Do coin dealers keep track of inventory for tax reporting?

dac076 · December 30, 2007 8:03AM

Businesses must account for the change in their inventory over the course of a year for tax reporting. My question is, do coin dealers really do this? Based on the B&M's I've been to, how can they possibly keep track of all the in's and out's. Do they just swag it?

ahooka454 · December 30, 2007 8:05AM

not a dealer, but my guy on the east would say, no comment.

MadMarty · December 30, 2007 8:29AM

Maybe someone from the inner circle will address this question.

stman · December 30, 2007 8:54AM

They probably keep good track it. I say this because when I'm at a show for instance, if I buy a coin many dealers tell me to make the check out to them personally and not their business name. I figure since they want the check made out to their name and not their business name..... they can keep track of it and remember it better.

CarlWohlforth · December 30, 2007 8:58AM

I keep very good track of my inventory for tax reporting. I would always tell stman and everybody else to make the check out to me. My business name is the exact same as my name.

roadrunner · December 30, 2007 8:59AM

I see a couple do it in quite a lot of detail. I'm sure it's very accurate for most. The other 49%....who knows.

For a B&M shop it must be a nightmare of sorts. I know when I buy a group of coins from some of them they have no record of what left.
But as long as they keep track of what they paid out, and what they have left in the store at the end of the year (plus cash balance difference).....it's not too hard to figure what the net gain is.
Those that deal mainly in slabs probably can tell you every coin they sold during the year. Would be interesting to hear from a dealer anyone who has gone through an IRS audit.

roadrunner

stman · December 30, 2007 9:02AM

<< I would always tell stman and everybody else to make the check out to me. My business name is the exact same as my name. >>

Ya see? I just knew their was a reason for that at the shows from the big dealers. Thanks for clearing that up Carl.

UtahCoin · December 30, 2007 9:18AM

Very tough to maintain a complete inventory. We do a complete inventory twice a year.

CarlWohlforth · December 30, 2007 9:36AM

<<Ya see? I just knew their was a reason for that at the shows from the big dealers. Thanks for clearing that up Carl. >>

Well, I'm just a small fry. I'm not a LLC or anything, just a sole proprietor part timer. I really do try to track inventory and usually deal only in slabs. However I do lose track of a coin every once in a while. But those rare occurrences are an honest mistake. Truly it would be very easy to do some transactions and keep them off the books. I sleep easy knowing that I try to play by the rules.

COINB0Y · December 30, 2007 9:39AM

"You have the right to remain....anything you say can be used against you in court...you have the right to an..."

I saw this on TV.

coinlieutenant · December 30, 2007 9:50AM

I just use a spreadsheet. Start with an inventory, end with an inventory. Keep track of sales, expenses, profits and losses.

prenum · December 30, 2007 9:54AM

Most legit dealers spend a lot of time and money tracking their inventory throughout the year. They are the guys that give you an itemized receipt when buying or selling. That transaction then is fed into an inventory management system maintaining a perpetual inventory.

However, I've dealt with some who prefer to writeup their transactions as 'misc coins" for x amount - if they write it up at all.

Regardless of how a dealer keeps track the formula for calculating profit is the same for all:

GP (gross profit) = Sales - (BI (beginning inventory) + Purchases - EI (ending inventory))

From GP subtract all Operating Expenses + Interest = NP (net profit)

Get the check book out and make a donation to Uncle Sam in the good years!!

RYK · December 30, 2007 10:01AM

I am not a dealer, but I use an Excel spreadsheet to track my collection, including purchase and sale data. It makes tax time a lot easier than backtracking through check registers, a pile of receipts, etc.

TwoSides2aCoin · December 30, 2007 10:07AM

I report all income derived. It's about being honest. I sleep good at night even if I lost money trying to make it. It's the beauty of being an American citizen and having the freedom to operate business that makes our country the greatest country in the entire solar system...
even if Canada is more advanced

SeaEagleCoins · December 30, 2007 10:24AM

yepper...gotta pay them income taxes...

...even though there is nothing in the Constitution to allow for them...

...and the only reason they were created was to help cover the interest we (the U.S.) have to pay to the Federal Reserve for all that great currency they supply us with...

...yepper...gotta love this system...

...it may be the best in the Universe...

...but it still

...oh yeah...and to keep my mini-rant OT...

I think we should do away with currency (and hence, the Federal Reserve) and use only coins...

...ok...let me take my meds and get some sleep now...

RichieURich · December 30, 2007 10:58AM

Of course. Using the method that CoinLt. and Prenum outlined. How else would you know how much money you made? How else would you know if any coins were missing?

