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Selling Stamps on Web Stores:

Income Tax Advantages?

Contributed by: Steve Swain

Web stores can be very effective and profitable outlets for selling stamps.

There are certainly many companies selling stamps and other philatelic material using online outlets such as eBay. Just browse through any of the sites’ stamp categories and look at the seller’s name associated with the items: NY Stamps, CKstamps, Roecy, Inc., Stanley Gibbons and many more.

But what of the stamps being sold in online stores that are not being offered by stamp or hobby product companies? Are those items being sold by every-day stamp collectors simply looking for another way to have fun with their hobby and maybe earn a little money? What about stamp collectors, or even non-hobbyists, who are interested in some real profit, whose sole focus is to sell stamps at a gain, possibly as part of their main livelihood? Are those the people offering stamps for sale online?

A fair question is, “Does it really matter?” Difficult to answer. But, maybe it matters at least in the context of the income tax consequences of the sales for those people who have a definite interest in making a profit from selling stamps on web stores.

If you are just interested in a little side-line fun from selling stamps online, then any income you realize from the sales of the stamps must be reported on your income tax return. And, the tax law helps you a bit by allowing you to deduct any expenses associated with your stamp selling activities up to the dollar amount of the stamp sales, but not more. Not more because you are a “hobbyist”, not someone truly looking for, and behaving like, you want to make a profit. (See Internal Revenue Code Section 183: Activities Not Engaged in for Profit.)

But what if you are not simply a stamp hobbyist and instead are serious about reaping a true profit from the online sale of stamps through your web store? As with the hobbyist, all of your income is surely in the taxable category and your expenses related to selling stamps are potentially deductible, just like the hobbyist.

However, are you allowed special tax advantages because you are not simply a hobbyist? What if your stamp selling activities result in a monetary loss? Unlike the rules for hobbyists, are you allowed special “loss” advantages on your tax return? And what is required for you to be approved for those advantages?

A first consideration is to understand why your stamp selling activities may not result in a profit. Two possible reasons. Seriously pursuing a profit means you would be engaged in the business of selling stamps, and you would incur all the “ordinary and necessary” expenses associated with conducting that business. Unlike the minimal, if any, selling expenses for a hobbyist selling their stamps, your expenses could indeed be much more significant. And, under certain situations, those expenses could be greater that the sales of your philatelic items. A monetary loss.

The other reason you may realize a loss when selling stamps is that the amount you originally paid for the stamps was greater than the amount for which they were sold. Your investment strategy was, unfortunately, a bit flawed. Again, a monetary loss.

In either of those two situations, what are the factors that will convince the IRS of your profit motive, of you being serious about the business of investing in and selling stamps on web stores, that you deserve special tax treatment? Simply put, you need to do whatever is necessary so that you are considered by the IRS as having engaged in a trade or business when you sell stamps, that your activities had a single motive: profit.

If you have a true profit motive for selling stamps online, knowing all the rules may help you gain advantages on your tax return.

Taxpayers bear the burden of proving that they engaged in the activity with an actual and honest objective of realizing a profit. The unfortunate fact is that neither the Internal Revenue Code nor the tax Regulations provide an absolute definition of “engaged in for profit.” Court cases challenging the IRS’ disallowance of tax deductions for losses incurred on the sale of stamps, coins, model trains and other collectibles are litigated every year, and the majority of the decisions do not favor the taxpayer.

So, are there guidelines that can help you ensure your web store stamp selling activity is engaged in for profit and, if needed, convinces the IRS you deserve special tax treatment when your stamp sales result in a monetary loss? Although not all inclusive, there are a few guidelines provided in various IRS publications and rulings from successful court cases:

  • Does the time and effort put into the activity indicate an intention to make a profit?
  • Do you depend on income from the activity?
  • Did you engage outside agents to purchase and sell philatelic items?
  • If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
  • Have you changed methods of operation to improve profitability?
  • Do you have the knowledge needed to carry on the activity as a successful business?
  • Have you made a profit in similar activities in the past?
  • Did the activity make a profit in three of the last five years?

None of these factors, alone or in any combination, guarantees that your online stamp selling activities will be deemed either for or not for profit. Each taxpayer’s situation stands on its own facts and circumstances. But, if you are serious about a profit motive in selling stamps on web stores, fully understanding these guidelines and exercising the appropriate amount of due diligence in your stamp selling activities will surely bode well with the IRS when you claim advantages on your tax return.

The Author

Steve Swain has enjoyed all aspects of philately for 55 years . His articles have appeared in The American Philatelist, The Philatelic Communicator, Stamps and other stamp publications on topics ranging from writing for online “content mills” to collecting first day covers.

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Selling Stamps on Web Stores: Income Tax Advantages