Quote:
Originally Posted by cash4cards
I have had this discussion with my accountant when I was trying to clarify if my bookkeeping was correct. I purchased a lot of a few thousand cards for $1000. I select many of the good cards out of the lot and sell them via ebay paying seller fees and shipping fees. The proceeds from each of these transactions I use to buy down the purchase price of the lot until I have recouped all $1000 I had spent (I'm literally determining cost basis of whatever I want but in this case it was the total value received). Once the lot was payed for then the remainder of my items I owned at a $0 cost basis and then taxes were paid on the proceeds from those cards as those sales were all profit. He said I can determine my cost basis any way I want as long as it's consistent and that I am keeping documentation.
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“Any reasonable allocation method” is the precise terminology used by our friends at the service.
Naturally, reasonableness is in the eye of the beholder. And as an added bonus, it’s very facts dependent.
I’m not saying that your approach is wrong in this case. But there are certainly many cases where the IRS could disagree with your approach, particularly if the items left in your collection are as valuable or more valuable than the ones that you’ve sold.
As I mentioned earlier, if we’re talking about small potatoes, then it’s hard to imagine anyone gets excited, even if you’re using an allocation methodology of questionable reasonableness.