Cost basis - Warning tax related topic

[raulus]

Originally Posted by jethrod3

So several years ago, when I had started doing one or two local small shows, I was under the impression (for whatever reason, right or wrong) that setting up at an occasional card show was pretty much the equivalent of setting up a garage sale: I was selling essentially second-hand stuff, not with the idea of making a huge profit (or often any profit), and I believe I'd read some tax rules about there being some number of times you could set up for a garage sale and NOT have to declare the financials unless you exceeded that number.

Even if I were to do a show again tomorrow, my intention would be to not sell off my few high-dollar collectibles for a profit now; it would be to reduce clutter from my collection and attempt to break even on stuff I either no longer want (much like one does at a garage sale) or that was thrown in with other items in auction lots that I actually wanted.

This of course begs the question: If someone, for the sake of discussion, is not a collector now, but has 5 sets of 1988 Topps baseball that they sell at a garage sale for $15 each because at time of purchase they thought it could be a great investment (but now is hardly worth the paper the cards are printed on), are those sets deemed collectibles and thus subject to reporting to the IRS? From what I've read, if the seller makes any profit, I think the answer unfortunately would be yes! But unless there are stricter rules for garage sales, unless I'm missing something, the tax law would be quite unenforceable.

I'm not entirely sure why there's such a fascination with small potatoes.

I would suspect that the cost to buy those sets is probably greater than the $75 you sold them for, so no gain.

Even if all $75 was income, you're talking about a tax of at most maybe $30, give or take. If we're fussing over $30, then we're probably doing something wrong. Both because paying $30 shouldn't kill anyone financially, and failing to pay $30 is unlikely to result in a death sentence under federal tax law.

Now, if you were talking about $30,000 or $300,000, then the stakes are a lot higher. But you're probably not ringing up those sorts of sales at a garage sale.

[jethrod3]

Originally Posted by raulus

I'm not entirely sure why there's such a fascination with small potatoes.

I would suspect that the cost to buy those sets is probably greater than the $75 you sold them for, so no gain.

Even if all $75 was income, you're talking about a tax of at most maybe $30, give or take. If we're fussing over $30, then we're probably doing something wrong. Both because paying $30 shouldn't kill anyone financially, and failing to pay $30 is unlikely to result in a death sentence under federal tax law.

Now, if you were talking about $30,000 or $300,000, then the stakes are a lot higher. But you're probably not ringing up those sorts of sales at a garage sale.

I wouldn't call it a fascination. I think it's more about questions regarding interpretation, questions about where the IRS could or really should draw the line, and questions about where some of us might fit in that are not dealers but maybe just most casual of sellers. We are probably talking about a figure somewhere in between the $75 and $30,000 you mentioned for the casual collector (non-dealer) that sets up occasionally at a card show, and probably much more skewed to the $75 side. Probably the guy that makes between a couple hundred dollar to maybe $1K after factoring in table costs.

So no, not likely to result in a death sentence. But officially, even for such events that parallel what you might make at an average garage sale (though admittedly most are not making money on what is sold at garage sales), I think given the current rules, not declaring what you made even as a non-dealer at a mom-and-pop tiny card show (if you made anything above basis at all) is still a violation of the tax law. It's a complicated mess for folks that buy large lots of stuff at auctions, keep 1 or 2 desired items, but try to sell the rest of the stuff so it doesn't accumulate in one's house. At a minimum, some records must be kept now, even for the most casual of sellers in that situation, because more than likely, you'll also want to sell those one or two items you may have purchased in those auctions, and in the end, you'll have to figure out basis and profit, even if those desired items may not get you more than, say, $100 if sold at a show. All of this makes me want to consider becoming a CPA when I retire from my current day job!

[raulus]

Originally Posted by jethrod3

I wouldn't call it a fascination. I think it's more about questions regarding interpretation, questions about where the IRS could or really should draw the line, and questions about where some of us might fit in that are not dealers but maybe just most casual of sellers. We are probably talking about a figure somewhere in between the $75 and $30,000 you mentioned for the casual collector (non-dealer) that sets up occasionally at a card show, and probably much more skewed to the $75 side. Probably the guy that makes between a couple hundred dollar to maybe $1K after factoring in table costs.

So no, not likely to result in a death sentence. But officially, even for such events that parallel what you might make at an average garage sale (though admittedly most are not making money on what is sold at garage sales), I think given the current rules, not declaring what you made even as a non-dealer at a mom-and-pop tiny card show (if you made anything above basis at all) is still a violation of the tax law. It's a complicated mess for folks that buy large lots of stuff at auctions, keep 1 or 2 desired items, but try to sell the rest of the stuff so it doesn't accumulate in one's house. At a minimum, some records must be kept now, even for the most casual of sellers in that situation, because more than likely, you'll also want to sell those one or two items you may have purchased in those auctions, and in the end, you'll have to figure out basis and profit, even if those desired items may not get you more than, say, $100 if sold at a show. All of this makes me want to consider becoming a CPA when I retire from my current day job!

