At what point do you become a dealer in the eyes of the IRS?
commoncents123
Posts: 2,648 ✭
If someone who doesn't know anything about coins looked at my "sales" last year, they may see a fairly decent figure...not astronomical by any shot, but decent. But really, I hardly ever make a decent profit off anything, and when I do it just evens over the losses, more or less. I sell a coin I'm tired of, so I can enjoy something new for a while. Been doing that trick with the same pool of cash for years. Of course there are some coins, like my full set of Lincolns that I'd never turn loose, but by in large I do this swipity swap thing religiously. I always have coins up for sale somewhere. So, if I were ever asked about all these sales...would the hobby claim hold water? Do you have to keep some kind of "proof" that it's a hobby and you don't make jack?
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What it does change is whether or not the activity can be considered a "business" for the purposes of filing Schedule C (and enabling you to write off losses). In that case, you can call yourself a "business" as long as you are consistently proftable; it's when you write off too many losses that the IRS requires you to classify your activity as a "hobby."
He told me sometime this year, anyone who sold over 100 items or over 1000.00 on ebay need to put it on their
federal income tax form. Because Uncle sam will know who you are.
he said just like Canada did the IRS will get the names and accounts from ebay
Just a little bit to think about.
Of course he's a New York Tax man.
<< <i>I had an official from New York state in checking my resale certificate.
He told me sometime this year, anyone who sold over 100 items or over 1000.00 on ebay need to put it on their
federal income tax form. Because Uncle sam will know who you are. >>
I translate this as saying: "Go ahead and engage in tax evasion if the IRS isn't likely to find out about it."
Hobby
Investment
Business
All of the above have various different tax tiers with and without advantages such as allowable deductions. There are definite distinctions between them in the eyes of any taxing agency.
TRUTH
The rub here is that you need to have your reciepts or know what you paid and when you bought it for all of your sales. Many will not have any receipts and will not be able to prove its a long term capital gain (which is taxed at a lower rate) or be able to document their basis, which may result in the service claiming that the basis is face value. If you are a power seller, and have thousands of transactions, you stand a greater chance of being on the service's radar.
Just something to think about.
Oh, and by the way, the capital gains rate goes up to 20% at the end of next year. Congress and the Obama Administration want it to be higher than that.
Edited to add: if you also sold coins (or other assets) at a loss, you can use that loss to off-set your gains. For instance, say you sold that same Morgan for $320, but also sold (in the same year) a bust half that you paid $300 for (back before you learned how to tell cleaned coins) for $95, resulting in a $205 loss. You offset the $305 gain with the $205 loss, resulting in capital gains of just $100, or a capital gains tax of $15.
<< <i>The problem that folks will have when selling off coins from their collections is capital gains tax, not income tax. Any time you sell an asset, you realize a capital gain or a capital loss. >>
Profits from the sale of a hobbyist's collection are always taxed at ordinary income tax rates, not capital gains rates -- no matter how long you owned the coin.
<< <i>The problem that folks will have when selling off coins from their collections is capital gains tax, not income tax. Any time you sell an asset, you realize a capital gain or a capital loss. You have a tax basis in the asset (the amount that you paid for it). Say you bought a Morgan Dollar in 1985 for $15 and sold it in 2009 for $320. Your basis is $15 and your capital gain is $305. You then would owe the feds 15% of that gain, or $45.75. If you owned the coin for less than 1 year, your capital gain will be a short-term gain, and would be taxable as income at your ordinary tax rate.
The rub here is that you need to have your reciepts or know what you paid and when you bought it for all of your sales. Many will not have any receipts and will not be able to prove its a long term capital gain (which is taxed at a lower rate) or be able to document their basis, which may result in the service claiming that the basis is face value. If you are a power seller, and have thousands of transactions, you stand a greater chance of being on the service's radar.
Just something to think about.
Oh, and by the way, the capital gains rate goes up to 20% at the end of next year. Congress and the Obama Administration want it to be higher than that.
Edited to add: if you also sold coins (or other assets) at a loss, you can use that loss to off-set your gains. For instance, say you sold that same Morgan for $320, but also sold (in the same year) a bust half that you paid $300 for (back before you learned how to tell cleaned coins) for $95, resulting in a $205 loss. You offset the $305 gain with the $205 loss, resulting in capital gains of just $100, or a capital gains tax of $15. >>
Sounding like a typical lawyer there Raybob.. Throwing numbers all over the place.
