Tax Question for the experts
Dpeck100
Posts: 10,912 ✭✭✭✭✭
This is the first year I have really sold many items on EBAY.
I am some where in the range of $9,000 of proceeds and my cost basis is closer to $7,500 so I am in a small profit of $1,500. Collectibles are taxed at 28% and I am by no means a dealer so any write off's don't apply.
Quite frankly if I included time I am in a huge loss but I get great personal enjoyment out of the hobby so who cares.
A few months ago I threw out about 20,000 cards that I had a substantial initial investment in through buying packs of cards as a teenager. My losses in all reality are much greater then my proceeds let alone my small profit.
In the securities business if a stock becomes worthless you can write it off in full. Clearly commons from the 1980's or 90's are essentially worthless.
What are your thoughts tax experts about taking losses on cards that were either donated or thrown out?
I would think others may have a similar circumstance.
Thanks!
I am some where in the range of $9,000 of proceeds and my cost basis is closer to $7,500 so I am in a small profit of $1,500. Collectibles are taxed at 28% and I am by no means a dealer so any write off's don't apply.
Quite frankly if I included time I am in a huge loss but I get great personal enjoyment out of the hobby so who cares.
A few months ago I threw out about 20,000 cards that I had a substantial initial investment in through buying packs of cards as a teenager. My losses in all reality are much greater then my proceeds let alone my small profit.
In the securities business if a stock becomes worthless you can write it off in full. Clearly commons from the 1980's or 90's are essentially worthless.
What are your thoughts tax experts about taking losses on cards that were either donated or thrown out?
I would think others may have a similar circumstance.
Thanks!
0
Comments
Not an expert but I'd be surprised if one could claim lost time and money for their hobby.
you'd have a fighting chance if they ever audited you.
Without the original cost basis, you'd be in a bit riskier position if an audit were to come because you could not prove when you got
those cards (the IRS could take the position that you just bought up a ton of cheap junk recently in order to try and write it down for more
than you paid).
That being said, if you treat it as an unicorporated business on a Schedule C you chances of an audit are not excessively high (unless you start
in with home office deductions, which I strongly advise against).
Take this free advice with a grain of salt. It's worth what you paid for it.
Best of luck
Dave
Dave
The question is can the loss on the cards deemed worthless be claimed.
I am really not overly concerned about the small amount of tax liability I may have but thought it was worth posing the question for my information and others.
<< <i>The question is can the loss on the cards deemed worthless be claimed. >>
I'm sure that's a grey area, but it wouldn't be hard for any collector to show they consider their cards an investement.
Not at all sure what the tax rules are in the US with regard to investment losses.
Collectibles are taxed at a flat 28% regardless of the tax bracket you are in.
The bottom line though is any of us that collected as teenagers or young adults who bought large amounts of baseball cards or basketball or any other type lost money for sure.
Unless you bought all 1986 Fleer Basketball which I for one did not. We started buy Hoops in 1989 when the Magic came to town.
It still blows my mind that I could have bought all the packs I wanted in 1986 of the Fleer basketball and we traveled all over Orlando searching for packs at convienant stores of the baseball for the same $0.50 price.
The worst part is the boxes sat right next to each other.
classify them as INVENTORY.
As long as you can demonstrate that you are legitimately and regularly marketing your inventory you should be able to
count it against your "sales".
Probably doesn't play too well with late 80s and 90s commons, but with bigger ticket items its a different story.
Again, in case of an audit the key would be an ability to demonstrate that you are actively engaged in a business pursuit
with a profit motive, i.e. your pricing needs to be realistic relative to what you are selling.
Again, free advice is worth what you pay for it.
Regards
Dave
Dave
As a collector can you just enter the term various for proceeds and various for cost or do you have to enter each item?
It would seem logical if you did a set break or something similar that the proceeds are what matter vs. the cost basis.
....but donations are itemized deductions only. If you are not paying a mortgage you probably do not have enough itemized deductions.
1955 Bowman Raw complete with 90% Ex-NR or better
Now seeking 1949 Eureka Sportstamps...NM condition
Working on '78 Autographed set now 99.9% complete -
Working on '89 Topps autoed set now complete
<< <i>Donating cards is always a good way to go......get a receipt from the charity........"worthless" cards form the 80-90s can still be valued at $.10/piece.....20,000 cards adds up to $2000.
....but donations are itemized deductions only. If you are not paying a mortgage you probably do not have enough itemized deductions. >>
I would be hesitant to say that your commons from the 80s-90s are worth $.10 each. Maybe they are worth $.01 each and that is pushing it. I guess in the end, it is your tolerance for risk and the audit lottery. All noncash donations greater than $500 are required to be separately reported on their own form (Form 8283) and may have a little more scrutiny on them as it requires detailed information about the donation and how you figured the value of the deduction.
