Tax strategies for LEGO investors in the USA

redeemed763 · 2013-04-22T14:44:04.000Z

I am curious how everyone is handling their tax returns for Lego sales on here. There are a few different possibilities as I see it... Setting up a small business... The main advantage here is that you can report ongoing profits and deduct losses from your bottom line. The primary disadvantage here is that you will need to report self employment tax in addition to federal income tax, a pretty hefty blow on any investor. Recording all Lego sales as a hobby venture... With this strategy you cannot have ongoing profits, two out of every five years you will have to pay out more money in expenses or risk being classified as a business. The main advantage here is that you avoid that nasty self employment tax. All lego sales will be taxed at your normal tax bracket Reporting Lego investments as capital gains... This one is probably a no go for many of the younger folks but for those in medium and higher income brackets, it could be a life saver. Technically capital gains for collectibles held more than one year is 28%, if they are sold in less than a year, they fall in your normal tax bracket. There are no self employment taxes on capital gains. For me, I am in the 25% tax bracket, this means that all of my Lego sales will be subject to a 25% federal income tax regardless of which strategy I use, unless I keep them more than 1 year and take a 28% tax. However, I may or may not have to pay self employment taxes depending on which strategy I use. Personally, I leaning towards reporting all of my Lego sales as capital gains since I won't have to worry about potentially being classified as a business at some point and wind up paying the self employment tax. Even though my tax bracket isn't very high, I would have to pay 45% of all my profits in taxes if this happened (after 5% state tax as well). I am not a tax expert so my thoughts could be complete rubbish, I am really trying to get ideas on what strategies each of you deploy for your Lego investing. Doesn't it feel great to be able to put so much of our hard earned money into the hands of politicians who use to fund so many well thought out and precisely executed programs and services?