Every month, The Capitalist Next Door will answer questions submitted by our members. If you would like to submit a question to our resident Capitalist, please click here and put “The Capitalist Next Door” in the subject line. —–

1. I’ve been doing a lot of downsizing lately, selling many unnecessary possessions through Craigslist. It all comes to a pretty tidy sum. Do I need to report that money as income for taxes? - Rob, Coos Bay, Ore.

   What can be better than gaining a little extra cash from old possessions that are just lying around the house collecting dust?

   It sounds as if you are engaging in the time-honored “garage sale,” using the Internet instead of your driveway. The IRS won’t care when you sell your items for less than you paid for them. You ultimately have a net loss. Of course, you’re taking in money, but you are not making a profit from the original paid price. In this case, nothing has to be claimed as income. Also, any losses from your sold items are not tax deductible.

   If you’re hitting neighborhood garage sales, picking up doodads for a dollar, then reselling them for $5 on Craigslist, the rules change. In the eyes of the IRS, you may be operating an online auction house, and profits will have to be claimed on your income tax.

   Online tools such as Craigslist are great ways to clear clutter and gain extra income. As long as you are selling items occasionally, there are no tax obligations. Enjoy your extra pocket money!

2. What are the tax advantages of married, filing jointly vs. married, filing separately? - Shana, Wilmington, N.C.

   The decision to file jointly or separately depends on your specific circumstances in any given year. There advantages and disadvantages to each.

   Joint Filing
   Filing jointly offers the most tax breaks for a married couple and helps even out investment losses and profit for the year for each spouse. Credits for paying interest on student loans and the education credit are available when filing jointly, (unlike separately), along with the child care tax credit. And if one spouse is not working, the employed spouse can contribute to retirement accounts for both. Your tax may also be lower when filing jointly and more tax benefits are available. If you’re in school, have children or are still paying on the interest of those school loans, you’ll get the biggest break filing jointly.

   Separate Filing
   When filing separately, you are solely responsible for your own tax obligations. Most couples don’t opt for separate filing, since it raises their tax rate and limits their tax breaks. There are a few reasons why it can be the best bet, however. A significant outlay for medical treatment may make a couple consider filing separately. Unreimbursed medical expenses can be deducted from your taxes if they exceed 7.5 percent of your adjusted income. Obviously you will be more likely to meet that requirement on a single income, but you do need to show that single income has been used to pay for these medical expenses. If your spouse has defaulted student loans or unpaid child support, the money owed may be taken out of your tax refund, but cannot be taken from your separate filing. If you suspect your spouse is committing tax fraud —even a little bit of exaggerated deductions, you’re definitely better off filing separately.

   The choice is yours, and you are not obligated to stick to the same filing choice every year.