<< <i>
<< <i>The problem that folks will have when selling off coins from their collections is capital gains tax, not income tax. Any time you sell an asset, you realize a capital gain or a capital loss. >>
Profits from the sale of a hobbyist's collection are always taxed at ordinary income tax rates, not capital gains rates -- no matter how long you owned the coin. >>
From the IRS Website:
Reporting Capital Gains
FS-2007-19, May 2007
In order to educate taxpayers about their filing obligations, this fact sheet, the twelfth in a series, provides information with regard to capital gains reporting. Incorrect reporting of capital gains accounts for part of an estimated $345 billion per year in unpaid taxes, according to Internal Revenue Service estimates.
Almost everything you own and use for personal purposes, pleasure, business or investment is a capital asset, including:
Your home
Household furnishings
Stocks or bonds
Coin or stamp collections
Gems and jewelry
Gold, silver or any other metal, and
Business property
Also, IRS Publication 544 provides that "Precious Metals and Stones, Stamps, and Coins Gold, silver, gems, stamps, coins, etc., are capital assets except when they are held for sale by a dealer. Any gain or loss from their sale or exchange generally is a capital gain or loss. If you are a dealer, the amount received from the sale is ordinary business income. Emphasis added.
<< <i>The problem that folks will have when selling off coins from their collections is capital gains tax, not income tax. Any time you sell an asset, you realize a capital gain or a capital loss. You have a tax basis in the asset (the amount that you paid for it). Say you bought a Morgan Dollar in 1985 for $15 and sold it in 2009 for $320. Your basis is $15 and your capital gain is $305. You then would owe the feds 15% of that gain, or $45.75. If you owned the coin for less than 1 year, your capital gain will be a short-term gain, and would be taxable as income at your ordinary tax rate.
The rub here is that you need to have your reciepts or know what you paid and when you bought it for all of your sales. Many will not have any receipts and will not be able to prove its a long term capital gain (which is taxed at a lower rate) or be able to document their basis, which may result in the service claiming that the basis is face value. If you are a power seller, and have thousands of transactions, you stand a greater chance of being on the service's radar.
Just something to think about.
Oh, and by the way, the capital gains rate goes up to 20% at the end of next year. Congress and the Obama Administration want it to be higher than that.
>>
In Canada, it's a little different, but also similar.
A sale is a Capital Gain, whether it's a piece of art, furniture or a collectible such as.a coin.
However, the difference lies in the amount.
Any sale under $1000, and your cost is assumed to be that amount and hence your 'capital gain' is zero (Ex. sold a coin for $722, then my cost is $722 and CG= 0 or sold a painting for $525, cost is $525 and CG =0)
If on the other hand you sell a coin for $2000, then your capital gain is $2000 minus your legitimate receipt (showing cost). If you've had the coin for 30 years and have no receipt of cost, then your capital gain is assumed to be the full amount, which in this case is $2000.
"“Those who sacrifice liberty for security/safety deserve neither.“(Benjamin Franklin)
"I only golf on days that end in 'Y'" (DE59)
<< <i>Bottom line is I just want to enjoy my hobby without some bureaucratic mumbo jumbo. >>
The bottom line, as I understand the US tax codes, is that you can't just enjoy your hobby (provided your hobby includes selling coins) without the "bureaucratic mumbo jumbo" (i.e. capital gains taxes), and what you are doing currently is against tax regulations.
I would suggest you consult a CPA for guidance in how to correctly handle the situation (for instance, there could be applicable state tax laws depending on where you live), but my understanding is similar to Raybob's for the federal tax returns....Mike
<< <i>
From the IRS Website:
Reporting Capital Gains ...
Almost everything you own and use for personal purposes, pleasure, business or investment is a capital asset, including:...
Coin or stamp collections >>
Well, okay. I misspoke slightly -- they ARE capital gains. But they have different treatment -- like stocks they are taxed at marginal rates for "short term" holding periods, but long term capital gains are generally taxed as high as 28%.
Worry is the interest you pay on a debt you may not owe.