Reminds me of an explanation I gave to senior management one time about inventory:
There are 2 types of inventory methods: periodic and perpetual. Periodic means that every so often, you do physical counts. Perpetual means that you start with beginning inventory, add purchases and subtract items sold. So the periodic inventory is wrong when you take it, and the perpetual inventory is wrong all the time.

The above is a true story, and the explanation is more true than you might think.

Edit because I had "periodic" where "perpetual" should have been. I'll put on the dunce cap for that one!

derryb · December 30, 2007 12:04PM

Excel spreadsheet is the way to go. All slabs in my inventory are serialized with the last five digits of the slab s/n. My photo files area also serialized with the last five digits of the s/n. Whenever i make a sale it is easy to update the excel and remove the pix from the photo files. Raw coins are serialized with custom s/n I put on each holder. Thing i like most about excel is the ability to change inventory viewing order by using the "A-Z" feature at any time and then exit without saving. Lets me view inventory by year or coin denomination. For taxes, i just rearrange the list to give me what i need for my records and then print. Excel lets me keep separate worksheets for other things such as various expenses, refunds, etc. If your using ebay and/or paypal I recommend you pay your taxes. Eventually when IRS gets its fingers into their databases i do believe they will dig back into the past.

Longacre · December 30, 2007 12:11PM

<< Reminds me of an explanation I gave to senior management one time about inventory:
There are 2 types of inventory methods: periodic and perpetual. Periodic means that every so often, you do physical counts. Periodic means that you start with beginning inventory, add purchases and subtract items sold. So the periodic inventory is wrong when you take it, and the perpetual inventory is wrong all the time. >>

So true. The best business to be in is financial services. There is no inventory-- just paper.

jdimmick · December 30, 2007 1:02PM

My inventory (number of Items ) is lower than a typical B & M shop becuase I sell mainly internet. However, I have a beginning inventory accounted for (actually itemized) and End of year inventory which i am in the process of adjusting today and tomorrow based on what gets sold and monies recived Monday. Then of course all the buy and sell invoices thruout the year. Similar to what Don said, but on a much smaller scale as they probably sell a few million a year easily and I might have 200k in sales all year.

BAJJERFAN · December 30, 2007 1:06PM

I may be in error here, but I'm told that there is no tax on unsold inventory.

prenum · December 30, 2007 1:12PM

If your using ebay and/or paypal I recommend you pay your taxes. Eventually when IRS gets its fingers into their databases i do believe they will dig back into the past.

Can't wait to see that happen! Ebay has managed to circumvent all the tax laws (it pays to have high powered lobbists).

IMHO, at a minimum Ebay should be forced to file a 1099 for every seller.

jdimmick · December 30, 2007 1:13PM

I am not an accountant, but I beleive you are correct. At least from a sched C standpoint its needed becuase you may have purchased 5k in coins in the past few weeks, but not yet sold them in this current year, therefore they are broken out (figured as ending inventory) and not sales in current year. But Ill let the accountants answer more intelligently!!

Jim

jdimmick · December 30, 2007 1:16PM

Don,

I agree its going to happen. I have strived to keep very accurate records of all sales ever since I started my local coin business as 90% of my sales are thru E, but I have freinds who do not report and they sell there for a living(not just coins), and one day they are going to pay the price dearly. One guy I know locally who sells about half a million in electronics here doesnt report at all

jim

Unknown · December 30, 2007 1:18PM

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BAJJERFAN · December 30, 2007 1:23PM

I think that when eBay is required to report sales via 1099 that it will be from now on and not retroactive, and only for certain mimimum threhhold levels and higher. I know that right now TeleTrade does not issue any kind of 1099 for proceeds from the sale of consigned items.

prenum · December 30, 2007 1:26PM

Ebay does over $7.2 billion a year in sales. Wonder how much in taxes this generates.

My guess is there are a lot of sellers that owe Uncle Sam a lot of money!!

It's only a matter of time untill theses people are held accountable.

(edited to add) ebay does more sales in one year than Teletrade and all the coin auction companies combined do in 5 years!!

BAJJERFAN · December 30, 2007 1:35PM

<< Ebay does over $7.2 billion a year in sales. Wonder how much in taxes this generates.

My guess is there are a lot of sellers that owe Uncle Sam a lot of money!!

It's only a matter of time untill theses people are held accountable.

