Tax Expert Question

[insidethewrapper]

In 2023, if Married filing jointly, you pay 0% long-term capital gains tax if your income was $ 89,250 or below . So if I bought a card or set etc. maybe 2 years ago for $ 1000 and sell for $ 5000 I owe no tax on this item under these circumstances.

I'm asking is this correct or I'm I reading the tax code wrong ? thanks

[brianclat11]

I'm no accountant, but I don't think cards and collectables have capital gains benefits. From what I have read, they are treated as ordinary income. I'll wait for the professionals to provide some input here.

[raulus]

First question:

With respect to the cards sold, are you:

1) an investor
2) a hobbyist or personal collector
3) a dealer

How you respond will affect how the gains (and losses) are treated.

[raulus]

And if you just want an answer about whether collectibles gains qualify for the 0% tax rate, the answer is they don't.

"Capital Gains Tax on Collectibles
But while long-term capital gains on most types of assets are taxed at either 15% or 20% (or 0% for taxpayers in the 10% or 15% ordinary-income tax bracket), capital gains on collectibles are taxed at 28% (or your ordinary-income rate, if lower)."

https://www.hallkistler.com/hk-news/...-collectibles/

If you want to become a codehead, I encourage you to dig into IRC Section 1(h), and 1(h)(4) in particular (collectibles 28% rate), contrasted with 1(h)(1), which is the general capital gains treatment.

The crux of the matter is that collectibles are subject to their own tax rate, and don't qualify for the general capital gains tax rate.

[insidethewrapper]

A personal collector, not a dealer or investor. Just collect for the fun of it. I noticed that coin collections, art etc can be treated as long term capital gains, why not sports collectibles ?

[Peter_Spaeth]

Originally Posted by raulus

And if you just want an answer about whether collectibles gains qualify for the 0% tax rate, the answer is they don't.

"Capital Gains Tax on Collectibles
But while long-term capital gains on most types of assets are taxed at either 15% or 20% (or 0% for taxpayers in the 10% or 15% ordinary-income tax bracket), capital gains on collectibles are taxed at 28% (or your ordinary-income rate, if lower)."

https://www.hallkistler.com/hk-news/...-collectibles/

If you want to become a codehead, I encourage you to dig into IRC Section 1(h), and 1(h)(4) in particular (collectibles 28% rate), contrasted with 1(h)(1), which is the general capital gains treatment.

The crux of the matter is that collectibles are subject to their own tax rate, and don't qualify for the general capital gains tax rate.

The IRS and Congress didn't get the memo that cards are now "assets."

[raulus]

Originally Posted by insidethewrapper

A personal collector, not a dealer or investor. Just collect for the fun of it. I noticed that coin collections, art etc can be treated as long term capital gains, why not sports collectibles ?

If you believe the IRS, then coins and art are also subject to the same 28% rate.

https://www.irs.gov/taxtopics/tc409

[Kco]

Originally Posted by insidethewrapper

In 2023, if Married filing jointly, you pay 0% long-term capital gains tax if your income was $ 89,250 or below . So if I bought a card or set etc. maybe 2 years ago for $ 1000 and sell for $ 5000 I owe no tax on this item under these circumstances.

I'm asking is this correct or I'm I reading the tax code wrong ? thanks

So the reality is how up front you want to be about it, if you collected cash or a form of payment like Venmo, PayPal Friends & Family or personal check you can likely avoid even touching this on taxes. Additionally, unless you're keeping a detailed record of purchases price (receipts etc) and sale price including profit, it'd be incredibly hard to prove how much you actually made on one item.

[Republicaninmass]

Originally Posted by Kco

So the reality is how up front you want to be about it, if you collected cash or a form of payment like Venmo, PayPal Friends & Family or personal check you can likely avoid even touching this on taxes.

Worst advice I've seen on the topic.

Congrats

[bnorth]

Originally Posted by Republicaninmass

Worst advice I've seen on the topic.

Congrats

It is by far the most honest.

To the OP. Go to a real licensed tax preparer in your area. Any other advice is really pointless as you need someone who knows the rules in the specific location you live.

[GrayGhost]

File a schedule c as a business. If not, the sale of collectibles at a profit is capital gains

[ALR-bishop]

Calling BobC...

[MikeGarcia]

Originally Posted by ALR-bishop

Calling BobC...

..Calling Diogenes,

.

[NiceDocter]

Just sell for less than you paid and no tax problems! Im an expert on doing that with stocks LOL

[Republicaninmass]

Originally Posted by MikeGarcia

..Calling Diogenes,

.

Lol!

[raulus]

Originally Posted by GrayGhost

File a schedule c as a business. If not, the sale of collectibles at a profit is capital gains

Not sure that I follow this strategy.

Obviously if you are a dealer, then this would make sense. But Sch C income is ordinary, and taxed at ordinary rates.

[GrayGhost]

Originally Posted by raulus

Not sure that I follow this strategy.

Obviously if you are a dealer, then this would make sense. But Sch C income is ordinary, and taxed at ordinary rates.

Yes, but using cash basis for that year , it would all go in as sales and purchases

A hobbyist shows it as ordinary income and dch as deductions up to income only

Someone who randomly holds an item long term can have a CG or loss. Eg I buy a comic, which I'm not in business of selling pay 500 sell a couple years later for 6000. It is a capital asset producing LTCG. I used to be an acct
0

[Kco]

Originally Posted by Republicaninmass

Worst advice I've seen on the topic.