I personally trashed 50,000 commons as the fair market value was probably closer to $50 than the $5,000 you would report at $.10 each.
As to the donations to charity issue I would write off at price guide value. I realize in reality they are worthless but if a price guide says they are worth a dime each then so be it.
In this instance, Schedule D would be the appropriate place to report the gain on collectibles. For the cards that were disposed of at a loss, if you can substantiate that acquiring them was for investment purposes, then the loss is capital and you could report the loss on Schedule D. Just be sure that you have solid documentation of your basis.
<< <i>Since OP stated that he's not in the business of selling cards, the cards are not inventory and Schedule C would not be appropriate. In this instance, if you were to use Schedule C and show a loss, the loss would be considered a hobby loss and would not be deductible by definition.
In this instance, Schedule D would be the appropriate place to report the gain on collectibles. For the cards that were disposed of at a loss, if you can substantiate that acquiring them was for investment purposes, then the loss is capital and you could report the loss on Schedule D. Just be sure that you have solid documentation of your basis. >>
Tough for the OP in this case because I don't think he has evidence of the cost basis from when he bought these as a kid (or even that he
actually did buy them as a child).
Inventory can only work if he is legitimately engaged in the business of buying and selling cards. If he is not legitimately doing it as a business
(i.e. the buys for his collection are significantly greater than his sells, thereby showing a big loss) I am pretty sure the IRS will fight him on it.
Dave
Interesting topic and one I have given a lot of thought to since being informed that Paypal is going to give me up to da Man! So for the last 13 years (This go around) I was merrily plugging along Buying and Selling to help defray the costs of what I wanted for myself long term, but was doing it as a Hobby, was never in it to make any money, just had an agreement that NO household money could be spent on Collectibles.
As my tastes, and Costs of those Tastes have progressed over the years, the items I want and the amounts I spent have increased every year. I still never made much money at it, just enough to cover what I spent.
Along comes Paypal and their stooging for the IRS. $20K or 200 transactions and we are turning you in !!! He!! I hit that in May !! Well the funny thing is that sometimes you get what you wish for, as in this example: As I stated, I never made any Real money at this, but now that this "thing of mine" is going to be treated as a Business, then I am Game, I am a Business !!! And will play by the rules. And I am liking the Rules so far. I did a rough and tough 3rd quarter estimate with end of year projections and between what I have spent this year in Cards/Collectibles, Paypal, E-Bay, Shipping (Post Office/UPS/Paypal/E-Bay), Shipping Supplies, The National and all associated Costs, all subscriptions, PSA Sub Costs, Milage, Card Shows, Off E-Bay Purchases with reciepts, and several thousand of other expenses (All legitimate Business costs), looks like I am going to lose about $8-10K for the year from my Collectibles !
Thank You Paypal/IRS, I will be deducting that off my income and with my Rental Property losses added, its been a Really bad year
Love to be an American !!!!!!!!!!
YeeHah
Neil
<< <i>Afternoon,
Interesting topic and one I have given a lot of thought to since being informed that Paypal is going to give me up to da Man! So for the last 13 years (This go around) I was merrily plugging along Buying and Selling to help defray the costs of what I wanted for myself long term, but was doing it as a Hobby, was never in it to make any money, just had an agreement that NO household money could be spent on Collectibles.
As my tastes, and Costs of those Tastes have progressed over the years, the items I want and the amounts I spent have increased every year. I still never made much money at it, just enough to cover what I spent.
Along comes Paypal and their stooging for the IRS. $20K or 200 transactions and we are turning you in !!! He!! I hit that in May !! Well the funny thing is that sometimes you get what you wish for, as in this example: As I stated, I never made any Real money at this, but now that this "thing of mine" is going to be treated as a Business, then I am Game, I am a Business !!! And will play by the rules. And I am liking the Rules so far. I did a rough and tough 3rd quarter estimate with end of year projections and between what I have spent this year in Cards/Collectibles, Paypal, E-Bay, Shipping (Post Office/UPS/Paypal/E-Bay), Shipping Supplies, The National and all associated Costs, all subscriptions, PSA Sub Costs, Milage, Card Shows, Off E-Bay Purchases with reciepts, and several thousand of other expenses (All legitimate Business costs), looks like I am going to lose about $8-10K for the year from my Collectibles !
Thank You Paypal/IRS, I will be deducting that off my income and with my Rental Property losses added, its been a Really bad year
Love to be an American !!!!!!!!!!
YeeHah
Neil
If you are going to make it formal, you might even consider getting a Tax Id Number (TIN) for your business. You can do it over the phone or on the web these days in a matter of minutes. Just watch out when the government starts trying to collect sales tax through the web
Dave
<< <i>And if you set up as a weekend warrior at card shows that should be even more support for treating it as a business. I've been keeping my receipts for years as well. Use every thing at your disposal. >>
Just be careful that you don't find yourself spending even more when you do that!
