Happy 2022! And Happy $600 Federal Threshold for 1099 Reporting!
jskirwin1
Posts: 13 ✭
As a collector I rarely sell, but this caught my eye in the news:
https://newsroom.paypal-corp.com/2021-11-04-New-US-Tax-Reporting-Requirements-Your-Questions-Answered
A search seems you guys rehashed this in another thread.
https://forums.collectors.com/discussion/1066248/the-ebay-1099-k-limit-is-1000-not-10k/p1
The discussion brought up issues of fairness, but the tax code isn't fair as others point out in the thread. It even made the news yesterday: https://www.cnbc.com/2021/12/29/the-rich-benefit-as-democrats-forgo-tax-on-unrealized-capital-gains.html
I had planned on liquidating my $10K sportscard collection soon, but with this new requirement maybe I'll forget it and let my kids inherit it instead.
1099s are automatic. Make the threshold and the IRS will be notified. Fail to report it, and you will receive a bill from the IRS because the amount is missing. You don't need to be subject to a full audit for the matching to occur. It's a simple algorithm: Is the sum of 1099s received greater than the threshold? If yes, is the sum equal to the amount reported by the taxpayer? If yes, nothing happens. If no, a bill or credit (if overpaid) is issued to the taxpayer.
I've taught my kids two iron-clad rules because breaking them guarantees a short, miserable life:
1. Don't mess with the mob.
2. Don't mess with the IRS.
Looks like many collectors are going to learn the importance of rule #2 next year.
Comments
This law changes nothing. Either you owe tax or you don’t. It’s that simple.
If you want it to be more fair, there’s nothing wrong with you paying tax on the full appreciation of value of your collection, even if you decide to give it to your kids instead of selling it. By all means, stand up for what you believe in!
Obama is the one who made PayPal start reporting eBay sales over 10k. This is just another expansion of that policy. I think he wanted to do $600 too, but it was deemed too demanding for the IRS to handle.
The issue is with just someone selling accumulations. After 40-50 years, you tend to accumulate a lot. How many people have the receipts for everything they have stored away. You decide to sell something, usually at a loss, but no way to prove it so the feds want their cut. And if you do have records, you cannot deduct a loss, only pay on a gain. Corruption at its finest.
Unless you spend time working as a part time dealer, how would even know how to deal with it.
That is the issue.
Going forward, I suspect everyone should become a business, and write off everything they buy.
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You have to be in business to be a business.
IRS frowns on hobbyists claiming to be a business, big RED Flag.
So, for the tax experts. I had a car I lost $12,000 on (paid $12,000 and it was a lemon, Died while still owing over $6,000). Can I write this off?
Not unless it was a collectible car. Cars are consumables, they are expected to depreciate.
I ate a $12 steak yesterday. Today it's &%/<, can I write off the $12?
Like most things it’s not immutable. Different administrations, different lawsuits, different circumstances can change the situation. Right or wrong, I think it will drive more people to cash only transactions and people will buy cash cards to avoid carrying lots of cash. Again, right or wrong, people will find a loophole.
TurtleCat Gold Dollars
Agreed. Although you could probably make it work if you marked your collection to market value every year and paid the tax on inventory appreciation (assuming you had any). But if you show annual losses for multiple years in a row, you will be categorized as a hobbyist and draw the ire of the IRS.
The "collectables" tax is very unfair. It is taxes profits at a higher rate than other types of income.
Maybe the capital gains tax is unfair because it taxes at a lower rate than other types of income
No. If you are a car dealer or buy it for a business you may be able to write off some or all of the cost (possibly over time using a depreciation schedule), but if you end up writing off the whole thing before you sell it, then whatever you sell it for is taxable.
That's not really corruption. You might not like the rules, but everyone knows what they are. Corruption would be giving yourself a benefit not available to others through illegal or unethical means such that the rules applying to everyone don't apply to you.
I'm not making that joke
Taxes by their very nature are political. Ask the Founding Fathers. But It's a bipartisan issue: both parties are responsible for the tax code, and most people aren't aware that this threshold has moved from impacting legitimate businesses (>$20k) to selling one's childhood collection of Pokemon cards. I know I wasn't until I saw it reported in another collectibles forum.