Congrats

There is a reason I said it depends.

Perhaps you're not following my point, if he is a business that is absolutely different and he should be keeping proper P&L on his business and every single item. He'd also be able to offset any gain with purchases of other items for inventory to replace it or sales of other items at net losses.

As a collector, if he sells an item for cash or equivalent and isn't being issued a tax form as part of the transaction then frankly, he'd be an idiot to pay taxes on his increase as I'd bet he could easily sell any other items at a loss to offset his capital gains.

If you like handing the government free money cause you made a profit on a single item, by all means, they appreciate it...those of us with any semblance of common sense or accounting knowledge will be just fine paying precisely no capital gains tax on a single transaction by being smart and understanding the system.

[Kco]

Originally Posted by bnorth

It is by far the most honest.

To the OP. Go to a real licensed tax preparer in your area. Any other advice is really pointless as you need someone who knows the rules in the specific location you live.

It's 1,000% honest. Why anyone would hand the government a single dollar they don't absolutely have too is beyond me. And this is coming from my Tax preparer. Been audited before, never a single issue. It's wild how people feel a moral obligation to hand over their money.

[Republicaninmass]

Wonderful. When the IRS come aknockin'..unreported income could be considered fraud. What's that mean?

Well you would not only be liable for interest and penalties but they can also go back more than 7 years IF they consider it tax fraud.


Risk v. Reward I guess.




Sent from my SM-S918U using Tapatalk

[Kco]

Originally Posted by Republicaninmass

Wonderful. When the IRS come aknockin'..unreported income could be considered fraud. What's that mean?

Well you would not only be liable for interest and penalties but they can also go back more than 7 years IF they consider it tax fraud.


Risk v. Reward I guess.




Sent from my SM-S918U using Tapatalk

I am in no way advocating tax fraud. As I said, I've been audited without a single issue arising. I am not saying to hide anything.

Capital gains are only income if it's not offset and or documented specifically as income with profit. Does OP have documents showing he paid $1,000 and sold for $5,000? If not, how would that be documented that he made a $4,000 profit? Cause he volunteered the info here? I feel like the whole point here is being missed.

By your logic every collector buying, selling and trading at shows/online, through groups and message boards should be reporting capital gains/losses on everything. If so then you're delusional to reality. I am sure he's sold or traded items at a loss as we all have. So again, why would anyone would just volunteer a taxable profit on a single item is beyond me. If a tax form was generated then thats also fine, just show offsetting purchases in the same tax year and poof, there goes your "gains".

[Republicaninmass]

IMO

not having documentation is much better than not reporting. In fact, it's the difference between what could be constituted as fraud, and what could be argued as missing documentation.

Sent from my SM-S918U using Tapatalk

[raulus]

Originally Posted by Kco

There is a reason I said it depends.

Perhaps you're not following my point, if he is a business that is absolutely different and he should be keeping proper P&L on his business and every single item. He'd also be able to offset any gain with purchases of other items for inventory to replace it or sales of other items at net loss.

The only part of your statement that I’m not following is your assertion that buying inventory is a deductible expense for a dealer.

Inventory is not deductible when a dealer buys it. It’s only deductible as cost of goods sold when the dealer sells it.

[Kco]

Originally Posted by raulus

The only part of your statement that I’m not following is your assertion that buying inventory is a deductible expense for a dealer.

Inventory is not deductible when a dealer buys it. It’s only deductible as cost of goods sold when the dealer sells it.

I was unclear here, I apologize. You can offset any profits with deductible expenses to negate any profit as a business, inclusive of COGS, you wouldn't pay capital gains on a single transaction.

So if he is a business taxes are calculated on profits after allowable expenses, which he doesn't appear to be.

[bnorth]

Originally Posted by Kco

I was unclear here, I apologize. You can offset any profits with deductible expenses to negate any profit as a business, inclusive of COGS, you wouldn't pay capital gains on a single transaction.

So if he is a business taxes are calculated on profits after allowable expenses, which he doesn't appear to be.

LOL, I sure hope a business owner isn't asking for tax advise on a BB card forum. As a long time business owner there is a lot of horrible advice in this thread. If you have ANY tax questions go to a professional. Asking tax advise on a forum is beyond silly and a great way to get in trouble with the state and IRS.

[raulus]

Originally Posted by Kco

I was unclear here, I apologize. You can offset any profits with deductible expenses to negate any profit as a business, inclusive of COGS, you wouldn't pay capital gains on a single transaction.

So if he is a business taxes are calculated on profits after allowable expenses, which he doesn't appear to be.

Your approach makes a lot of sense for a dealer. So when the dealer spends money on traveling to shows, and paying for tables, etc, then all of that is deductible. As long as the dealer is actually making money. For a dealer that only loses money (after deductions), the IRS will often reclassify this as a hobby, and disallow those deductions.

For the average collector/investor, their only costs and expenses are paying auction fees and maybe shipping. Usually those costs can be factored into the calculation of the gain on sale. Even grading costs can be rolled into your basis and used to offset your gain on the sale. So the only downside is for a collector/investor who spends a lot on travel and shows, those costs wouldn’t be deductible. I have attended 1 whole show in my entire life. So definitely not me.

So for most of us, schedule C would probably be a mistake. Unless we are really acting as dealers, with all of the action that comes with it.