Reselling tickets for a profit has become a popular side hobby and source of extra income for many people. With the rise of online ticket resale platforms like StubHub and Vivid Seats, it’s easier than ever to buy tickets to events and resell them for a higher price.
However, if you’re making money by reselling tickets, you may be wondering if you need to pay taxes on that income. In most cases, the answer is yes. Here’s what you need to know about paying taxes on income from reselling tickets.
Do you have to pay taxes on income from reselling tickets?
In general, if you sell tickets as an individual for more than you originally paid for them, the profit you make is considered taxable income. The IRS considers income from reselling tickets as “hobby income” or “business income,” depending on the extent of your ticket resale activities.
Here are some key points about paying taxes on ticket resales:
– You must report all ticket resale profits on your federal income tax return. This income should be reported on Schedule C (Profit or Loss from Business) or Schedule D (Capital Gains and Losses).
– You must also pay self-employment tax on your ticket resale income, which covers Social Security and Medicare taxes, since you are considered self-employed for ticket resale activities. The self-employment tax rate is 15.3%.
– If you resell tickets regularly and extensively enough to qualify as a business instead of a hobby, you may be able to deduct business expenses like website fees and mileage. Hobby expenses are limited.
– You may have to make quarterly estimated tax payments on your side income if expected to owe more than $1,000 when filing your tax return.
– States often tax ticket resale profits as well, so check your own state’s rules.
So in short, income from reselling tickets is taxable at both the federal and state levels. Proper documentation and records of income and expenses are key to accurately reporting taxes on this side hobby.
Factors that determine your tax obligations
Whether your ticket resales are treated as hobby income or self-employment business income depends on several factors, including:
– Volume of your sales – Higher ticket volumes increase likelihood seen as a business. There is no definitive threshold though.
– Regularity of sales – Frequent, recurring sales more likely to be classified as a business.
– Amount of time and effort put into sales – More time and effort mean more likely considered a business.
– Intent – Is profit-making your main motive and do you rely on income from sales? Or is it an irregular side hobby for extra cash?
– Whether you’re selling mainly to customers at the event or reselling online to anyone
– Other history of selling tickets or other goods
So the more your ticket resale activities resemble an actual business, the more likely the income will be treated as taxable self-employment income rather than hobby income. But in any case, profits above your original ticket purchase cost should be reported.
Record keeping for ticket resales
To properly report your ticket resale income and expenses (if you qualify to deduct any), good record keeping habits are essential. Here are some records to maintain:
– Documentation on your original ticket purchase cost and fees – Keep all receipts and records of your initial ticket costs for the events you resell tickets for. This forms the basis for determining your profit and loss.
– Records of all ticket sales and associated fees – Keep documentation on each ticket sold, the sale price, and any associated seller fees from online platforms you sell through.
– Bank and payment account records – Keep track of deposits and transfers from ticket sale payouts you receive.
– Mileage and usage logs – If significant business activity, log miles driven and expenses related to ticket selling to substantiate possible travel expense deductions.
– Business percentage of cell phone or internet – If substantial time spent on ticket sales, calculate the business portion of phone and internet service to write off.
– Time tracking – For substantial activity, keep time logs showing time spent purchasing, managing, and selling event tickets.
Maintaining thorough records makes tax reporting much easier. Consider using accounting software or Excel to keep track of your ticket resale income and expenses.
How ticket resale profits are taxed
Assuming your ticket resales qualify as taxable income, here is how the profits will be taxed:
Federal income tax
– Taxed at your ordinary federal income tax rate – Could be 10%, 12%, 22% up to 37% depending on your tax bracket
Self-employment tax
– 15.3% tax rate, which covers:
– 12.4% for Social Security
– 2.9% for Medicare
State income tax
– Varies by state – In the range of 0% to 13%
Net Investment Income Tax
– Additional 3.8% NIIT if income above $200K Single or $250K Married Filing Jointly
So federal income tax rates plus 15.3% self-employment taxes will apply to your net ticket resale profits in most cases. And state taxes will apply as well. The overall tax rate can range from around 25% to over 50% of profits depending on your ticket sales volume and other income sources.