When I sold my modern American collection to switch to ancients, I lost money. Most of the coins I purchased in my youth were worth much less than I paid for them. I probably sold the entire collection over a year for about $1500, and rolled the money into ancient coins. Adjusted for inflation, I probably lost just as much.
If I had done this next year, I'd be on the hook for $1500*my tax rate since I didn't save my receipts from the 1970s (unless the IRS would accept the dollar number on the flips that I kept them in).
It doesn't seem right.
And if you're a collector selling a small amount, I all but guarantee they will accept that. Record those as your costs and justify your (lack of) profit. The odds that they go after someone for $1500 in sales with no profit or a loss are incredibly small as long as the sales figures match. I've been reporting small and large sales amounts since I was a teenager (and well before electronic payments were ubiquitous or I faced any sort of 1099 related to the sales). The number of times I've been questioned by the IRS about how I got to my numbers? Exactly 0.
If you're selling a collection (or any asset) that has gained in value to simply give the money to your kids they would see more money if they inherited the asset first and then they sold it. If you sell it you pay taxes on the difference of what it cost you and what it sold for. If they sell it their taxable profit is calculated with a new basis (cost) - the value of the collection at time of inheritance, not what you paid for it. For any asset that has gained value since it's purchase this is the way to pass it on to your heirs with the least amount of taxes owed.
Give Me Liberty or Give Me Debt
Oh, please do! 😉
Once you are dead, you are not allowed to do anything. You are done. 👻
Next question: As a collector, I often trade coins to upgrade (IE: trade a 64 to purchase a 65).
if you sell the 65, what is your cost?
Two cases:
If you lose money on the 64 (trade in value less than what you paid).
If you made money on the 64 (trade in value more than what you paid).
Naturally, I usually fall into the first case.
People are going to try and get around this however they can. It’s blatantly unfair. You get taxed on items you wouldn’t have possibly kept receipts of, can’t deduct losses and get taxed a ridiculous amount on gains. Cash will be king.
The costs get transferred.
Let's say you bought coin A for $500. You then buy coin B by trading coin A and adding $X in cash. Your cost basis for coin B is $500 + $X, and the value of coin A at the time of trade has absolutely no bearing on this. But it has to be a straight trade. If you sell coin A to one dealer and then go to the next table and use the money you just got to buy coin B (adding in the same $X of additional cash) then the sale of coin A is one transaction and you owe tax on any potential gains, and the cost basis of B is whatever you paid in cash. The trade only works to pass along a cost basis and defer any potential taxes on gains when it is part of the same transaction as the new acquisition.
Thank you. I am speaking of direct trades (I find a coin online and then work a trade to get the new coin, send them my coin(s) and pay the difference, and they send me the new coin.)
If you sell it, and then use the money to buy another, then the first sale is it's own transactions and you would need to deal with it regardless of what you buy with the funds.
I have a few, where I had a 63, traded to get a 64, then traded that to get a 65 and then traded the 65 to get a 66. Some of these end up with the same dealer.
As my set goals changed (first goal was just mint state, and now I am 2/3 of the way to all MS66), I end up trading my way up. Seems easier than buying the new one and trying to sell the other.
When it comes to trades, if it is considered a barter transaction I believe tax is due at that time.
Also, for collectables, losses are not considered, only gains. No matching or offsetting losses to gains.
My simple thought is it has to do with receipts. If you have a receipt for the new coin at the final "cost" then that's all the matters. The fact they accepted coins in trade just reduced the cash part accordingly. So if you sell that coin you traded for then the gain (if any) would be the sales price over the receipt amount. At least for a collector.
TurtleCat Gold Dollars
I’ve only done a trade once. There was a specific gold bar I wanted but I didn’t want to pay up for another one. I opted to trade a duplicate I had bought much cheaper and pay a small difference, rather than sell the bar independently, since I likely would have gotten a bit more value out of it, but all of that and more would have been wiped away with the tax on the gain.
One party is trying their best to do away with stepped up basis.
That's taking a risk. If you can't back up your loss with receipts that are acceptable to the IRS, you are trusting the government to cut you a break. There is nowhere in the tax code that says that you are due one simply because you aren't wealthy.
