You sold a few cards on Whatnot last year. Maybe you flipped a hot rookie before the print run hit retail. Then a 1099-K showed up in January. Now what? The IRS has a specific framework for this question. The framework is older than the hobby is, and it determines whether your card sales are a hobby (taxable income, no deductions) or a business (taxable income, full deductions). The line between the two changes how much tax you owe by thousands of dollars.
When the IRS treats your card sales as a hobby
A hobby is an activity you do because you enjoy it. The IRS calls this "an activity not engaged in for profit" under IRC §183. If you sell a few cards a year because you want to upgrade your personal collection, you're a hobbyist. The income is taxable. You report it on Schedule 1, line 8j (Activity not engaged in for profit).
Here is the part that catches people off guard. Since the Tax Cuts and Jobs Act of 2017, and permanently since the One Big Beautiful Bill Act (P.L. 119-21) removed its end date, hobbyists cannot deduct operational expenses against hobby income. You cannot deduct shipping. You cannot deduct platform commissions. The full sale price hits your tax return as gross income; only the cost basis of the card itself comes off as a basis reduction.
Here's where the math depends on facts. If you sold a $400 card you paid $300 for as part of an ongoing hobby activity (regular sales, not a one-time cleanup), you can still subtract your cost basis to arrive at $100 of taxable gain. What you cannot deduct as a hobbyist is everything else: shipping, supplies, eBay fees, platform commissions, mileage to a card show, software subscriptions. All of those costs disappear from your tax return. The cost of the card itself reduces your basis. Everything else you paid to make the sale happen does not. A grading fee is treated differently from those costs: KKATC Cards adds it to the card's cost basis, so it is subtracted from the amount realized with the rest of the basis when the card is sold.
For a true one-off casual sale of a personal collection item, you report the gain (sale price minus cost basis) and that's the end. The harsh "gross income, no deductions" treatment hits when you have an ongoing hobby with operational expenses you can't write off.
When the IRS treats your card sales as a business
A business is an activity carried on with the intent to make a profit. If you bought sealed product, opened it, sold the hits, and tracked your costs against your sales, you're operating a business. The income is taxable, but you also get to deduct your expenses. You report on Schedule C.
Schedule C is where dealers, resellers, and breakers live. The cost of the cards you sold (cost of goods sold), shipping, supplies, software, mileage to card shows, platform fees, and other ordinary and necessary costs all reduce your taxable income. In KKATC Cards, a grading fee you apply to a submission is divided evenly among the cards in that submission and added to the cost basis of each one. It is recovered when the card leaves your hands, not in the year you paid it. For a card held for sale to customers, the fee is part of the card's inventory cost and is recovered through cost of goods sold on Schedule C when the card sells.
In the same example as before, that $400 card you paid $300 for results in $100 of taxable profit, not $400 of taxable income.
The 9-factor test that decides
Two different questions, and they are independent of each other. Whether an ACTIVITY is engaged in for profit is the IRC §183 question, decided at the level of the whole activity. Whether a particular CARD is held primarily for sale to customers (dealer inventory), for investment, or for personal use is the IRC §1221(a)(1) holding-purpose question, decided card by card. Passing one does not answer the other: a reseller whose activity is plainly a business can still hold some cards as a personal collection, and a collector whose activity is not a business can still hold a card for investment. This article is about the first question only; the holding purpose of each card is recorded separately in Cards.
The IRS does not let you choose. You don't get to declare yourself a business because the deductions are nicer. The Treasury regulations under Treas. Reg. §1.183-2(b) lay out 9 factors the IRS uses to decide if your activity is a hobby or a business:
- The way you carry on the activity (do you have a separate bank account, inventory records, a system for tracking sales?)
- The expertise you have or have developed (do you know what you're selling?)
- The time and effort you put in
- The expectation that the assets used may appreciate in value
- Your success in similar or dissimilar activities
- Your history of income or losses from the activity
- The amount of occasional profits
- Your financial status (is this hobby income meaningful or pocket change?)
- Personal pleasure or recreation derived from the activity
No single factor is decisive, the list is not exhaustive, and the regulation itself says the determination is not made by counting factors for and against: Treas. Reg. §1.183-2(b) opens with "no one factor is determinative" and "a determination is not made merely because the number of factors indicating a lack of profit objective exceeds the number of factors indicating a profit objective". Do not score yourself. The IRS looks at the full picture, and so should you. A reseller with a separate bank account, inventory tracking, and consistent quarterly profits looks very different from a casual seller flipping personal collection upgrades.
There is also a presumption built into IRC §183(d). If your activity shows a profit in 3 of the last 5 years, the IRS presumes you are operating for profit. The burden flips. The IRS has to argue you aren't a business, instead of you having to prove you are.
What this means for your taxes
If you're operating like a business, file Schedule C. You report gross receipts, deduct cost of goods sold, deduct ordinary and necessary expenses, and pay tax on the net. You also pay self-employment tax (15.3%) on net earnings over $400 per IRC §1401.
This is the default tax treatment for sole proprietors and single-member LLCs taxed as disregarded entities. Resellers earning more than roughly $50K net profit often consider an S-corp election to reduce self-employment tax, but the administrative cost only pencils out at scale. We cover the mechanics in "Scaling Your Business: 0 to 10K, 10K to 50K."
If you're a true hobbyist, file Schedule 1 line 8j with the gross income only. No expenses. The math is simple but punishing.
The 1099-K trap: getting a 1099-K does not make you a business. It also does not give you a free pass to ignore it. The IRS receives the same form. They match it against your return. A 1099-K reporting $25,000 in payments with nothing on your return triggers a notice. Either report as a business with full deductions (Schedule C), or report as a hobbyist with zero deductions on operational expenses (Schedule 1 line 8j). Either path requires a deliberate decision.
Even if your sales were at a loss because you sold cards below cost basis, you still have to report the 1099-K amount and reconcile it against your cost basis on your return. The form goes to the IRS whether you made money or not. The trigger that gets resellers in trouble is silence on the 1099-K, not the underlying tax outcome.
The 1099-K threshold under OBBBA is $20,000 in payments AND 200 transactions per third-party payment network. States set their own thresholds, and several are well below the federal floor. The lowest in 2026: Rhode Island ($100), Massachusetts ($600), Vermont ($600), New Jersey ($1,000). If you sell in those states or your buyer base is concentrated there, you can hit a state 1099-K with $700 of activity even though the federal threshold protects you. If you sell on multiple platforms, each platform's threshold applies separately, but your tax treatment for the year as a whole is one decision.
Practical signals you've crossed into business territory
The IRS does not have a single dollar threshold for "this is a business now." Certain patterns push you firmly into business territory:
- You track inventory with cost basis per card
- You sell consistently throughout the year, not just personal collection cleanup
- You have a separate bank account or payment processor for card sales
- You have a sales tax permit in your state
- You buy sealed product specifically to break for resale
- You ship from a dedicated supply station, not a kitchen drawer
- You file quarterly estimated tax payments
- You document profit motive (a written plan, a budget, performance reviews of your inventory)
If three or more of these describe you, you're operating a business. Filing as a hobbyist puts you on weak ground in an audit and costs you thousands in deductions you legally earned.
Bottom line
The hobby vs business question has a real answer in tax law, and the answer matters. If you receive a 1099-K and you're tracking inventory, you almost certainly belong on Schedule C. The deductions you earn there are not aggressive tax planning. They are the income tax code applied correctly to a business activity.
If you're tracking inventory and selling regularly, KKATC Cards treats you as a business by default. Schedule C output ready.
This is general tax information, not tax advice. Talk to a CPA or enrolled agent about your specific situation.