Taxes and Auction Site Question

[lug-nut]

So I'm getting ready to sell off a big ticket item that will exceed ebay's/irs' $20,000 gross sales portion of the 'tax rule' but not the 200 yearly sales 'tax rule'... yet but I will stop before I get to that level.

Rule listed on ebay: Form 1099-K is an IRS information return that includes the gross amount of all payment transactions you received within a calendar year. The purpose of the form is to help improve voluntary tax compliance. We'll provide you with Form 1099-K by January 31st each year if you're a managed payments seller who has received payments above the minimum IRS reporting thresholds in the previous calendar year:

You received more than $20,000 in gross payments, and
You had more than 200 payment transactions


For you tax and major selling experts:

As I read the requirements, I can safely expect to NOT BE REQUIRED TO CLAIM THIS SALE ON MY TAXES, if I only meet one of them, correct?

Do Auction Houses like the ones mentioned on this site have the same requirement?

Additionally, I'd love to sell the card on the b/s/t to a fellow collector but know the exposure comes from ebay or another large auction site.

I want to sell for the most money and the best overall deal to the buyer, knowing there's a good possibility he/she will have to pay sales tax and I will have to pay sellers commission unless sold on the b/s/t.

Thanks for any info.

[Casey2296]

Try to get your number on BST first, there is a larger network of private collectors here than one might think, call the medium size auction houses like LOTG or Birmingham and ask what their reporting policy is. There are better options for high dollar cards than eBay. Either way, even if you dont get 1099'd you should claim any income on your tax return.

[swarmee]

To put it up front, you technically have to pay federal income taxes on your sale no matter where you sell it, no matter whether the company you sell through gives you a 1099 at the end of the year. Hobby income is income. Company income is income. If you file certain schedules or file as business income, you can deduct your original purchase price and the fees you expended to make the sale.

eBay is *required* to send you a 1099 if you meet BOTH the 200 transactions and 2,000 items sold. However, they reserve the right to send you one if you get part of that, and in some states the minimum amount of sales is $600 or $1,000.

So you really won't know if you're getting a 1099 direct from eBay or PayPal until they send it to you.

Add: That being said, we'll see this year how the IRS deals with a ton of new card sellers trying to skirt tax laws because their $10 LeBron cards are now selling for $10K each. How many get audited? How many that weren't given 1099s and didn't report any income were audited? What income threshold does the IRS think is worth fighting the battle over, versus not willing to expend the resources to check in-depth. I personally think they could make huge inroads by subpoena'ing the records of the major auction houses, since most of those auction houses do not report your sales to the IRS, to my knowledge. But a new law written into the Federal tax code could really put a dent into the easy money of selling through an auction house.

[Rhotchkiss]

What eBay’s policy is regarding them providing 1099s has NOTHING to do with whether you report and pay taxes on card sales. You report and pay taxes on card sales if you had card sales and you made money (if you lost money you claim a loss). It’s that simple.

What you have provided is EBay’s policy on when and to whom they will provide a tax document, called a 1099. Just because you don’t qualify under EBay’s policy regarding 1099s in no way means you don’t have to file, and maybe pay, taxes

[x2drich2000]

Just a few random question to throw into this mix for consideration 1) What penalties could the IRS impose if you are caught not reporting the income 2) Realistically what do you think the penalty would be if caught?

[Rhotchkiss]

Originally Posted by x2drich2000

Just a few random question to throw into this mix for consideration 1) What penalties could the IRS impose if you are caught not reporting the income 2) Realistically what do you think the penalty would be if caught?

DJ, I will not answer your questions, but will instead give you this advice: It is much better to play by the rules.

I was audited about 5 years ago. After $20k in fees to my accounting firm, the IRS concluded its audit and wrote me a check for $4,000. The audit sucked! And it cost me $20k. Luckily, I was squeaky clean (in fact, more than squeaky clean). But had I been found to owe money, or worse, intentionally not reported something.... it would have cost me much more in accounting-firm fees (because they would have had to argue the IRS' findings and/or negotiate a settlement) and then I would have owed taxes, interest, and perhaps penalties. And I bet I would be on their radar for another audit in the near future.

If you are paying taxes, it means you made money. Take comfort in that and do what you are supposed to do. Sleep comes a lot easier when you do!