Dave
That being said this is not a business for me and I will have to work on my costs vs. proceeds and figure out where I stand.
Thanks for the input. It is clear that claiming a loss for the cards I threw out is to complicated and I am not going to risk audit over a small amount in tax.
The small savings is not worth the risk and I have no interest in making my tax return more complicated and increasing the risk of audit.
If the IRS ever comes after me I may have big gains on my existing collection but I certainly have never made any real money from selling cards.
<< <i>
<< <i>And if you set up as a weekend warrior at card shows that should be even more support for treating it as a business. I've been keeping my receipts for years as well. Use every thing at your disposal. >>
Just be careful that you don't find yourself spending even more when you do that!
Morning,
How true this is, when I used to be Big Time into Comic Books, I did about 2-3 shows per month in the Denver area and if I sold $2K over the weekend at the show, I was doing awesome if I only spent $3K at the same show !!!!
YeeHah
Neil
Business VS Hobby
<< <i>Helpful video from the IRS....Be careful of claiming a in home office on your taxes...Thats the number 1 red flag for an audit.
Business VS Hobby >>
Morning,
As I mentioned in another thread....This is 1000% GOOD ADVICE.....Never and mean Never go down this road, I speak from experience, it cost me thousands to straighten out my Taxes when I sold the House I had used as this deduction !!!
Neil
I am up to $13,500 on paypal, maily from doing group breaks. Paypal keeps asking me for my SS# and they will not get it until I get to $20K
<< <i>Afternoon,
Interesting topic and one I have given a lot of thought to since being informed that Paypal is going to give me up to da Man! So for the last 13 years (This go around) I was merrily plugging along Buying and Selling to help defray the costs of what I wanted for myself long term, but was doing it as a Hobby, was never in it to make any money, just had an agreement that NO household money could be spent on Collectibles.
As my tastes, and Costs of those Tastes have progressed over the years, the items I want and the amounts I spent have increased every year. I still never made much money at it, just enough to cover what I spent.
Along comes Paypal and their stooging for the IRS. $20K or 200 transactions and we are turning you in !!! He!! I hit that in May !! Well the funny thing is that sometimes you get what you wish for, as in this example: As I stated, I never made any Real money at this, but now that this "thing of mine" is going to be treated as a Business, then I am Game, I am a Business !!! And will play by the rules. And I am liking the Rules so far. I did a rough and tough 3rd quarter estimate with end of year projections and between what I have spent this year in Cards/Collectibles, Paypal, E-Bay, Shipping (Post Office/UPS/Paypal/E-Bay), Shipping Supplies, The National and all associated Costs, all subscriptions, PSA Sub Costs, Milage, Card Shows, Off E-Bay Purchases with reciepts, and several thousand of other expenses (All legitimate Business costs), looks like I am going to lose about $8-10K for the year from my Collectibles !
Thank You Paypal/IRS, I will be deducting that off my income and with my Rental Property losses added, its been a Really bad year
Love to be an American !!!!!!!!!!
YeeHah
Neil
<< <i>This is a good thread. Don't agree with all of the comments but many valid points. On the Business vs. Hobby issue, in Los Angeles many actors starting out will incur 'business' losses (acting classes, driving around town, photo shoots etc.) as they try to break into the business and will claim a loss on their tax return. My understanding is that the IRS allows this for a set period of time (2 or 3 years?) after which the person's acting 'business' must be treated as a 'hobby' and the IRS will no longer allow the loss to be declared. Always thought it was funny for the IRS to tell an aspiring actor that they are merely pursuing a hobby. The actors never liked that. Anyway, the same would seem to apply to the card business. You cannot claim a loss every year. - Kevin >>
Morning,
Don't know if your analogy of Acting and Card collecting are valid or not, but there are many examples of business's that lose money year after year. I have had Rental properties for over 25 years, I have yet to show a profit (in a year with no Sales of Properties) in that 25 years. Anybody who owns Rental Properties and can't show a loss is in the wrong business. And everything I deduct is 100% legit and per IRS guidelines!
Neil
As far as cards you got rid of by donating them, claiming commons at .10 apiece will be a problem if you get audited and they're 1990 Donruss. Try $.01 apiece, which is actually supportable in that thrift stores may charge $10 for an 800 count box of cards.
Throwing away cards just because they're near-worthless overproduced commons is not a casualty. Throwing away cards because they got waterlogged and ruined when a pipe broke is a casualty (whether you can take a casualty loss is a much more complicated question).
Nick
Reap the whirlwind.
Need to buy something for the wife or girlfriend? Check out Vintage Designer Clothing.