(edited to add) ebay does more sales in one year than Teletrade and all the coin auction companies combined do in 5 years!! >>

That $7.2 billion is not all taxable profit tho. I'd guess that very little of it is if sellers keep accurate records and subtract out all expenses. It would likely require more resources in computers and manpower than its worth at the moment. If you sell a $500 coin you may end up with a $15 profit after all expenses and fees are figured in. If the IRS gets this radical most small timers would just simply quit eBay.

prenum · December 30, 2007 1:45PM

Bagger,

You may be right but I'd like to see how it works out.

I highly doubt that most sellers could prove any cost basis or holding period that meets IRS standards. That means paying regular income tax on whatever their sales.

Ebay is one of the largest unregulated businesses in America.

BAJJERFAN · December 30, 2007 1:56PM

<< Bagger,

You may be right but I'd like to see how it works out.

I highly doubt that most sellers could prove any cost basis or holding period that meets IRS standards. That means paying regular income tax on whatever their sales.

Ebay is one of the largest unregulated businesses in America. >>

I expect those sellers would wiseup very fast. If the IRs does get involved that could very well be the death knell for eBay. I know I would probably never sell there. I think at this point that the trickle down effects of eBay sales are doing as much good as taxing profits.

solid · December 30, 2007 3:32PM

I keep track of everything. It is time consuming, but necessary.

Where it really gets tricky is when you buy a set of coins and then break them up to sell
singles. Or you buy a roll (or bag or whatever), and begin breaking it up. I would imagine
it is quite cumbersome for the average B&M dealer that buys small accumulations all day
long, divides them into singles for some coins, and throws junk silver, wheats, etc into
various bags to be sold as groups later.

There are different methods of valuing inventory, but the simplest is to use actual cost. Coins
may go up or down in value while you hold them in inventory, but your initial cost is the value
to use until a coin is sold. At that point, you realize a net profit or loss on the coin.

This can work out nicely if you tend to hold some inventory for long periods. For example,
say you buy a roll of silver dollars for $400, or $20 per coin. There is one gem in the roll and
it grades out as 66. You sell the remaining 19 coins for $20 each and show zero profit on
those coins. The single gem remains on your books as a $20 coin until it is sold. Do this
repeatedly and you can, over time, build up an inventory with a low book value but a very
high market value!

Ken

Elcontador · December 30, 2007 3:44PM

I'm sure every coin dealer keeps track of inventory. However, what they declare on their tax returns -- assuming they file tax returns for their businesses in the first place -- is another matter.

droopyd · December 30, 2007 4:32PM

<< I may be in error here, but I'm told that there is no tax on unsold inventory. >>

Many states and municipalities levy tax on the value of a business's unsold inventory, sometimes annually and sometimes quarterly.

droopyd · December 30, 2007 4:35PM

<< Regardless of how a dealer keeps track the formula for calculating profit is the same for all:

GP (gross profit) = Sales - (BI (beginning inventory) + Purchases - EI (ending inventory))

From GP subtract all Operating Expenses + Interest = NP (net profit) >>

works for me and the cpa!

lordmarcovan · December 30, 2007 4:52PM

<< Well, I'm just a small fry. I'm not a LLC or anything, just a sole proprietor part timer. >>

Same here, except I'm probably an even smaller fry than Carl is.

<< I just use a spreadsheet. Start with an inventory, end with an inventory. Keep track of sales, expenses, profits and losses. >>

I plan to do this.

One thing I hope to accomplish with the new year is to create some spreadsheets for this exact purpose. It'll probably also help with insurance, when I cross that hurdle.

There's a good extension of this inventory question- how do dealers go about insuring their inventory, when it ebbs and flows constantly and you're never entirely sure of what exactly you have? Do you just get "umbrella" coverage? How does one go about this? I've been meaning to insure the inventory at my small antique mall booth, since I am currently uninsured, and as an absentee vendor, I am not usually in close contact with a lot of my inventory. I know the ANA offers insurance plans for collectors, but what about us small dealers?

So far I will admit I have yet to report any of my coin sales for tax purposes but any modest profit I've been making I have just rolled back into the tiny business, and some of it has been siphoned off for private collecting purposes. The line between my private collecting and my small coin dealer business is still very blurry and vague. I would like to be legal as a small business, though, and pay proper taxes, keep proper records, and have insurance. While still very tiny, I guess it's big enough to treat like a real business now. I'm relatively confident in my numismatic knowledge (at least for the purposes of my small operation), but I have a lot to learn about the actual nuts-n'-bolts business end of things.

Bochiman · December 30, 2007 5:00PM

It's funny watching this.....some dealers hate ebay I think...takes away their profits by enabling folks to buy/sell without them (there are some good dealers out there that use ebay for what it is, or don't but don't go around hating).