[D. Bergin]

Let me first say I an NOT an accountant.

.......but if you are a collector, dealer, or both, who buys and sells out of their collection on a regular basis, it might be worthwhile to declare/register yourself as a business (doesn't matter if it's considered a really small business), get a sales and use tax number from your state, keep track of all your sales, expenses and purchases, and file a Schedule C with your taxes, while taking all legitimate business deductions available to you.

Sounds like a lot of work, but will probably save you a lot of money over the standard hobby income calculations.

[RL]

don't try to beat IRS, they will catch you.

[lug-nut]

I was afraid of what I have read thus far...I was hoping to fall into the 'yard sale' category and not have to claim it. At this point (and thanks to everyone so far) I will make an effort to sell on a private level or just wait it out long enough to make enough $ to pay for the taxes I'll inevitably be paying.

One thing I considered is using an out-of-work/retired friend to list, this way, his income is only the card and not the card plus my income. he will be in a much lower tax braket.

[glchen]

As others have said, it is much better to just go by the IRS rules and pay what taxes you properly owe. There are too many ways for the government to catch you, which would cause big problems that aren't worth it. For example, if there is a deposit into your bank account over 10K, the bank will report that to the government. If you have your friend report that sale on their taxes for you, the IRS may audit him, and ask for his receipt for the cost basis of the card, and he will get in trouble if he submits something fraudulent. Too many possibilities for this to go sideways.

[russkcpa]

Originally Posted by lug-nut

I was afraid of what I have read thus far...I was hoping to fall into the 'yard sale' category and not have to claim it. At this point (and thanks to everyone so far) I will make an effort to sell on a private level or just wait it out long enough to make enough $ to pay for the taxes I'll inevitably be paying.

One thing I considered is using an out-of-work/retired friend to list, this way, his income is only the card and not the card plus my income. he will be in a much lower tax braket.

Be careful with this:
If you ARE ever audited the first thing an agent will look at are your bank deposits. If you have deposits that are in excess of income reported you will have a major problem on your hand.
How are you going to explain this ?

If you do get your retired friend to sell the card and report the income his modified adjusted gross income will spike and may throw him into an IRMAA surcharge added to his monthly Medicare premium. That could be substantial and he will be royally pissed at you.

Just be an honest person and report the income. It's not ordinary income if you're not a dealer. It would be a capital gain from sale of collectibles.

I hope you feel better now

[BRoberts]

Originally Posted by RL

don't try to beat IRS, they will catch you.

Especially when you post on a public message board how you plan to defraud the government.

[russkcpa]

Originally Posted by glchen

As others have said, it is much better to just go by the IRS rules and pay what taxes you properly owe. There are too many ways for the government to catch you, which would cause big problems that aren't worth it. For example, if there is a deposit into your bank account over 10K, the bank will report that to the government. If you have your friend report that sale on their taxes for you, the IRS may audit him, and ask for his receipt for the cost basis of the card, and he will get in trouble if he submits something fraudulent. Too many possibilities for this to go sideways.

The bank will report DEPOSITS OF CASH for $10K or more ......and don't try to outsmart the bank by staggering cash deposits that in the aggregate exceed $10K That is more egregious.

[russkcpa]

Originally Posted by BRoberts

Especially when you post on a public message board how you plan to defraud the government.

IRS Agents, FBI, DHS, etc monitor all of social media. They would like nothing better than to send someone up the river so that all of the Net54 family gets the message.

Starting a thread basically asking how to avoid reporting income is not smart.

[Rhotchkiss]

Originally Posted by BRoberts

Especially when you post on a public message board how you plan to defraud the government.

+1. You can’t make this crap up!!!

[Directly]

'In this world nothing can be said to be certain, except death and taxes' Benjamin Franklin, 1789.

[lug-nut]

Originally Posted by russkcpa

IRS Agents, FBI, DHS, etc monitor all of social media. They would like nothing better than to send someone up the river so that all of the Net54 family gets the message.

Starting a thread basically asking how to avoid reporting income is not smart.

It's research on 'how to run an honest business'...hardback to hit the shelves summer 2021

[Jewish-collector]

Sometimes you just gotta pay the IRS and say WTF

[buymycards]

You can afford a card that is worth more than $20,000? Pay your damn taxes.

[Michael B]

Sorry, but somehow his screen name seems very appropriate.

