Taxes On Consignments
 

I recently consigned some of my collection to an auction house and was wondering what the process is for taxes when it comes to the final sale. I would assume that a great majority of you have consigned in the past and have experience with this matter. Any information would be appreciated.

Disclaimer: I am NOT a tax professional. But, you are responsible for paying taxes on any gain from the sale of your assets. If you have held them for more than a year, the capital gain rate (for your particular overall marginal tax rate) applies. You can deduct the cost of these assets, assuming you have those records, from the gain at sale, in determining the net taxable gain.

hank's right...but I'm guessing most do not claim this income...and I believe at this point the AH's do not report it.

Probably true. But, if a check is in excess of 10K, your bank is required by law to report it to big brother when a check of that size is cashed or deposited.

(from what I understand)

That's not true. I deposit lots of checks well over $10000 in my business and they are not reported.

I think the federal law has more to do with cash transactions of $10k or more. It would be crazy to have to report all transactions to the govt. that are over 10k. All of that should come out on tax returns, one way or the other.

Not sure capital gain/marginal tax rates apply to collectibles. I seem to remember reading that collectibles are their own class of asset and the rate was something huge (28%?) no matter what your marginal rate is and no matter how long you have held the asset. I could be wrong.

Not true...this is a popular misconception.

Jeff

Taxes
 

Correct, banks report CASH transactions over $10K.

I am not a tax advisor - but I think if there is a net gain on the sale, it's gets reported on your Schedule D, and I believe it's subject to the 28% collectibles rate.
If there is a net loss, I don't think the loss is allowed, from what I understand - but don't quote me on that. It's not like the sale if stocks, bonds, etc.

Tony

There was a skit (madtv/snl) or a comedian I heard long, long ago where a person involved with "illegal activities" would stand in line multiple times at the same bank and deposit $9,999 each time.

Collectibles are treated differently than normal capital gains/losses.

There is no short term or long term, the rate is 28% of what your gain is, not the actual sale price. If there is a loss it can be used to offset other collectible losses in the same year. Unlike other investments you also cannot deduct expenses and or related costs on these collectibles.

Auction Houses are not required to file any individual reports, it is up to the seller to report it.

I stand corrected. Looks like it's a straight 28% of the net of gains and losses on sales of collectibles for the calendar year. Sorry for the misinformation.

Thanks to Jim VB, I stand corrected a second time. The 28% is the MAXIMUM capital gain tax rate on collectibles, otherwise it is taxed at your lower marginal rate for all income including the capital gain. Only if your rate is 28% or higher would you pay 28% on your collectibles gain. I sure hope that's right, and in any case I'm going to shut up now.

Jim VB!!, I haven't seen him post in a long time. I hope he's doing well.

If you don't declare your gains on your tax returns and get audited you will be miserable when required to pay penalties and interest on top of the taxes owed. In addition, if you do it for a few years in a row, i.e. showing a pattern of tax fraud, you could be indicted. Respectfully, only an idiot would fail to declare these gains if they are significant.

My understanding of what most of you are saying is that I would only have to declare to the IRS what I gained from the sale of my cards? For example, if I purchase a card for $100 and sell if for $110 I would only have to declare the $10? Also, when purchasing my cards I never kept record of the purchase price. Would I just guess as to what I purchased them for? I do have a very good idea of what I paid, but I could be off a little. Thank you again for the information.

Mike

Mike, yes, you'd only have to declare your gain. If you don't know what you paid for the card, you should make a best guess -- but be prepared to defend that guess should you be audited.

With out records they could make you declare all of it. They probably want but could. My parents were audited when I was around 16 and I have been audited myself. We came out squeaky clean but I knew to keep perfect records. I have records of the cost of every card I own. Even if it's just an email stating what I am paying for it.

It's all going to depend on whether you receive a 1099 from the auction house. If you receive a 1099 the revenue will have been reported to the IRS and you will be obligated to report the income. IF you have not received a 1099 you are still required to report the gain and loss however the IRS will not have received notice of your receipt of funds from a third party.

Right, so if you get a check from an auction house that's over 10K and cash it, it gets reported to the IRS by your bank.

At least that's what I thought.

Actually that is illegal, it's known as sequencing and I was warned against it.

Always amazes me that auction houses aren't required to issue 1099's. I have to 1099 my janitor and anyone else I pay over $599. a year to, assuming they are not incorporated.
And just because you don't get a 1099 don't assume the payer didn't report it and just neglected to send you the form.
Always best to report all income and then find the cost basis for that income rather than under report.

Even if the bank isn't reporting deposits to the IRS, if you get audited it's still all in your bank records as large deposits. I would assume that an audit could involve you producing your bank statements and explaining such deposits.

After doing some searching I was able to find all of my purchase history for my cards..Which is a good thing! For those of you that have been through this process before, are any of you aware or not if there are sections on the HR Block or Turbo Tax sites where you submit this information or would I have to speak to someone in person. Thank you again for the much appreciated information.

Reporting
 

I don't know the cash reporting threshold for banks, but with the Post Office, cash transactions of $3000 or more have to be reported to the Secret Service. If you come in and purchase $3000 worth of money orders you have to fill out a form. The info on the form goes into the computer system and the transaction is reported to the Secret Service. It is call the Bank Secrecy Act.

Rick

Offsetting losses
 

A good reason to keep a closet full of cards and receipts from the golden era, 1986-1995.