally posted by Volcanon:
Wait, so you're basically writing an article on: "How to cheat the tax man by telling him a hobby is self-employment"

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Not that serious. Just that he has to start getting receipts whenever he buy booster packs, take part in drafts, and printing out ebay/paypal documents whenever he won something on ebay.

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Originally posted by MTDetermine:

For me, I don't claim my MTG to lower taxes. Too much hassle documenting down all the stuff that you bought/sold.

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Originally posted by davef139:
worst article I have ever read, not to mention the reply.

No wonder PayPal is gonna 1099 people.

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What does 1099 people mean?

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Originally posted by WeedIan:
What does 1099 people mean?

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1099 is a tax form. Pretty much, as a small business, if I buy more than $600 from any non-corporate individual, I need them to fill out a 1099 for tax purposes. In 2012, I will need to do it for every company I buy more than $600 from.

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MOTL's Most Likely to Play in the Pro Tour - 2007, 2008, and 2009
(My Nationals)

http://www.irs.gov/newsroom/article/0,,id=169490,00.html

The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year.

quote:

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Originally posted by MAB_Rapper:
1099 is a tax form. Pretty much, as a small business, if I buy more than $600 from any non-corporate individual, I need them to fill out a 1099 for tax purposes. In 2012, I will need to do it for every company I buy more than $600 from.

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Thanks, not all Americans here So if I sold you a piece of power I'd have to fill out a 1099?

What if i refused to fill it out? Is the IRS going to come after me up here?

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Originally posted by Timmyhill:

In New York state you have to get a sales tax number and collect sales tax on sales made in the state.

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Originally posted by WeedIan:
Thanks, not all Americans here So if I sold you a piece of power I'd have to fill out a 1099?

What if i refused to fill it out? Is the IRS going to come after me up here?

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For Canadians, the acquisition and disposition of collectible items should be treated as capital gain/loss, unless you can convince CRA said collectible items are your inventories, and you've kept detail invoicing on all acquisition and disposition.

In a shorter term, don't bother.

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MOTL Fantasy NBA 2010 Champion

You have to actually register as a business, be licensed, collect sales tax on sales, file taxes on the business at the end of the year, nevermind the paperwork you'll have to maintain on every single magic purchase you make. Don't even get me started on all the inter-business 1099s he'd have to mail out due to the riders introduced by Obamacare....

You might get away with cheating on a math test.
You might get away with fudging your résumé to get a job.
You may even get away with lying about your age on OkCupid.

quote:

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Originally posted by stu55:
lol, ok, that might be the dumbest thing a "dealer" has ever I said I think...

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Firstly, I started off as a player, progressing to collector and still view myself as a collector, though others are free to pass their own judgment.

Second, depending on how you do the accounts, on at least the government mode of accounting, I should still be making losses..........The wonders of accounting =p

I do not cheat when I play Magic, nor do not condone anyone cheating when gaming or when it comes to their taxes. The inclination that my intent was to teach you how to cheat on your taxes is based on my “fictitious example” that had you making money off of my ideas and “cheating” the IRS. The fact of the matter is: my example did not say that you claim "only" your expenses (which would be fraud), but instead simply illustrated a situation where your expenses were greater than your profits. If this was illegal, then businesses such as AIG, AOL, GM, and BP, who have all showed at least one year with losses would be committing crimes.

While it is not cheating the IRS to claim your business is having a loss, falsely claiming “expenses” is illegal. This was another object of scrutiny in my original post, and I concede that I might have the crossed bounds of simplicity, and as such pushed the envelope of morality. However, my example of claiming gas money while heading to a gaming convention with the intention to pedal your wares is perfectly legal. I speak based on my experience as an independent contractor working for a marketing company. I would travel to trade show's with the intent of making sales. Regardless of my success this expense was deductible in the name of my business.

In fact, while were on the subject, I will quote an EBay guide written by one of their users. This particular user doesn't have that many sales, but his post has over 70 thousand views with 380/409 positive ratings.

"You have to pay taxes on all personal and business income, and that includes sales made on ebay". And by definition MOTL. (http://reviews.ebay.com/Taxes-and-Ebay-eBay-Sales-May-Be-Subject-To-Taxes?ugid=10000000000720733)

It is a little more than insinuated that "your little hobby" in the eyes of the IRS is actually a business. So, through extrapolation, I was able to write my original post, but any critical thinker would conclude (as I did) that claiming ONLY your profits is not only dumb, but, surprise surprise, could be considered fraud (Enron comes to mind).

This was the thought process that I went through to write my article. I apologize again for not being clearer, and hope that I have not burned any bridges for future trades :-)

please allow me to respond on an individual level now,

Bagbokk: If you had checked my linked reference, it is indicated that in fact, it does. But I would love to read one of your referenced articles. Please link one.

Weedian: I thought this as well, but it seems that LLC and companies need to file, but your social security number is sufficient while you have only one owner and no employees, and no filing is required. (again linked)

Timmyhill: the whole 5 year thing has merit. I definatly wouldn't want to run any business that NEVER makes a profit.

MTGDetermine: Yeah it is a lot of work. Although its probably a good idea to document your collection if only for your own purposes if not for insurance claims in the event of a disaster (even if your stuff isn’t covered)

Vegas: I mentioned the caveot so that anyone reading my post wouldn't take me as scripture and investigate to draw their own conclusions. I for one love it when non professional magic players comment on theory because it increases my own perspective on whatever subject matter is getting commented on.

davef139: Sorry to hear that. Don't worry, I won't quit my day job.

airwalk: At least sites such as this exist so that "greaseballs" such as I make themselves known :-)

Rats60: I appreciate you taking the time to link the article.

Weedian (again): the chance is probably slim in actuality, but they would be within their right to come after you.

mm1983: I am not sure about the sales tax thing, although that is normally how businesses online do it. If they operate in your state, physically, they charge you sales tax. I actually heard somewhere that there was legislation moving to make charging sales tax on all online orders mandatory. (sorry no reference on this one)

Sorry if I missed you, nothing personal.