Whatever ebay "makes", or "generates" is in no way able to be considered pure taxable income when it comes to what an ebay users gets for sale prices.
There are costs to everything. Some make money, some lose.

People paid $420 for a 1st spouse 1/2 gold piece from the mint, another $30 for slabbing fees, maybe another $40 or so for shipping (registered), another $40 or so for ebay fees and maybe another $15 or so for paypal fees. If it wasn't a MS70, then (let's say it was a liberty spouse), then they may have only gotten ~$450 as an ebay sale. Only a moron would think someone should be taxed on that $450, or so, as the seller actually sold at a LOSS.

Whenever I hear (particularly dealers) people ramble about ebay and how everyone should get a 1099 from them, etc etc etc, without accounting for collectors (or even smalltime flippers who buy 1 or 2 of an item to flip) where it is clear it isn't a business for them, I just laugh. Mostly, they are just whining because they don't make the easy money anymore by being the middleman and ripping someone low and selling high.

There are times, and places, for dealers. No denying that. Ebay isn't all for everything. However, it sure has made it easier for me (generic "me"...can be anyone) to decide a coin (Wii/Jeans/lamp/beanie baby/whatever) doesn't fit anymore and instead of trashing it, or losing a ton of money, I can find someone who will pay me for it and spend less than if they got it from a dealer (but I get more than if I sold it to a dealer)...even if I sell it at a loss, it may be less of a loss than otherwise.

And, what I think will happen, when/if the IRS does find a way into ebay's books in the US, is that there will be an "amnesty" period, particularly for smalltimers or people who aren't a business.

Doom and gloomers are funny

RYK · December 30, 2007 7:55PM

There are times, and places, for dealers. No denying that. Ebay isn't all for everything. However, it sure has made it easier for me (generic "me"...can be anyone) to decide a coin (Wii/Jeans/lamp/beanie baby/whatever) doesn't fit anymore and instead of trashing it, or losing a ton of money, I can find someone who will pay me for it and spend less than if they got it from a dealer (but I get more than if I sold it to a dealer)...even if I sell it at a loss, it may be less of a loss than otherwise.

I agree, Bochi, and have a recent example. I recently sold a copy of Neil Young's Decade CD set on ebay. I got $4.00 for it, lost a few cents on the shipping, and then had to net out ebay and PayPal charges. If I am to understand it, technically, I have to have an original receipt for the cost of it (probably in the neighborhood of $15 to $20) or else this would be considered $4 (net $3.25 or so) of income in an audit. If that is the case, I would be more likely to just throw it in the garbage can, rather than essentially lose money (the tax on $3.25) selling it to someone else. (Of course, some will argue I should have thrown it away in the first place

)

BAJJERFAN · December 30, 2007 8:36PM

Wasn't eBay born out of the garage sale concept?

<< People paid $420 for a 1st spouse 1/2 gold piece from the mint, another $30 for slabbing fees, maybe another $40 or so for shipping (registered), another $40 or so for ebay fees and maybe another $15 or so for paypal fees. If it wasn't a MS70, then (let's say it was a liberty spouse), then they may have only gotten ~$450 as an ebay sale. Only a moron would think someone should be taxed on that $450, or so, as the seller actually sold at a LOSS. >>

Of course all of this will be easily documented as its so new, but if you did that 7 or 8 years ago then maybe most of the cost info will have been lost or forgotten.

<< Whenever I hear (particularly dealers) people ramble about ebay and how everyone should get a 1099 from them, etc etc etc, without accounting for collectors (or even smalltime flippers who buy 1 or 2 of an item to flip) where it is clear it isn't a business for them, I just laugh. Mostly, they are just whining because they don't make the easy money anymore by being the middleman and ripping someone low and selling high. >>

If/when the time comes that the govmint will look at the lost revenue it will most like likely put a lot of the burden on eBay to help them as eBay will be in the best position to do so. If you sold 100 items on eBay in 2007 you and the IRS would get some form of 1099 or W-?? with your total gross sales, total listing fees, total final value fees, etc and maybe shipping. You may get something similar from PP if you accept that. It will be up to you to supply costs for merchandise S & H etc.

secondrepublic · December 30, 2007 8:59PM

Keep in mind that there is a statute of limitations that limits how far back the IRS can go. It's usually 3 years from the date of filing the return. If the amount underreported is 25% or more of gross income, then it's a 6 year SOL. However, the clock never starts running unless a tax return is actually filed for that year.

