Yes, you can potentially use trading cards as a tax write-off, but it depends on the specific circumstances under which you’re involved with trading cards. Here’s a breakdown of how they might qualify:
1. Business Expenses (If You’re a Dealer or Investor)
If you run a business dealing in trading cards (buying and selling, for example), the expenses associated with acquiring, storing, or promoting the cards may qualify as tax-deductible business expenses. The IRS allows deductions for ordinary and necessary business expenses, which could include:
- Cost of Goods Sold (COGS): The cost of purchasing trading cards for resale.
- Storage and Inventory Costs: If you are holding inventory (like trading cards) to sell, costs related to storing those cards can be deductible.
- Business-Related Expenses: Shipping costs, advertising, and other operational expenses related to the trading card business.
In these cases, you would file the expenses on Schedule C if you are a sole proprietor or as part of your business tax filings.
2. Hobby Deduction (Limited)
If you’re a hobbyist collector and not running a business, you may face limitations on deductions. The IRS classifies hobby expenses differently from business expenses. While you can report income from selling cards, hobby expenses (the costs incurred from purchasing or maintaining cards) are not deductible against hobby income.
3. Investment Property
If you hold valuable trading cards as an investment and sell them at a profit, the profit may be subject to capital gains tax. However, you can deduct certain expenses related to the sale of the investment, such as:
- Acquisition Costs: The original cost of purchasing the cards.
- Transaction Fees: Auction fees or selling platform costs.
Profits would be taxed as capital gains, and expenses related to maintaining and selling the investment could offset those gains.
Important Notes:
- Business vs. Hobby: Make sure to clearly differentiate whether your involvement with trading cards is a business or a hobby. If it’s a business, keep accurate records of income and expenses to avoid IRS scrutiny.
- Document Everything: Keep detailed records of your expenses, including receipts, for tax filing purposes.
To ensure you’re maximizing deductions and complying with IRS rules, it’s a good idea to consult with a tax professional, especially when dealing with collectibles.