Pokemon Card Sales for Business Revenue
I’ve had a little mind worm as a result of some conversations I’ve had with casual Pokemon flippers. Flippers are the people who see little opportunities in the hobby, and make money from buying and selling. They are the guys who will take a 100 dollar card and flip it for 120. Or buy a collection and sell each card individually.
Most times, this is ‘under the table’ profit. Flipping is not a bad thing. Often their getting people immediate cash for their card and saving that person extra hassle of selling it to someone else.
What I wanted to talk about, is when to stop ‘under the table’ flipping, and get your official flipper license. What this means is when do you go ahead and Operate as a business rather than a casual under the table endeavour.
This isn’t for everyone and probably only applies to a sliver of people in the Pokemon collecting hobby. I’m just going to put some ideas out there. I’m not a tax advisor / accountant. These are thoughts and ideas – not instruction.
Lets set the stage:
Let’s say you make good money:
- 80k / year
The tax man withholds around 24k.
- Bring home 56k.
When Tax time comes, you’ll try to claw some back some tax with registered retirement savings. (RRSPs and 401k) that you’ve done. You try to take advantage of any tax credits you might have as an individual. You’re a fireman, or you had to spend money on work boots – stuff like that. Spend money on childcare. You have a receipt for it – and the government gives you a break.
The government likes to help you with tax breaks for things that spur economic economic activity. Things that get them more money, or boost their economy – they usually have a tax break for it.
This kind a stuff might get you another 4k refund –
- so 60k is your take home.
So Pokemon:
Ebay says you sold 10k in Pokemon Cards. Question would be, did you earn 90k this year, or did you bring home 70k in income?
Neither!
10k in revenue, you likely
- 1500$ in ebay fees.
- 6500$ in product purchases.
- 500$ in shipping fees.
Your profit might only be 1500$.
Here is the difference. If you exchanged your time for an extra 10k… They want to tax you for it. The tax man would want his 4k cut.
If you flipped cards and earned 10k of revenue, you didn’t just exchange your time for money – you spent a bunch of money on other things.
If you are running flipping as a business, the costs associated to flipping get factored in. There can be tax considerations against your income when you are spending money on inventory, shipping, service fees, etc.
Picking up extra hours, doing a 2nd income is far more lucrative than flipping Pokemon.
But if you cannot get a second income (this is my situation) or you just enjoy doing it (me too) – You really should investigate establishing a business and operating your flipping like a business. We went full online business with distribution, importing, trade-in credit, etc. A business can also focus purely on flipping.
If you made the money buying and selling things, using services – all the other funds used on economic activity are considered.
This is where I’ll say “I’m not a tax advisor”, “seek advice from a professional tax advisor”. If you are making money in Pokemon, there are benefits to doing it under a business umbrella. Here is what will happen if you are a real business:
Your profits will get taxed.
So say 1500$ -- Government wants 300$ of your profit.
But, the government will also give you tax reductions for money you spent making that profit.
Let’s say you spent 1500$ on shipping and ebay fees. Government will give you a tax credit for a portion of it. Say 300$. So you’ll end up back to that 1500$ bring home.
So here it is – you operated as a business, but you didn’t make any more than flipping ‘under the table’.
So here is the thing – there are things you already pay for in your day to day life as a casual flipper that you might be able to consider. Consult a tax advisor! A portion of the things you already pay for can be considered business expenses if you become a ‘business’ in flipping cards. Examples might be:
- Internet
- A postal box
- Envelopes, boxes
If you are operating under the table, these costs to you are just sunk. If you operate as a business, those costs get considered in how much tax you pay. Let’s say you spend another 500$ on the above. Boom – more tax credit. You didn’t bring home 1500$ -- when the other stuff is considered – you brought home 1600$ in profit.
So: How do you do it?
The first part is “Register a Business”. This will depend on where you live and I think you are basically going to become either a “Sole Proprietor” or a “Limited Liability Company”. I run my business as a sole prop, but there are advantages to having an LLC. They are more work though and cost more.
After you have a business, then you get into bookkeeping. This may seem scary, or an extra thing to worry about – but its really just documenting.
Book keeping is keeping track of all your sales and all your expenses. Every dollar you spend, every dollar you make – just record it. Put it in a spreadsheet. Keep your receipts. Don’t just just have a pile of receipts, have a digital record of everything and keep it updated. Daily, weekly.
Don’t do it any less than weekly. You don’t want to get to the end of the year and have to remember anything. You’re running a business – so you run the business. It no longer just flipping – its flipping as a business.
This is where becoming a professional flipper can suck some of the fun out of it. You really get a much better picture of how much you spend – versus how much you ‘profit’.
When I first started my business, I worked with an accountant who gave me a spreadsheet. Since the business is simple, I was able to work with it for multiple years managing my business.
I’m going to put a link to it in the description. Its Excel and it has the formulas in it. You just have an add a row for each new sale, each new purchase/spend.
In essence, there are 2 main columns. There are also columns which categorize your expenses and sales.
Money In. Money Out.
Tracking your business becomes as simple as entering a line item whenever you make revenue, and whenever you have a business expense.
At the end of the year, this shows you the following:
- How much money you spent on flipping Pokemon Cards
- How much money you made on flipping Pokemon Cards
Big deal right?
It can answer a lot of questions. How is my business going, how much did I buy, did I sell, etc?
The interesting thing, and how it relates to taxes. When you are doing this, you must break out things according to categories.
Revenue! Taxes Collected!
Taxes Paid
Bad Debt – someone doesn’t pay you or scams you / charge back.
Bank Fees and Interest Charges
Inventory Purchases
Internet and Phone
Rent
Office Supplies
Advertising and Promos
Shipping and Packing Supplies
Shipping and Freight Fees
Sub Contracting, Safety Equipment, Legal and Government Fees, Services, Travel.
If you pay a fee for PSA to grade your cards – that’s a service fee.
If you buy business cards or stickers to give away at Card Conventions – that’s Advertising.
Pay a fee to Ebay – that’s a service fee.
Travel and stay overnight at a card convention and pay for a table – Travel Fees.
Take every receipt you can, and pop it into one of these bad boys after you record it in your spreadsheet / general ledger.
All of these are activities that trigger economic activity. The government doesn’t give you this back. But it does let you offset taxes you might have to pay when you “spend money to make money”. If you have income tax, it might offset some tax there. If you have profit on Pokemon sales, it might offset some tax there.
I do my own taxes, and there are spots that ask me questions on what I spent, what I collected. Its quite simple and I don’t need a big tax advisor. I get a break on some of the taxes I pay. Many people swear how important a good tax advisor or accountant can be. It is true if you take this step.
In Summary:
So functioning as a “real business” and earning 1500 in profit results in some further tax savings. The 1500$ in profit you make – might be more when the government understands how much of your money goes into the flipping activity.
If you have a good tax advisor and accountant, there are benefits to operating your flipping as a business versus ‘making profits under the table’.
So there you have it, becoming a professional flipper might not be a bad idea if you are already doing it.
The biggest change becoming a business is keeping track of your costs and sales. It doesn’t cost much more than 100$ to register a sole proprietor business – and that government fee might also be tax deductible.
So consider it. Are you flipping cards already? Is it worth flipping the switch and becoming a full fledged business?
Even if you are considering it, look into what I might mean to keep track of your expenses. Even as a collector it’s a good thing to do – but very scary.
So if you’re an amateur flipper and considering the ‘big leagues’, do your research. You could be better off as a business rather than an under the table side hustle.