It is also what I listen to from my wife. Her portfolio throws off enough so that without working she makes about the same as I do or more. She complains that she has to pay quarterlies. It does not quite sink in that she is making free money and she has to pay the taxes.

[Casey2296]

Yes, we should all pay our taxes. But let's not lose sight of the horrendous job local, state, and federal governments do in maximizing our hard earned money for the greater good. It's a broken bureaucratic gridlock nightmare of inefficiency. They will never be satisfied and their elitist "pigs to the trough" attitude is insulting and disrespectful to the working class man and woman.

[pwang100]

Bitcoin?

Sent from my SM-G950U using Tapatalk

[lug-nut]

Originally Posted by buymycards

You can afford a card that is worth more than $20,000? Pay your damn taxes.

Billionaires dont become billionaires by giving away their money until they're billionaires

[joshuanip]

Originally Posted by lug-nut

Billionaires dont become billionaires by giving away their money until their billionaires

If baseball cards makes up billionaires we got bigger problems... Weimar style

[joshuanip]

Back to topic, make sure you guys document your cards in your wills and include in your estates, that way your decendants would get the step up and not get hit with the appreciation.

Works for your wives too. If I pass, my wife gets to realize the appreciation tax free. I’d be sad, but hey I’m dead so what...

Caveat, each state has different estate tax exemptions and Biden is eyeing the 22m tax exemption that expires in 2025. So not exactly set and forget, you may want to keep up with changes to plan accordingly.

[insidethewrapper]

I wonder if anyone is reporting the profit on these modeern cards selling at auction houses at unbelievable prices. A kid pulls a card from a foil box , get's it graded a "10", send to auction house, makes $ 100K.

[joshuanip]

Originally Posted by insidethewrapper

I wonder if anyone is reporting the profit on these modeern cards selling at auction houses at unbelievable prices. A kid pulls a card from a foil box , get's it graded a "10", send to auction house, makes $ 100K.

I think we know the answer to that, all the more reason to expect more enforcement and thus planning on our part, in the years ahead.

[swarmee]

Originally Posted by insidethewrapper

I wonder if anyone is reporting the profit on these modeern cards selling at auction houses at unbelievable prices. A kid pulls a card from a foil box , get's it graded a "10", send to auction house, makes $ 100K.

So, here's one of my "game theory" type of questions. The IRS doesn't have to audit you in only the year you submit your taxes, they have a couple of years that you're still eligible to be audited. Right?

So knowing how much unreported income is being earned in 2020 by this segment of the population, maybe they don't start auditing this class until 2022 or 2023. Give most of the dishonest sellers some rope, making them think that not reporting on their 2020 tax form went unnoticed. Then audit them next year or two years from now with two-three years of unreported income. Not entrapment, but would effectively entice them to continue cheating on their taxes. Would definitely bear plenty of fruit.

[lug-nut]

Originally Posted by joshuanip

Back to topic, make sure you guys document your cards in your wills and include in your estates, that way your decendants would get the step up and not get hit with the appreciation.

Works for your wives too. If I pass, my wife gets to realize the appreciation tax free. I’d be sad, but hey I’m dead so what...

Caveat, each state has different estate tax exemptions and Biden is eyeing the 22m tax exemption that expires in 2025. So not exactly set and forget, you may want to keep up with changes to plan accordingly.

How would the IRS know what cards I have in my wall safe or safe deposit box and wouldn't a living trust cover this issue?

[joshuanip]

Originally Posted by lug-nut

How would the IRS know what cards I have in my wall safe or safe deposit box and wouldn't a living trust cover this issue?

It would be appraised and included as part of your estate return.

[BRoberts]

Originally Posted by lug-nut

How would the IRS know what cards I have in my wall safe or safe deposit box and wouldn't a living trust cover this issue?

Do yourself a favor and stop asking for tax/how-to-commit-fraud advice on a message board. Dig into your wallet and pay a tax professional for an hour consultation. Good Lord.

[Rhotchkiss]

Originally Posted by lug-nut

How would the IRS know what cards I have in my wall safe or safe deposit box and wouldn't a living trust cover this issue?

I bet $10 you are going to tell us! Man, you are one dumb SOB

Ryan Hotchkiss

[birdman42]

Well, here's the thing. Our federal tax system is based on voluntary compliance. That means you're expected to do the right thing without any prodding.

