How would I be taxed by earning credits and selling items bought with them
I was wondering about how I would go about putting this into my tax return. So I've recently started using a website that has a referral program, by promoting through this referral program I've amassed thousands in credits. I've bought electronics and resold them for a lesser value online.
When I report my taxes will I be taxed for receiving the credits and the money I made from selling the electronics? Or will it count as a loss since I'm buying the electronics and selling them at a lower price?
(4)4 Comments
Sorted by latest first Latest Oldest Best
I would also say that it depends on the quantity of items you sold and the amount of money you made. Let say you have sell 4 items for a total of 900 USD, I would not necessarily declare taxes since it could just be a sale on eBay or Craiglist (just like selling a tv to your neighbour).
If you you sell a lot, then it is the same as a business and you will have to pay an amount of taxes depending on the state/country where you live.
In addition, for these electronic devices to count as a loss, you would probably have needed to buy them with real money. I'm not sure that the credits you used to buy these electronic devices count as a real dollar value (at least from a tax point of view).
To take Fattie's numbers, if you, as an individual, received a 00 TV set, then you will be liable for taxes on 00 in income. If you later sold it for 00, then you would have a 0 loss, but the IRS won't let you deduct that loss if they consider it to be for personal use. So you'll have to clearly separate your business activity from your personal activity. How to do that in a manner that the IRS will accept is getting more into Law Stack Exchange territory.
You simply have a business. You go through a certain procedure.
The end result is you have a certain amount of USD, which you have "made" or "achieved" which you did not have previously.
You in fact "made" that much USD.
That's "income".
You are taxed on that much. That's it.
(BTW, don't forget, you can deduct actual costs such as postage, use of internet and your home office etc.)
HOWEVER....
I may be wrong.
It's very likly the IRS would simply tax you on the nominal (I guess retail) value of the TV set.
(The fact is that you then sold a used TV set on ebay is of no consequence to them.)
The fact is, through you efforts, you earned a TV set.
It's totally commonplace that when you do some work, you will be paid with a Good. You simply pay tax as if the retail value.
So above I suggest you'll pay ta on the "final dollar amount you got on eBay" (say 00).
I'm probably wrong - it's more likely you'll pay tax on the full nominal retail value of the item. (example, say, 00).
Just for clarity, the idea that you have a loss here in some way is utterly absurd.
You either have a business or a hobby. There are several deciding factors, but key is whether you run it as a business and whether you have a reasonable expectation of making a profit. If you regularly profit, you can probably treat it a business and file a schedule C including your income and expenses.
As a business, you can probably treat the credits as having no cash value. That means you have no income when you get credits. However, when you trade these credits for electronics with a fair market value of ,000, you have a ,000 gain. If you then sell that piece of electronics for 0, you have a 0 loss.
If you don't meet the requirements to consider this a business, then it's a hobby. The rules for a hobby aren't quite as flexible. You must itemize your deductions, and you cannot take deductions that exceed expenses in any given year. The logic would still be the same, when you trade "worthless" coupons for something worth ,000, you have a ,000 hobby gain. When you sell that thing for 0, you have a 0 hobby loss. The gains are taxable, but you can deduct the losses.
In your case, you're probably better off if it's a hobby as that means your income isn't subject to self-employment tax. Check the IRS test carefully and see if you can defend that characterization.
Update:
Check the IRS guidance to see if it's a business or a hobby. Here are the differences:
Business: You file a schedule C. You may be able to take some deductions for things like a home office. You don't have to itemize your deductions. You will have to pay self-employment tax on your profits.
Hobby: You must itemize your deductions. You cannot deduct losses in excess of your income from the hobby. You do not have to pay self-employment tax on your profits.
Terms of Use Privacy policy Contact About Cancellation policy © freshhoot.com2025 All Rights reserved.