Apologies if my response came across a little strong. Maybe as a CPA, it just seems pretty simple to me, because that's what I do every day. Similar posts around here from time to time asking about tax on a $10 gain on small sales probably stick in my memory a bit more than the usual bear, and lead to my supposition that there's a fascination with small potatoes.

The general concept shouldn't be that difficult, although if you are constantly buying and selling it might be a lot of recordkeeping work. When you buy stuff, keep track of what you paid for it. If you didn't keep track of it, then give it your best guess, and hopefully if the service calls you on it, you can explain how you estimated your basis. At the same time, it's hard to imagine that the service is going to invest the resources necessary to challenge you over a few bucks here and there. If it's anything substantial, then hopefully you have some solid records, and therefore you don't have to guess, and if they call you on it, then you can prove it.

I get that for everyone else who isn't a CPA, this is a PITA and not something they want to deal with, particularly because there's nothing like taxes to suck the joy out of everything. And that's probably why my clients pay me way too much to take care of a lot of this stuff for them, so they can focus on the fun.

[jethrod3]

Originally Posted by raulus

Apologies if my response came across a little strong. Maybe as a CPA, it just seems pretty simple to me, because that's what I do every day. Similar posts around here from time to time asking about tax on a $10 gain on small sales probably stick in my memory a bit more than the usual bear, and lead to my supposition that there's a fascination with small potatoes.

The general concept shouldn't be that difficult, although if you are constantly buying and selling it might be a lot of recordkeeping work. When you buy stuff, keep track of what you paid for it. If you didn't keep track of it, then give it your best guess, and hopefully if the service calls you on it, you can explain how you estimated your basis. At the same time, it's hard to imagine that the service is going to invest the resources necessary to challenge you over a few bucks here and there. If it's anything substantial, then hopefully you have some solid records, and therefore you don't have to guess, and if they call you on it, then you can prove it.

I get that for everyone else who isn't a CPA, this is a PITA and not something they want to deal with, particularly because there's nothing like taxes to suck the joy out of everything. And that's probably why my clients pay me way too much to take care of a lot of this stuff for them, so they can focus on the fun.

Thanks and no need to apologize---I thought your response was great and I really appreciate the fact that we have learned folks as members of this forum that are willing to spend time sharing their knowledge with those of us that can definitely use the advice. For the record, I still do my own taxes without a computer and I try my best to stay up on all the tax changes that apply to me. Not the most complex of tax situations to wade through, but several of the more common schedules and worksheets at both the federal and state levels. I also try to keep my brain sharp by doing all the calculations by hand first, although I do check my math with a calculator. I like math, so it makes the process of filing taxes a little more stimulating! I guess I'm odd that way!

[BobC]

Originally Posted by jethrod3

I wouldn't call it a fascination. I think it's more about questions regarding interpretation, questions about where the IRS could or really should draw the line, and questions about where some of us might fit in that are not dealers but maybe just most casual of sellers. We are probably talking about a figure somewhere in between the $75 and $30,000 you mentioned for the casual collector (non-dealer) that sets up occasionally at a card show, and probably much more skewed to the $75 side. Probably the guy that makes between a couple hundred dollar to maybe $1K after factoring in table costs.

So no, not likely to result in a death sentence. But officially, even for such events that parallel what you might make at an average garage sale (though admittedly most are not making money on what is sold at garage sales), I think given the current rules, not declaring what you made even as a non-dealer at a mom-and-pop tiny card show (if you made anything above basis at all) is still a violation of the tax law. It's a complicated mess for folks that buy large lots of stuff at auctions, keep 1 or 2 desired items, but try to sell the rest of the stuff so it doesn't accumulate in one's house. At a minimum, some records must be kept now, even for the most casual of sellers in that situation, because more than likely, you'll also want to sell those one or two items you may have purchased in those auctions, and in the end, you'll have to figure out basis and profit, even if those desired items may not get you more than, say, $100 if sold at a show. All of this makes me want to consider becoming a CPA when I retire from my current day job!

I wouldn't worry about trying to become a CPA after retiring if I were you. Nowadays you need the equivalent of almost a master's degree first, which then allows you to actually sit and take the standardized CPA examination administered by the AICPA (similar to the bar exam for attorneys), and then after finally passing the CPA exam, in many states you additionally now have to have so much time/years of related work experience, and only then can you actually apply for your CPA license with your applicable state board of accountancy. You can easily be talking 6-7-8, or even more years, before realistically being able to get a CPA's license. And Nic/raulus, help me out here, is the rate of people taking the CPA exam for the first time still something like 5% or less passing all parts of the exam on the first try? Not passing the exam right away can make that wait even longer.

