Having a Garage Sale or Yard Sale? What to Do First
Sales Taxes, Income Taxes, Local Licenses, and Permits
When garage sale time settles in, you know that 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. Before setting out items for your garage sale or yard sale, check on these issues involved with the "business" of holding a garage sale:
- Local permits and licenses for garage sales or yard sales
- Income taxes on the profits from the sale
- Sales taxes on the cost of the items sold
Before you decide to have that garage sale or yard sale, do your research on these local, state, and federal laws, taxes, and permits.
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 let you know about any local ordinances or permits you need to comply with.
Business Licenses and Permits for Garage Sales
Barbara Crews, an expert on collectibles, lists "Not having a Permit" as one of the top 10 garage sale 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 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, in the "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 your garage sale ad in the newspaper. And be aware that your town or city might also regulate the 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 on a regular basis.
Income Taxes on Garage Sales
For tax purposes, garage or yard sales might be divided into three categories (according to H&R Block)::
- The casual sale
- The hobbyist
- The business
The casual seller is not looking to make a profit but to get rid of stuff and make a little money. The hobbyist or business seller is more intentional about making a profit.
Most garage sellers are of the casual sales variety. 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."
But a garage or yard sale usually nets you less than the price you paid for the items. In this case, you're just getting rid of things and hoping to get some money for them. If these items are sold at a loss, you don't have a capital gain. But you can't claim the loss on your income tax return. You also can't deduct the cost of holding the garage sale (buying signs, for example).
The hobbyist or business sellers, on the other hand, probably has the intention of making a profit. While there is usually no paperwork on these sales, carrying on a business on a regular basis can draw the attention of the IRS.
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, for example, 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) nonrecurring (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 12 months is nonrecurring, 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 is general and is not intended to be tax or legal advice. Every situation and location are different. Be sure to check with local and state regulators before having a garage sale or yard sale.