As a professional tax guy, I see the occasional person who's trying to evade paying their proper taxes. I send those people packing, for two reasons. First, I don't need the aggravation of dealing with the tax man when the client gets caught (and eventually they will get caught). Second, I don't need people like that in my life--abetting their actions is just bad juju. (Tax avoidance is fine--taking advantage of features of the tax code to reduce taxes.)

I'm with Ryan. I'm not going to answer any of your direct questions ("How much?" "How long?" etc. etc.) Doing that just leads down the path of "how about if I do it this way?" Do it right because it's the right thing to do.

Bill

[joshuanip]

Originally Posted by birdman42

Well, here's the thing. Our federal tax system is based on voluntary compliance. That means you're expected to do the right thing without any prodding.

As a professional tax guy, I see the occasional person who's trying to evade paying their proper taxes. I send those people packing, for two reasons. First, I don't need the aggravation of dealing with the tax man when the client gets caught (and eventually they will get caught). Second, I don't need people like that in my life--abetting their actions is just bad juju. (Tax avoidance is fine--taking advantage of features of the tax code to reduce taxes.)

I'm with Ryan. I'm not going to answer any of your direct questions ("How much?" "How long?" etc. etc.) Doing that just leads down the path of "how about if I do it this way?" Do it right because it's the right thing to do.

Bill

I think there is consensus on this board over doing the right thing and basic ethics, but as a more important matter (to the rest of this board) is education, not advice, that we can do a little planning to legally minimize the bite from IRS. Again for you black and white homies, not advice, but just saying there is a path to look into.

[birdman42]

Originally Posted by joshuanip

...a little planning to legally minimize the bite from IRS.

Exactly. Tax planning to avoid paying unnecessary amounts is more than fine, it's responsible. But when the amount is necessary, you just have to do it.

[jayshum]

Just curious, but when you report earnings from a sale, should you use the actual price you paid for the card as the cost basis or the price you told your wife you paid?

Asking for a friend.

[lug-nut]

Originally Posted by Rhotchkiss

I bet $10 you are going to tell us! Man, you are one dumb SOB

Ryan Hotchkiss

really?

[conor912]

My friend has a card he got in a pack as a kid, and it now would sell for $20k, so his cost basis is zero. If he sends it to auction, what is the tax implication there? Does the AH send him a 1099? Does he just self-report? He’s willing to pay the taxes on it, he just doesn’t know how it goes down.

[swarmee]

Originally Posted by conor912

My friend has a card he got in a pack as a kid, and it now would sell for $20k, so his cost basis is zero. If he sends it to auction, what is the tax implication there? Does the AH send him a 1099? Does he just self-report? He’s willing to pay the taxes on it, he just doesn’t know how it goes down.

If 1099, then 1099. If no 1099, then self-report.

[Exhibitman]

Here's a bit of free legal advice: pay your taxes. If you make the money you have to pay your taxes. If you intentionally do not declare a large chunk of income you are committing tax fraud, and by posting your schemes on public social media that is routinely read by law enforcement you have just handed any future prosecutor evidence of intent. Not a smart move. FYI, the conviction rate on Federal tax fraud prosecutions is the highest of all crimes: you get charged you are basically going to prison.

Just pay the taxes you owe and be happy you made a profit.

[tazdmb]

Not to hijack this thread, but I did an entire YT video for this similar subject below:
https://www.youtube.com/watch?v=QYsMIwsfLSI&t=1416s

You are free to watch and DM me basic questions. I think I covered all your questions in the video and a follow up I did last night night, this is not my channel and I make $0 profit by you watching it.

Yes, I am a CPA. Yes, I am willing to state in a public board that I do not report every penny of sales from eBay (although I am way below the $20k/200 threshold).

[buymycards]

Originally Posted by Casey2296

Yes, we should all pay our taxes. But let's not lose sight of the horrendous job local, state, and federal governments do in maximizing our hard earned money for the greater good. It's a broken bureaucratic gridlock nightmare of inefficiency. They will never be satisfied and their elitist "pigs to the trough" attitude is insulting and disrespectful to the working class man and woman.