"Paper money eventually returns to its intrinsic value---zero."----Voltaire
"Everything you say should be true, but not everything true should be said."----Voltaire
<< <i>Are cash transactions between friends reportable?
Only with the coinhawk handshake.. If you say weezle wammer it's not..
coins you have sold
you are a dealer.
Only collectors lose money.
Camelot
NGC registry V-Nickel proof #6!!!!
working on proof shield nickels # 8 with a bullet!!!!
RIP "BEAR"
Slightly off topic........but, I've always wondered how the IRS views the sale of an automobile.
I notice it is absent from the list a few posts back.
Lots of money is "lost" on automobiles. Is that considered a loss by the IRS?
There is no such thing as a 15% cap. gains tax rate on collectible coins. Your only choice is 28%. That old rate applicalbe to coins held > 1yr was tossed out a long time ago. Also, one cannot turn around and pay taxes on coins at ordinary income rates unless you are declaring yourself a dealer and file schedule C. One good thing on the horizon is that Rep. Crapo has sponsered a bill in late June to try and redefine bullion coins and bars as non-collectibles and therefore subject to the same 15% rate that stocks, bonds, etc. are taxed at. Currently bullion items are treated like coins and taxed at 28% for investors or collectors.
The loss of a collectible automobile might be able to be subtracted from other capital gains providing you can show the vehicle was purchased strictly for investment, etc. I'm sure there are big time collectors who have huge collections that maintain all the documents to show that their holdings are a profitable business enterprise rather than just a hobby for fun. If you have one vehicle and hit all the cruise nights, and drive it 10,000 miles per year, you might have trouble deducting a loss when you eventually sell it. As far as selling one's beat down 200,000 mile, 20 year old family car and deducting the loss on your 1040....good luck with your IRS audit.
To answer the original question....at no point does a hobbyist's or collector's actions force them into dealer status. It doesn't matter if you are making millions of dollars per year and handle 10,000 transactions, you can still be a collector in the eyes of the IRS. You can buy and sell to your little heart's content without any fear of govt intrusion.....as long as you pony up the 28% capital gains taxes due on all profits...and have detailed records showing what you paid and what you sold stuff for.....just in case you get an audit. And while remaining a collector, there are very few deductions (if any) that you can take vs. if you were operating a small business enterprise filing a shedule C. Still, as an investor, one can claim some deductions as they pursue coins. Seek out proper legal counsel when performing any of the above.
roadrunner
<< <i>If you made money on
coins you have sold
you are a dealer.
Only collectors lose money. >>
That's it! I'm a collector.
Thanks for clearing that up for me.
they are as useless as the United Nations- dysfunctional and somewhat belligerent idiots.
any tax mongers here- BRING IT!!!!
according to some previous posts , all coin sales for a profit become a
taxable transaction ?
Therefore , a 12 year old in 6 th grade that sold a $1.50 buffalo nickel
for $3.50 to a classmate ,. or a retired coin club member that got $32
for his shield nickel that cost him $14 need to report or file a schedule
D on their 1040 ? I dont think so .
<< <i>I am not aware of any qualifications that classify someone as a 'dealer'
according to some previous posts , all coin sales for a profit become a
taxable transaction ?
Therefore , a 12 year old in 6 th grade that sold a $1.50 buffalo nickel
for $3.50 to a classmate ,. or a retired coin club member that got $32
for his shield nickel that cost him $14 need to report or file a schedule
D on their 1040 ? I dont think so . >>
All the more reason to ignore them, unless you are getting a big check from an auction house or some such with a clear paper trail, why would you tell the IRS???
<< <i>
<< <i> why would you tell the IRS??? >>
there ya go-
<< <i>If I wanted complete correct information, I sure as heck wouldn't be asking on an Internet forum. >>
I agree. If the OP is considering this issue, then he should make an appointment with a CPA or his friendly neighborhood tax lawyer and get the correct advice. It will be well worth the money in the long run.
Didn't wanna get me no trade
Never want to be like papa
Working for the boss every night and day
--"Happy", by the Rolling Stones (1972)
<< <i>Bottom line is I just want to enjoy my hobby without some bureaucratic mumbo jumbo. I have had fleeting paranoid thoughts about this from time to time. Would I have to have receipts to prove what I paid and what I sold them for if it came down to it? >>