Having one garage sale or yard sale a year doesn't make you a business. But it might make you subject to taxes and local regulations, depending on the state where you live and have that sale.Several issues are involved with the "business" of holding a garage sale:
- Income taxes on the profits from the sale,
- Sales taxes on the cost of the items sold, and
- Local permits and licenses.
One tip: Check with your local newspaper to see if they have a Garage Sale Package, with signs and ideas for newspaper ads. They may also include any local ordinances or permits you need to comply with.
Business Licenses/Permits for Garage Sales
Barbara Crews, About.com Guide to Collectibles, lists "Not having a Permit" as one of the top 10 garage sake mistakes. The cost of a permit is pretty inexpensive, but the cost of a fine can wipe out much of your sale profits.
Business owners in many cities are required to get a business license or permit in order to open a business. Some localities include garage sales as businesses. Whether you are required to get a permit for your garage sale depends on your locality. For example, Adam Knapp, Guide to Oklahoma City, writes that all garage sales in Oklahoma City must have a permit.
Other towns and cities might not be this strict. But check with your locality before you put that garage sale ad in the newspaper. And be aware that your town or city might also regulate placement of garage sale signs.
If you have several garage sales in a year, you might get a visit from a city official asking to see your business license. Again, it depends on the regulations of your city, so check before you start having a garage sale every other weekend.
Income Taxes on Garage Sales
When you have a garage sale or yard sale you are selling items you already purchased and for which you have already paid the taxes. Kay Bell, of Don't Mess with Taxes, notes that the IRS says, "if you sold an item you owned for personal use, such as a car, refrigerator, furniture, stereo, jewelry, or silverware, your gain is taxable as a capital gain." Kay explains that a garage sale nets you less than you originally paid, not more. So there's no gain to tax.
Not all income from garage sales is taxable. The IRS says, "Income resulting from auctions akin to an occasional garage or yard sale is generally not required to be reported. However, there may be exceptions. If an online garage sale turns into a business with recurring sales and purchasing of items for resale, it may be considered an online auction business." So, in general, one garage sale a year doesn't make you a business, and you don't have to pay income taxes on these sales.
Garage Sales and Sales Taxes
Whether your state expects to collect sales taxes from your garage sale depends on the state. Most states aren't going to go out of their way to worry about a couple of hundred dollars from a once-a-year yard sale, but you never know. In Iowa, where I live, the state department of revenue classifies garage sales as "casual sales" and says these sales are not subject to sales tax. They define casual sales as (1) non-recurring (except for the sale of autos, on which sales tax must be paid for all transactions), and (2) the seller must not be engaged in a for-profit business for this sale.Iowa says two sales in twelve months is non-recurring, but three sales is recurring.
Each state has different regulations regarding sales taxes. Check with your state's taxing authority just to be sure.
Disclaimer: The information in this article and on this GuideSite is general and is not intended to be tax or legal advice. Every situation and location is different. Be sure to check with local and state regulators before having a garage sale or yard sale.
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