The tax code is binary. You either abide by it or you don't. Hope isn't an accounting strategy.
And another thing: I still don't get why I shouldn't be able to declare my "losses" if I must declare my "winnings."
Take my modern collection sale example. Imagine I had kept my receipts for my purchases in the 1970s, spending $3000 on coins instead of buying pet rocks and disco roller skates. Next year I sell the lot on eBay for $1500.
With the 45 year old receipts I can clearly declare that I sold them for a loss, so no taxes due. But why couldn't I legally write off the $1500 loss - especially if the coins would sell in 2022 for $5000, I'd be on the hook for a $2k gain even with the receipts?
If you're going to penalize me earnings, shouldn't I be able to write off the loss?
I can do that on stocks, so why not collectibles if you are going to treat them the same way?
So say you have no receipts and declare the entire sale a profit, and blame yourself for not having adequate records. The law is the law and it's your obligation to abide by it. If you think you will both get flagged to show your receipts AND they will not accept your cost basis justification, then you risk a potential penalty and interest on the amount they deem you owe. Or you can say outright you owe the full amount and pay taxes on it. Your choice.
There is no part of this discussion that differs whether you are or aren't wealthy.
Well why not you write your congressmen and have them change the law? Whatever you perceive as good or bad or fair or unfair--it's the law on the books right now. It is what it is. The rules are the rules, and yes, you have to abide by them. You're jumping back and forth between what the law is or isn't, and whether the law is or isn't fair. And for whatever part of this actually goes back and addresses the original topic of the 1099, still, nothing has changed. It's just going to be much harder to get away with not reporting and paying taxes as it would have been if you didn't get a 1099.
Beyond that, I'm completely lost with your example about taking losses. Sell everything in one year, and you pay tax on the net profit, which will include those losses. As it is, you can only write off a maximum net $3000 lost on capital gains in a given year, so it's not as though you can have a terrible year and end up taking a massive deduction. And of course, it's the cumulative profit or loss that matters with stock, just like collectibles.
So, you're saying nothing has changed. I agree. Tax cheats will keep cheating. Tax payers will keep paying.
@airplanenut - it does appear that up $3,000 of net losses may be carried forward:*
https://www.irs.gov/taxtopics/tc409
*I’m not an accountant and this is not accounting advice!
Because coins are a hobby, not an investment.
@jmlanzaf - the IRS defines collectibles and tangible personal property as capital assets - see https://www.irs.gov/taxtopics/tc409 which states:
“Almost everything you own and use for personal or investment purposes is a capital asset.”
“Net capital gains from selling collectibles (such as coins or art) are taxed at a maximum 28% rate.”
Not really comparable to gambling gains or losses - it’s an entirely different treatment under the tax code. Gambling winnings are taxed at your marginal tax rate.
Yes that is true, but there's only so much of a tangent worth exploring on this topic, which is why I didn't go down that bunny trail.
Maybe a better argument is that it's the difference between tangible and intangible assets. Perhaps their line of thinking is that income from stock is just money, while tangible assets give not only a monetary reward, but also some level of additional utility in terms of being able to enjoy them. Supporting that line of thinking, gold bullion can't be in your IRA if it's in your possession. In other words, if you can enjoy it, it's not JUST a vehicle for investment, and thus it's not allowed in an IRA.
Basketball shoe flippers are going to be shocked next January.
As I understand it, you're only allowed to "trade" real estate. Everything else is considered both buying and selling, even if at the exact same time. Thus if you were to sell 100 shares of Microsoft and immediately buy 200 shares of IBM the tax treatment is the same as if you found someone who had the IBM to swap.
As always, I'm not an accountant or any kind of tax professional. If you're interested in tax consequences of ay type of exchange please consult a professional before you try it.
Stocks may be different, but I assure you I consulted a tax professional before the gold bar swap I mentioned above ( my mom is a CPA)
Tell me more. Which marinade is best? Asking for RWB…
Coins can also be treated as an investment for tax purposes just as other collectibles (i.e. art, collector cars, etc) are. I'm not running a business, I invest in capital assets. Been doing it for years. Just make sure you annotate "income reported on 1099" for a transaction when a payment processor such as paypal or ebay is involved.