Strategies for reducing taxes on ticket resales
If you are realizing significant side income from reselling tickets, here are some potential strategies to help minimize your taxes owed:
– Deduct all permissible business expenses – This lowers your net profit subject to tax.
– Use a separate business credit card – Helps track and classify business expenses.
– Set up an LLC – Forming an LLC can provide liability protection and allow you to take advantage of more business deductions.
– Choose the cash method of accounting – The cash method lets you defer tax on sales until you actually get paid.
– Contribute to a Solo 401K – Allows you to contribute up to $20,500 in 2023 plus 25% of profits towards retirement savings, reducing your taxable income.
– Take advantage of other small business tax deductions – Things like the home office deduction, vehicle use deduction, and business use of your cell phone or internet can lower your tax bill if justified by your activity.
– Track costs for each ticket sale – Identifying your cost basis for each sale lowers the profit subject to taxes for that specific resale.
– Incorporate in low or no income tax states – If setting up an entity, consider incorporating in tax-advantaged states like Nevada, Wyoming or Florida.
Proper tax planning and tracking of income and expenses can help maximize write-offs and minimize taxes owed on ticket resales. Consider consulting a tax professional for guidance on setting up your activities in the most tax-efficient manner.
Examples of calculating taxes on ticket resale income
To illustrate how to calculate taxes on income from reselling tickets, here are a few examples:
Example 1
John buys 4 tickets to a concert for $200 each. His total cost including fees is $850.
He then resells the tickets for $300 each, or $1,200 total.
John had selling fees of $100.
His net profit on the sale is $1,200 – $850 – $100 = $250.
This $250 profit is subject to federal income tax at John’s rate, such as 22%. Plus 15.3% self-employment tax.
If John is in a state with 5% state tax, his total tax would be:
Federal income tax: $250 x 22% = $55
Self-employment tax: $250 x 15.3% = $38.25
State income tax: $250 x 5% = $12.50
Total tax = $55 + $38.25 + $12.50 = $105.75
So on his $250 profit, John would owe about $106 in taxes.
Example 2
Linda purchased a season ticket package for her local NFL team for $2,000.
She sold half the games individually for a total of $3,500.
Her costs were:
– Original ticket purchase: $2,000
– Seller fees: $300
– Mileage for ticket hand-offs: $145 (300 miles @ $.485/mile)
– Cell phone business use: $60 (20% of $300 annual bill)
– Total costs: $2,000 + $300 + $145 + $60 = $2,505
Her net profit was $3,500 ticket sales – $2,505 costs = $995 profit.
At a 22% federal rate, 15.3% self-employment tax and 5% state tax, Linda's tax would be:
Federal income tax: $995 x 22% = $219
Self-employment tax: $995 x 15.3% = $152.24
State income tax: $995 x 5% = $49.75
Total tax = $219 + $152.24 + $49.75 = $421.99
So Linda would owe about $422 in taxes on her $995 in ticket resale profit.
Example 3
Dan runs a full-time ticket resale business through an LLC.
In 2022 he had:
$125,000 in ticket sale revenues
$85,000 in ticket purchase costs
$7,500 in seller fees
$1,200 in website costs
$2,300 in mileage
$1,500 in cell phone
$500 in home office expenses
His net business profit is $125,000 – $85,000 – $7,500 – $1,200 – $2,300 – $1,500 – $500 = $27,000
Assuming Dan is single, his federal and self-employment tax would be:
Federal income tax at 22% bracket: $27,000 x 22% = $5,940
Self-employment tax: $27,000 x 15.3% = $4,131
Dan's total federal tax is $5,940 + $4,131 = $10,071
If Dan lived in a state with 5% state income tax, he would also owe:
State tax: $27,000 x 5% = $1,350
Making Dan’s total tax liability around $11,421 on his net profit of $27,000 from his ticket resale business.
Conclusion
Reselling tickets can be lucrative but does come with tax obligations. Any tickets sold at a profit over your original purchase price are generally subject to federal income taxes, self-employment taxes, and likely state income taxes as well.
Hobby sellers will report income on Schedule C or D, while extensive ticket selling activities may qualify as a business, allowing more deductions. Careful record keeping of costs and expenses can help minimize taxes owed. Following good tax planning and compliance practices will ensure you pay only your required fair share of taxes on any ticket resale profits.