And even if you got through all of that, it probably still wouldn't really do you any good because truth be known, when you go to college and study for becoming a CPA, one of the last things they have courses for and ever try to teach you anything about is taxes! And that is because they know full well that whatever they may teach you about taxes today, could be completely changed by the time you graduate, or even just start your next semester. And they really don't ever focus on state or local taxes, sales taxes, or anything like that much either, because with 50 states, and countless more cities, counties and so on, who knows where you're going to go and live and work after graduation? The only true way any CPA (or tax professional) really learns about taxes is by actually doing them, year after year, change after change, so they begin to fully understand the tax rules, and their impact and underlying meaning. When you go looking for someone to actually help in doing your taxes, unlike with a lot of the things that today are more geared toward technology and all the new stuff, so you normally want some more tech savvy younger people to help, you really want to look for an old fart that has been doing taxes for years and years, and use and listen to them.

And as for your discussion with Nic/raulus about casual/garage sales, and the like, don't disagree with you guys at all. The bottom line though is that at the end of the day, it always comes down to the exact same thing it seems.......MONEY! And in the case of the feds, states or city tax agents looking for and coming after people, it is all about the cost/benefit analysis. None of them really care about going after people and their casual sales, because after spending many hours, or maybe even days or weeks investigating and such, they likely end up collecting only a few bucks, at best. Meanwhile, how much time, effort, and taxpayer money have they wasted? Spending a few hundred (or a few thousand) dollars to end up collecting just $25-$50 is stupid and insane. And they actually do know better than to waste the time. The whole idea and relative definition of casual sales isn't exactly specific, but pretty much revolves around someone who is not in an actual ongoing business, set up to make profits and such to live on, occasionally selling some stuff they have (most likely at a loss from what they originally paid for it, in a typically non-business venue and/or manner). Casual sales are normally someone clearing out the closets or attic and selling the stuff from their driveway or at a flea market. And they don't typically charge more money than what they may have originally paid for that old used shirt, or beat up old chair, when they do sell it, so they normally don't make any profit at all.

But what a lot of people today utterly, and ignorantly, seem to forget and totally disregard, is how with all the technology and changing of the ways we do things anymore, the definition of when someone is considered to be in an actual business is/has also changed, whether they like it or not. Before the internet and online sellers and sales, people actually went mostly to brick-and-mortar stores and purchased items they needed and wanted. There were no questions or doubts about where the stores were located, or who was responsible for collecting/paying the sales tax, and so on. But today, with the internet and the complete transformation of the retail environment to now include the likes of Amazon, Wayfair, Overstock, and online selling venues like Ebay and Etsy, the definition of "being in an ongoing business" had to change. For the people who bitch and moan about selling a few things on Ebay every now and then, and don't want to have to report it on their taxes. Quit blaming the government and politicians. Blame people like PWCC, Probstein123, Gregg Morris Cards and other, who are actual, ongoing businesses using sites, like Ebay, to sell hundreds of millions of dollars in cards and related items annually. So, when YOU Voluntarily choose to sell your cards/items in the exact same way and manner as these other obvious, ongoing businesses do, why the hell shouldn't the various government agencies and tax authorities assume you must be in an actual business also? The tax laws had to change, along with the times and changes brought on by technology, just like when the SCOTUS had to rule on the South Dakota Vs. Wayfair case back in 2018 regarding tax nexus for state sales taxes. And because things like certain baseball cards that were considered pretty much worth very little, if anything really, just several decades ago, have suddenly skyrocketed in value in more recent times, that takes those items entirely out of the category of what had previously been considered typical casual sales type items.

And in an effort to properly collect the taxes they need to run the country, the various federal, state, and local governments have to change and adopt the tax laws and enforcement measures to keep up with the times and changing technology and how business is now being done. I've said before, if you don't want to deal with 1099-K forms and having to report occasional card sales on your tax returns, quit using the same sites and measures as all the other actual businesses do that are out there. Do the Facebook groups, B/S/T forums, card shows and such, and/or only doing deals with cash or trade, so your sales don't gets reported to tax authorities. Or maybe even better, go back to the true casual sales types of dealings and have a garage sale from home or go sell stuff at a flea market once in a while. Amazon, PWCC, Overstock, etc. owners don't go selling stuff in their driveways at home, or drag some stuff out to the occasional flea market or two.

