What are the best practices for tracking and reporting auction fees to the IRS?

1 Types of auction fees

Auction fees are the charges that you pay or receive for buying or selling items through an auction platform. They can include commissions, listing fees, buyer's premiums, shipping fees, and other expenses or income related to the auction. The tax treatment of auction fees depends on whether you are engaged in a hobby or a business, and whether you are dealing with personal or investment property.

2 Hobby vs. business

The IRS considers your auction activity as a hobby if you do it for fun, recreation, or personal pleasure, and not to make a profit. In this case, you can deduct your auction fees as miscellaneous itemized deductions, subject to the 2% of adjusted gross income limit. However, you cannot deduct more than your hobby income. On the other hand, if you are engaged in a trade or business, you can deduct your auction fees as ordinary and necessary business expenses, regardless of your income level. You also have to report your auction income as business income on Schedule C.

3 Personal vs. investment property

Another factor that affects the tax treatment of auction fees is the type of property that you buy or sell through an auction. Personal property is the property that you use for personal or household purposes, such as clothing, furniture, or collectibles. Investment property is the property that you hold for income or appreciation, such as stocks, bonds, or art. If you sell personal property through an auction, you generally do not have to report the sale or the fees, unless you sell it for more than you paid for it. If you sell investment property through an auction, you have to report the sale and the fees as capital gains or losses on Schedule D. You can also deduct the fees as investment expenses on Schedule A, subject to the 2% of adjusted gross income limit.

4 How to track and report auction fees

To properly track and report your auction fees, you need to keep accurate and detailed records of your transactions. You should keep receipts, invoices, contracts, statements, and other documents that show the amount and date of the fees, the description and value of the items, and the name and address of the auction platform. You should also keep track of your income and expenses related to your auction activity, such as bank deposits, credit card charges, travel costs, and supplies. You should report your auction fees on the appropriate tax forms and schedules, depending on your situation. For example, if you are a hobbyist who sells personal property, you may report your fees on Schedule A as miscellaneous itemized deductions. If you are a business owner who sells investment property, you may report your fees on Schedule C as business expenses and on Schedule D as capital gains or losses.

5 Tips to save on auction fees and taxes

You can reduce your auction fees and taxes in several ways, such as selecting an auction platform that offers discounts or incentives, negotiating with the platform or seller/buyer to lower or waive fees, selling/buying items that are rare or unique to increase profit margin, donating/gifting items to a qualified charity or family member to claim a tax deduction, and consulting a tax professional or using tax software. All of these options can help you accurately and efficiently calculate and report your auction fees and taxes.

6 Here’s what else to consider

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