How can I turn my profit into income?

Question

Ok. Im not a dealer but in CA you can sell 3 cars a year without having to have a lisence. So Im wondering, how do I claim the profit I make off of these cars, as income?

Answer 1

Since you are not in the business of selling cars, the gain you have on the sale of the three cars is capital gains and is reported on Schedule D.

Assuming you have owned the cars for one year or less, you will be taxed at ordinary income rates. If you hold a car for more than one year, you are taxed at a lower rate, up to 15%.


You cannot deduct business expenses such as business use of your home, travel to purchase a car, etc., since you are not in the business of selling cars. If you were, your income would be reported on Schedule C and you would pay Social Security and Medicare taxes on your income as well.

Answer 2

If the car cost $10,000, and you sell it for $20,000. Your gross profit is $10,000. Suppose you have other expenses such as travel, documentation, legal, etc. which comes to say $1,000, then your net profit would be $9,000. This $9,000 is your profit as well as income. So on your income tax return, you would declare $9,000 as income.

If you use part of your home as office, you should deduct some of the expenses such as part of the rent (if you rent the house), part of the phone and hydro bill, etc. Consult your accountant for more information.

Answer 3

It's already income and therefore must be claimed. Even if it's illegal income.

Answer 4

It goes on sch c