Give Me Liberty or Give Me Debt
" You can't write off gambling losses either, except to offset gambling gains. Kind of similar."
No, you can't write off gambling losses even to offset gambling gains, most of the times.
Most people do not understand this. I go to casinos all the time. I hit a few jackpots on slot machines. You get a form right then and there at the casino I go to. Say you win a $2000 jackpot on a slot machine. You pay tax on all the $2000. You cannot deduct the losses unless you have a lot of deductions. The tax forms are tricking you. If you use the standard deduction form as most people do, you pay on all the win.
Example: you go to a casino with $2000. You have a big loss and lose $1900, you are ready to go home, you hit a jackpot of $1800. You now have $1900 and decide to leave with a $100 loss. You leave with $100 less then what you came with, but guess what- you pay taxes on the $1800 win, even though you lost money for the day.
Some bad tax advice has been given out on this page…
I could spend a few hours just TRYING to correct what I’ve read in 15 minutes…
That is the very problem - the tax code is too complex. It shouldn’t require CPA help to figure out how to pay taxes on a trip to the casino or from selling a couple of coins.
This is true. The flat tax never caught on. The pols like to throw around deductions like manna.
But people are way too paranoid about the IRS implications of $601 in sales. They are not going to spend time auditing those people. They will likely accept your cost basis without receipts. Now, if you do $100k in sales, different story, but you were already getting a 1099.
By the way, I know a guy who was doing $30k or so in sales with no reporting. How? He had multiple accounts in his wife's name and his children. And no, he wasn't paying any taxes. Those are the people they are trying to find. Not you and your used clothing asks on ebay. [He's going to have to find a lot more children in 2022.]
The Hard Copy tax code that I have is 77,000 pages.
That’s the “basis” I work from…
Here's a good one for those who feel as I do about being taxed unfairly.
Years ago when I was an amateur bowler I won around a $1000.00 at a tournament. I received a 1099 and had to pay taxes on it! I could not write off any of the cost of my equipment or the thousands upon thousands of dollars I spent to enable myself to win that $1,000.00! I couldn't even write off the entry fee according to my accountant because it wasn't professional!
Yet most tax payers could narrow it down to a necessary 200 pages or less and successfully do their own taxes.
Give Me Liberty or Give Me Debt
Deleted
The $600 reporting rule was originally enacted as part of the passage of the Internal Revenue Code of 1954 which was a major revision of the tax law. But $600 had a lot of purchasing power back then. According to the Bureau of Labor Statistics website, $600 in 1954 would be worth almost $6,200 in November 2021.
What was once a high reporting threshold has been reduced, by inflation, to a low reporting threshold. Shame the IRS can't keep up with inflation. IRS reporting requirements that fail to keep up with inflation are one reason why the IRS is so backlogged.
Give Me Liberty or Give Me Debt
I submitted an electronic request to the DOD for a copy of my wife's DD214 on Nov 1. Due to the pandemic the National Records Center in St. Louis has been running at half-staff on-site. Two months later and it's still pending.
That was for a simple records request. I can't imagine what the pandemic has done to the IRS.
The problem with the tax code is that it's written by lawyers, not accountants. Accountants are binary thinkers: something is or it isn't. The numbers are what they are. Lawyers create a space for interpretation between the facts, and then insert themselves in it. I don't think they do it intentionally: it's just how they think. But that creates inequity - whether you're talking about a black kid caught with a bag of weed vs a rich white kid, or an average person paying their taxes vs a wealthy one who can hire the best accountants and tax lawyers.
Good discussion here though. Same with the older thread. My guess is that it's going to erupt again in a year after the 1099s start raining down on people.
As the title states, Happy New Year!
Next one of yooz starts talking bad about kitties is gunna get a little visit 🙀when I get out🤨
When I’m done then my cousin is gunna give your collection a little cleaning 😳
🎶 shout shout, let it all out 🎶
I have a simple Excel spreadsheet tracking dates/purchases/sales. Been at it for 14 years now and my average annual "gain" is under $1,000. I imagine the IRS will accept my spreadsheet if I were ask to produce it.