BAJJERFAN · December 30, 2007 9:11PM

Most eBayers are probly small potatoes as far as the IRS is concerned.

dac076 · December 31, 2007 1:09AM

Where it really gets tricky is when you buy a set of coins and then break them up to sell
singles. Or you buy a roll (or bag or whatever), and begin breaking it up. I would imagine
it is quite cumbersome for the average B&M dealer that buys small accumulations all day
long, divides them into singles for some coins, and throws junk silver, wheats, etc into
various bags to be sold as groups later.

Exactly. I once asked a B&M owner how he keeps track of it all. He said "Are you kidding? Look at this place. I've got stuff all over!" I didn't ask him how he accounts for it for taxes, because I didn't care to go down that road with him. It did leave me wondering, though!

jmcu12 · December 31, 2007 1:24AM

I brought it up to the guy at my local B&M shop...his only real answer was No Comment...

RichieURich · December 31, 2007 3:52AM

<< 

<< Of course. Using the method that CoinLt. and Prenum outlined. How else would you know how much money you made? How else would you know if any coins were missing?

Reminds me of an explanation I gave to senior management one time about inventory:
There are 2 types of inventory methods: periodic and perpetual. Periodic means that every so often, you do physical counts. Perpetual means that you start with beginning inventory, add purchases and subtract items sold. So the periodic inventory is wrong when you take it, and the perpetual inventory is wrong all the time.

The above is a true story, and the explanation is more true than you might think. >>

Rich, your explanation above isn't making any sense to me, I think you left out perpetual somewhere? >>

You are correct, Realone, I made an error in typing this up. The underlined word is the change that makes this correct now.

segoja · December 31, 2007 4:01AM

Bottom line if you do the right thing, there is no worry.

Those who do a lot of sales and don't report it, may be in for a world of hurt. If they have no records, the entire sale may be taxable...ouch!!!!

Geoman · December 31, 2007 4:11AM

The hardest part for me is to remember even what I paid for a coins years ago. Understand, that I am a very, very, very part-time dealer that sold less than $3,000 for the year. Most of that was coins I bought as a collector years ago. I didn't keep records or what I paid years ago when I was collecting. So how am I to figure out a profit or loss. Acutally, most won't considered me even a part-time dealer, just a collector that sells some coins to put back into my own collection.

Russ · December 31, 2007 4:11AM

<< If the IRs does get involved that could very well be the death knell for eBay >>

No, it wouldn't. There might be fewer sellers, though. And, fewer sellers would mean less competition which translates to higher prices. Hey, bring on the IRS!

Russ, NCNE

jdillane · December 31, 2007 4:11AM

Though I am a collector/accumulator, I have sold a few coins along the way. Reported the gains as ordinary income.

I also used excel to keep my inventory but foolishly did not back it up. When the hard drive crashed, I knew I was in do do.

Smittys · December 31, 2007 4:16AM

<< I just use a spreadsheet. Start with an inventory, end with an inventory. Keep track of sales, expenses, profits and losses. >>

BAJJERFAN · December 31, 2007 4:30AM

<< 

<< If the IRs does get involved that could very well be the death knell for eBay >>

No, it wouldn't. There might be fewer sellers, though. And, fewer sellers would mean less competition which translates to higher prices. Hey, bring on the IRS!

Russ, NCNE >>

People are only gonna pay so much for a widget, whether there are 2 people selling em or 18 people selling them.

dcarr · December 31, 2007 4:32AM

<< I may be in error here, but I'm told that there is no tax on unsold inventory. >>

I believe that is correct. You only need to report income from actual sales. Just like you don't report "income" from a stock that went up but you didn't sell yet.

I keep track of the price I pay for everything, and the amount I make whan I sell. From that gain, I deduct the actual direct expenses involved with buying and selling the item (eBay/Paypal fees, coin holders, travel expenses to/from shows, etc).

However, if you barter (trade one coin for another), you may need to report a gain if the reasonable market value of the coin you took in is higher than what you paid for the coin you traded away.

Russ · December 31, 2007 4:33AM

<< People are only gonna pay so much for a widget, whether there are 2 people selling em or 18 people selling them. >>

Seems you lack a fundamental grasp of economics in general, and eBay in particular.

Russ, NCNE

Russ · December 31, 2007 4:36AM

<< <>

I believe that is correct. You only need to report income from actual sales. Just like you don't report "income" from a stock that went up but you didn't sell yet. >>

There is no federal tax, but there are some state and local agencies that do levy taxes on inventory. It's similar to property taxes.

Edited to add: The feds also pay attention to changes in inventory and if these changes are dramatic, it can trigger an audit.

Russ, NCNE

Do coin dealers keep track of inventory for tax reporting?

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