Do I Need to Report My TCGPlayer Taxes and Profits?

Selling trading cards on TCGPlayer can be a great way to make extra money, but it also comes with tax responsibilities. Whether you’re occasionally offloading parts of your collection or running a full-fledged business, the IRS may require you to report earnings and pay taxes. Ignoring these obligations could lead to penalties or unexpected tax bills.

Understanding how to handle taxes from TCGPlayer sales ensures compliance while potentially reducing what you owe through deductions.

Hobby vs. Business Status

The IRS classifies selling on TCGPlayer as either a hobby or a business based on intent and activity level. If sales are infrequent and there’s no profit motive, it’s generally considered a hobby. However, if there’s consistent selling, marketing efforts, or reinvestment into inventory, it may be classified as a business.

A business is expected to generate income beyond expenses over time. The IRS applies a “three out of five years” rule—if an activity is profitable in at least three of the last five years, it’s presumed to be a business. Other factors like recordkeeping, time spent, and reliance on the income also influence classification.

Businesses often maintain separate bank accounts, detailed financial records, and may register as an LLC or sole proprietorship. A hobbyist, by contrast, might sell sporadically without formal tracking. The IRS also considers expertise in the field, as knowledge and experience suggest a business intent.

Income Calculation

All earnings from TCGPlayer sales must be reported as taxable income, regardless of the payment method. The total amount to report is the gross revenue before deducting expenses. Even if profits are reinvested into inventory, the IRS still considers the revenue taxable.

Sole proprietors or single-member LLCs typically report income on Schedule C of Form 1040, which allows for expense deductions. If net earnings exceed $400, Schedule SE must also be filed for Social Security and Medicare contributions. Unlike W-2 employees, self-employed individuals cover the full 15.3% self-employment tax, though half of this can be deducted when calculating adjusted gross income.

Sellers with significant earnings may need to make quarterly estimated tax payments using Form 1040-ES if their total tax liability is expected to exceed $1,000. Failing to pay on time can result in penalties and interest charges. State tax obligations should also be considered, as many states impose similar income tax requirements.

Deductible Costs

Reducing taxable income through deductions is key for TCGPlayer sellers. The IRS allows deductions for business expenses that are “ordinary and necessary,” helping lower tax liability. Knowing which costs qualify and tracking them properly ensures compliance while maximizing savings.

Cost of Goods Sold

The cost of acquiring inventory is one of the most significant deductions. The IRS defines Cost of Goods Sold (COGS) as direct expenses incurred in purchasing items for resale. This includes the price paid for trading cards and any costs associated with obtaining them, such as auction fees or bulk purchase discounts.

COGS is calculated using inventory accounting methods like First-In, First-Out (FIFO) and Specific Identification. FIFO assumes the oldest inventory is sold first, useful in a rising price environment. Specific Identification tracks the exact cost of each card sold, beneficial for high-value items. The IRS requires consistent use of an inventory method, and changes must be formally requested using Form 3115.

To claim COGS, sellers must maintain records such as purchase receipts, invoices, and inventory logs. The formula for calculating COGS is:

Beginning Inventory + Purchases – Ending Inventory = COGS

For example, if a seller starts the year with $2,000 in inventory, purchases $5,000 worth of cards, and ends with $1,500 in unsold stock, the COGS would be:

$2,000 + $5,000 – $1,500 = $5,500

This amount is deducted from gross income to determine taxable profit.

Shipping and Packaging

Mailing costs are deductible, including postage, shipping labels, envelopes, bubble mailers, and protective materials. Even if offering free shipping, these costs remain deductible as necessary business expenses.

Tracking shipping expenses is essential. Many sellers use online postage services like Pirate Ship or Stamps.com, which provide detailed reports for easier recordkeeping. Bulk purchases of supplies should be allocated based on usage rather than deducted all at once.

Frequent trips to the post office may also qualify for a mileage deduction. The IRS allows a standard mileage deduction, which for 2024 is 67 cents per mile. Sellers should maintain a mileage log noting the date, destination, and purpose of each trip. Alternatively, actual vehicle expenses like gas and maintenance can be deducted if directly related to business use, though this requires more detailed records.

Transaction Fees

TCGPlayer charges fees that reduce net earnings, but these costs are deductible. The platform takes a Marketplace Fee, typically 8.95% to 10.25%, depending on seller level. Additionally, there’s a payment processing fee of 2.5% + $0.30 per transaction when using TCGPlayer’s payment system.

For a $100 sale, the fees might be:

– Marketplace Fee (10%): $10.00
– Payment Processing Fee (2.5% + $0.30): $2.80
– Net Revenue After Fees: $87.20

These fees should be recorded as deductions on Schedule C under “Other Expenses” or “Merchant Fees.” Fees from PayPal or other payment processors are also deductible.

Sales Tax Implications

Sales tax compliance has become more complex for online sellers, especially after the 2018 Supreme Court decision in South Dakota v. Wayfair, Inc., which allowed states to require out-of-state sellers to collect and remit sales tax.

Many states have economic nexus laws, meaning sellers must collect sales tax if they exceed a certain number of transactions or revenue in that state. For example, California sets the threshold at $500,000 in annual sales, while Illinois enforces a $100,000 or 200-transaction threshold.

Marketplace facilitator laws simplify compliance. TCGPlayer, as a marketplace facilitator, automatically collects and remits sales tax in most states where these laws apply. However, this does not eliminate all tax obligations. Some states, like Missouri, only implemented marketplace facilitator laws in 2023, meaning sellers may have had prior obligations.

Payment Platform Reporting

Many TCGPlayer sellers receive payments through third-party platforms like PayPal, Stripe, or direct bank transfers. These platforms must report transactions to the IRS if certain thresholds are met. As of 2024, platforms must issue Form 1099-K to sellers who receive over $20,000 in payments and conduct more than 200 transactions in a calendar year. However, the IRS plans to lower this threshold to $5,000 in 2024, with a long-term goal of reducing it to $600 in future years.

Receiving a 1099-K does not mean all reported income is taxable, but it does signal to the IRS that earnings should be accounted for. If a seller receives a 1099-K with incorrect information, they should contact the payment processor to request a correction before filing their return.

Recordkeeping Essentials

Maintaining detailed financial records is necessary for tax reporting and business management. Sellers should track all income, expenses, and inventory changes to ensure accurate filings and substantiate deductions in case of an audit. The IRS generally requires taxpayers to keep records for at least three years.

A well-organized system should include sales records, purchase receipts, shipping invoices, and fee statements. Digital tools like QuickBooks, Wave, or spreadsheets can simplify tracking, while physical receipts should be scanned and stored electronically.