When I woke up this morning I was happy to hear the snow plow going by my house. I used the public road to drive to run my errands. The police car drove past my house, and the rescue squad crew is on call. The military is protecting us. I could go on and list many more uses for our tax money, but you get the idea. And, let's not forget the Post Office (I know-they are have problems), but they don't use a nickel of tax money.

Perhaps you should run for a political office and get things straightened out, but most people would rather complain than to try to help.

[x2drich2000]

Originally Posted by D. Bergin

Let me first say I an NOT an accountant.

.......but if you are a collector, dealer, or both, who buys and sells out of their collection on a regular basis, it might be worthwhile to declare/register yourself as a business (doesn't matter if it's considered a really small business), get a sales and use tax number from your state, keep track of all your sales, expenses and purchases, and file a Schedule C with your taxes, while taking all legitimate business deductions available to you.

Sounds like a lot of work, but will probably save you a lot of money over the standard hobby income calculations.

This seems to have been glanced over here and something I've heard recommended for years. I've never considered my purchases/sales in the past to be a true business so never bothered really considering it, but as my sales have started picking up in both volume and dollar amount, I've started to get more curious about it. Anyone willing to comment on the legality of doing so and, if legal, would it really be worth the effort?

[swarmee]

Originally Posted by x2drich2000

This seems to have been glanced over here and something I've heard recommended for years. I've never considered my purchases/sales in the past to be a true business so never bothered really considering it, but as my sales have started picking up in both volume and dollar amount, I've started to get more curious about it. Anyone willing to comment on the legality of doing so and, if legal, would it really be worth the effort?

If you declare as a business, the IRS has some recommendations to consider. It's thoroughly discussed on the 1099-k thread on the Blowout Baseball forum.

But basically, if you are attempting to make money in the endeavor, and would likely turn a profit in 3 out of 5 years, you're probably a business based on the IRS definition. As such, you get to debit quite a bit of your other expenses rather than just item cost. I think the IRS would be accepting of it if you do it consistently in the future, not flip-flop every year based on whichever way is most preferential to you every year.

You will have to keep or find a lot more paperwork, I'd bet, and you'd probably want someone to help you prepare your taxes, at least the first year.

Some of this is also happening, I'm sure, with the bitcoin kids, since the IRS instructions state that if you're buying in with the intent to sell for a profit, they can be taxed like any other investment.

[Exhibitman]

Justice Oliver Wendell Holmes: "Taxes are what we pay for civilized society..."

James Madison: "The power of taxing people and their property is essential to the very existence of government.''

FDR: "Taxes are what we pay for civilized society. Too many individuals, however, want the civilization at a discount."

Justice Felix Frankfurter: "I like to pay taxes. With them I buy civilization."

[D. Bergin]

Originally Posted by swarmee

If you declare as a business, the IRS has some recommendations to consider. It's thoroughly discussed on the 1099-k thread on the Blowout Baseball forum.

But basically, if you are attempting to make money in the endeavor, and would likely turn a profit in 3 out of 5 years, you're probably a business based on the IRS definition. As such, you get to debit quite a bit of your other expenses rather than just item cost. I think the IRS would be accepting of it if you do it consistently in the future, not flip-flop every year based on whichever way is most preferential to you every year.

You will have to keep or find a lot more paperwork, I'd bet, and you'd probably want someone to help you prepare your taxes, at least the first year.

Some of this is also happening, I'm sure, with the bitcoin kids, since the IRS instructions state that if you're buying in with the intent to sell for a profit, they can be taxed like any other investment.

Yeah, paperwork can be daunting (my daughter, who's a freelance artist keeps trying to get me to use Quickbooks). I generate lb's of files and receipts every year, and I'd be considered a very small business. I've got tubs of paperwork going back years in storage.........just in case.

I used an accountant for several years, just to finalize my return, before realizing it was just simple math and plugging in numbers into the Turbo-Tax software.

It can be stressful pulling all the numbers together during tax-time, but it's really not that complicated, especially if you are at least halfway organized about it.

[Bobbycee]

Originally Posted by Casey2296

Yes, we should all pay our taxes. But let's not lose sight of the horrendous job local, state, and federal governments do in maximizing our hard earned money for the greater good. It's a broken bureaucratic gridlock nightmare of inefficiency. They will never be satisfied and their elitist "pigs to the trough" attitude is insulting and disrespectful to the working class man and woman.