And if you do still choose to sell cards using an online business venue, like Ebay, where you know you're liable to end up getting one of these 1099-K reporting forms, I've been saying all along that you want to make sure to not ignore it if you get one of these 1099-K forms, and to be sure to report it appropriately on your tax return. Failing to do so will absolutely result in you getting contacted by the IRS because by not reporting those 1099-K sales and showing on your tax return what you were doing and how you got them, they can only assume you are in an ongoing, valid business, just like all the other actual, large businesses that used that exact same selling venue, in the exact same way you did, to sell cards. But then when it comes to what to report or to put down on your tax return as your tax/cost basis for something you just sold, but bought years ago and now don't have a receipt or other record for, and/or can't remember what you paid for it, you estimate it as reasonably and as best you can, and put that on your tax return. The IRS doesn't want to have to deal and look at your nominal sales and potentially small profit any more than you want them to. As long as you properly file your tax return and show at least as much in sales as was reported to you on a 1099-K form, then, if the math is right and you don't make any other completely stupid mistakes or omissions that would draw attention to your tax return otherwise, the chances of the IRS ever questioning you on your card sales are going to be pretty slim, or none, at worst. They aren't going to crack down and audit everyone reporting a few thousand in sales, and thus maybe a few hundred/thousand in profits. As I stated earlier, there is really no cost/benefit for them to do so. And they are already so understaffed and overworked to begin with, they only want to go after the bigger fish, if you will, but unfortunately when they cast out the nets, you sometimes get others caught in them as well. Another way to maybe look at it is, going back to my analogy in an earlier post, like a cop most likely not ever bothering to chase and go after someone only a couple miles or so over the speed limit to give them a ticket.

[jethrod3]

Originally Posted by BobC

I wouldn't worry about trying to become a CPA after retiring if I were you. Nowadays you need the equivalent of almost a master's degree first....

Bob, I appreciate the thoughtful reply and pretty much agree with what you said. Those approaches for the casual seller like me make sense.

I decided to limit the quote from your prior text to the advice that probably will factor most in my future decision-making: You've talked me out of it---I have decided to not pursue becoming a CPA when I retire! I've already spent enough time in school pursuing advanced degrees and then more time as a post-doctoral fellow. Enough school and training for me! When I retire I will really retire, hopefully having won a Powerball jackpot before I do. That way, I can open up an animal shelter for aged animals while also having funds left over to complete a few cards sets I've been working on!

[Exhibitman]

I don't blame you; my last year of law school convinced me to never go back. Just sitting through a week of mediator training in 2019 nearly did me in. If we were meant to sit through endless classes we'd have smaller brains and bigger butts.

[BobC]

Originally Posted by jethrod3

Bob, I appreciate the thoughtful reply and pretty much agree with what you said. Those approaches for the casual seller like me make sense.

I decided to limit the quote from your prior text to the advice that probably will factor most in my future decision-making: You've talked me out of it---I have decided to not pursue becoming a CPA when I retire! I've already spent enough time in school pursuing advanced degrees and then more time as a post-doctoral fellow. Enough school and training for me! When I retire I will really retire, hopefully having won a Powerball jackpot before I do. That way, I can open up an animal shelter for aged animals while also having funds left over to complete a few cards sets I've been working on!

LOL

I like the Powerball idea. Hey, if you have and know the upcoming winning number, let me know and I'll gladly pay for the ticket and share it with you. LOL

[BobC]

Originally Posted by jethrod3

Bob, I appreciate the thoughtful reply and pretty much agree with what you said. Those approaches for the casual seller like me make sense.

I decided to limit the quote from your prior text to the advice that probably will factor most in my future decision-making: You've talked me out of it---I have decided to not pursue becoming a CPA when I retire! I've already spent enough time in school pursuing advanced degrees and then more time as a post-doctoral fellow. Enough school and training for me! When I retire I will really retire, hopefully having won a Powerball jackpot before I do. That way, I can open up an animal shelter for aged animals while also having funds left over to complete a few cards sets I've been working on!

LOL

I like the Powerball idea. Hey, if you have and know the upcoming winning number, let me know and I'll gladly pay for the ticket and share it with you. LOL

[BobC]

"The general concept shouldn't be that difficult, although if you are constantly buying and selling it might be a lot of recordkeeping work. When you buy stuff, keep track of what you paid for it. If you didn't keep track of it, then give it your best guess, and hopefully if the service calls you on it, you can explain how you estimated your basis. At the same time, it's hard to imagine that the service is going to invest the resources necessary to challenge you over a few bucks here and there. If it's anything substantial, then hopefully you have some solid records, and therefore you don't have to guess, and if they call you on it, then you can prove it.

I get that for everyone else who isn't a CPA, this is a PITA and not something they want to deal with, particularly because there's nothing like taxes to suck the joy out of everything. And that's probably why my clients pay me way too much to take care of a lot of this stuff for them, so they can focus on the fun."

That is it. +1