Right on Phil. Some of us collectors have serious questions and have nice collections while not being well off. We're not "Dumb SOB's"

[Rhotchkiss]

Bob, I think it is quite clear that my comment was directed solely to the OP, who is not bashful about asking advice on how to evade taxes on a public chat room/dumb. I would not call (and was not calling) you or anyone else dumb.

LOOK - taxable gain is taxable gain, regardless of whether you get a 1099 or not. As a general rule, under the US Tax code, when you make money (i.e., income), you are supposed to pay tax on that income, unless there is an exemption or a deferral mechanism (like section 1031).

The tax is applied to the "gain", again, the income. Getting your money back, is not gain/income. What you paid for something is your "basis". What you sell it for is your "amount realized". If you sell it for more than your basis, you have recognized a gain, which is taxable (amount realized minus basis = positive number). If you sell it for less than your basis, you have recognized a loss, and you should be able to at least offset gains of the same asset with that loss (amount realized minus basis = negative number).

Example: I buy Card $X for $10. My basis is $10. I later sell the card for $20. Even though I realized $20 on the sale, my gain recognized is only $10, because my basis/cost was $10 ($20 realized minus $10 basis = $10 gain recognized). In this case, there is $10 of gain and that is what tax is paid on, regardless of whether Ebay or any other auction house does or does not send me a 1099. I believe the tax rate is 28% on that $10 of gain recognized: The first $10 is a return of basis/cost, the second $10 is gain and the tax on that gain is $2.80 (28%)

[Bobbycee]

Originally Posted by Rhotchkiss

Bob, I think it is quite clear that my comment was directed solely to the OP, who is not bashful about asking advice on how to evade taxes on a public chat room/dumb. I would not call (and was not calling) you or anyone else dumb.

LOOK - taxable gain is taxable gain, regardless of whether you get a 1099 or not. As a general rule, under the US Tax code, when you make money (i.e., income), you are supposed to pay tax on that income, unless there is an exemption or a deferral mechanism (like section 1031).

The tax is applied to the "gain", again, the income. Getting your money back, is not gain/income. What you paid for something is your "basis". What you sell it for is your "amount realized". If you sell it for more than your basis, you have recognized a gain, which is taxable (amount realized minus basis = positive number). If you sell it for less than your basis, you have recognized a loss, and you should be able to at least offset gains of the same asset with that loss (amount realized minus basis = negative number).

Example: I buy Card $X for $10. My basis is $10. I later sell the card for $20. Even though I realized $20 on the sale, my gain recognized is only $10, because my basis/cost was $10 ($20 realized minus $10 basis = $10 gain recognized). In this case, there is $10 of gain and that is what tax is paid on, regardless of whether Ebay or any other auction house does or does not send me a 1099. I believe the tax rate is 28% on that $10 of gain recognized: The first $10 is a return of basis/cost, the second $10 is gain and the tax on that gain is $2.80 (28%)

Fair enough Ryan. I didn't take your comment personally, but did think it was a bit harsh.

Look, I am coming to the realization that if I sold my collection of T206, which took me nearly 20 years to carefully build, I could be wacked significantly by taxes. That's not easy to swallow. The government over reaches in their eternal grab for taxes. It's no wonder people ask many questions in advance.

Imagine the Government saying: "You want to sell your set? We'll take your top HOF's & SLers, and you can keep the rest". It about amounts to that, and that's a kick to the 'nads.

[Exhibitman]

Originally Posted by Bobbycee

Fair enough Ryan. I didn't take your comment personally, but did think it was a bit harsh.

Look, I am coming to the realization that if I sold my collection of T206, which took me nearly 20 years to carefully build, I could be wacked significantly by taxes. That's not easy to swallow. The government over reaches in their eternal grab for taxes. It's no wonder people ask many questions in advance.

Imagine the Government saying: "You want to sell your set? We'll take your top HOF's & SLers, and you can keep the rest". It about amounts to that, and that's a kick to the 'nads.

Yeah, but if someone actually kicked you in the 'nads and took your cards you could call the police (paid for by taxes) and maybe get the offender prosecuted by a district attorney (paid for by taxes) in a court (paid for by taxes) and then have the SOB sent to jail (paid for by taxes). You would drive to the court on roads (paid for by taxes) to testify against him.

If you don't like the tax policy win a majority of the legislative seats and change it. Otherwise