If you go out and buy $30,000 worth of cards and sell $5000 of cards in a calendar year and try to claim a $25,000
loss you are probably headed for one unpleasant experience with the IRS if there is an audit.
On the other hand, if you buy $175,000 worth of cards and sell $150,000 of cards in a calendar year and claim a $25,000
loss its a bit more reasonable that you are truly engaged in a business with a profit motive.
As long as the loss seems realistic relative to the activity levels you would probably be on firm ground. Thus, in the case of this OP
who has about $1500 gross profits it would not be unreasonable for him to try and count a similar order of magnitude (a few thousand
dollars maybe) of his purchases as "inventory costs" against that gross. But push it too far and the likelihood of it drawing some
unwanted attention goes way up.
Despite perceptions to the contrary, the tax courts are generally not overly unfair towards defendents. That being said, they are also not
naive.
Dave
<< <i>I think what it really comes down to is whether or not it passes a test of "reasonability".
If you go out and buy $30,000 worth of cards and sell $5000 of cards in a calendar year and try to claim a $25,000
loss you are probably headed for one unpleasant experience with the IRS if there is an audit.
On the other hand, if you buy $175,000 worth of cards and sell $150,000 of cards in a calendar year and claim a $25,000
loss its a bit more reasonable that you are truly engaged in a business with a profit motive.
As long as the loss seems realistic relative to the activity levels you would probably be on firm ground. Thus, in the case of this OP
who has about $1500 gross profits it would not be unreasonable for him to try and count a similar order of magnitude (a few thousand
dollars maybe) of his purchases as "inventory costs" against that gross. But push it too far and the likelihood of it drawing some
unwanted attention goes way up.
Despite perceptions to the contrary, the tax courts are generally not overly unfair towards defendents. That being said, they are also not
naive. >>
Afternoon,
Very well said and to the point !! And just for clarifications sake, Having My Card collecting turned into a Business was not by choice, this has been thrust upon me by Paypal and the IRS, subsequently when I get with the program and play by the established rules (Using the general guidelines as outlined by 70toppsfanatic), then I am doing nothing wrong if I learn to play the Game as good as them. In the case of the OP I would think it would be easy to keep records and offset that $1500. I have !!
Neil
One of the previous poster's caution is very valid. The business use of home deduction is very often misunderstood and improperly taken.
<< <i>I have often thought about the ideas expressed in this thread. Lots of good info. here. I have another question... after declaring losses for 3 years, can you take a year off and then resume showing losses again for 3 straight years? Neil, do you claim your home office on your taxes as well? >>
Neal,
Firstly the 3 years of losses thing is a "rule of thumb". If you have a disproportional loss relative to your "activity" there's a high likelihood
that questions will be asked.
Next, there are many cases where Schedule Cs show losses for more than 3 years and there is no problem. My wife sell's personalized
invitations and stationery, and has done so for years on a Schedule C. She has a federal TIN number for the business, a website, pays
state sales tax, etc. She's gone at least the last 6 or 7 years reporting small losses ($500-$1500) with no audit. Basically its her way of
getting plugged into the community and it pays for her cell phone, her laptop, etc. The reasons it does not cause an audit are that things
like collecting & paying sales tax, having a website, going to trade shows, doing home "parties" with her friends, etc. are consistent with
a the things any business would do. Her revenues and expenses are proportional to the amount of time she puts into is, and to each other.
And then there is now a "history" of filings with the IRS that they can see that this is normal activity for her. THE REAL RULE OF THUMB IS
THAT IF IT LOOKS "OUT OF THE NORM" IT NEEDS TO BE CHECKED.
Lastly, don't know what Neil does but I can also confirm that the home office deduction is more trouble than it is worth. You basically turn
a part of your home into a non-personal asset so your personal capital gain exemption upon sale gets reduced. Your mortgage interest
deduction also gets reduced I think. There are very few cases that I have ever seen where taking this deduction makes sense.
And specifically to your question about 3 years of losses, a year off, and then 3 more years....I'd say that the IRS examiners are not naive.
It's not a hard and fast rule anyway (the 3 years of losses), but they have seen this approach (and dozens of others) many times before.
The bottom line is what I said earlier. Keep it reasonable and you should usually be on solid ground. Push it beyond that and you may get
away with it...or you may provoke an inquiry that could end up being very unpleasant.
Dave
<< <i>I have often thought about the ideas expressed in this thread. Lots of good info. here. I have another question... after declaring losses for 3 years, can you take a year off and then resume showing losses again for 3 straight years? Neil, do you claim your home office on your taxes as well? >>
Evening,
NO as I stated many times in this thread and others DO NOT take the Home Office deduction, I did it for years for my Comic Business back in the late 80's and 90's into 2003. The House was a Rental (To a Friend) with my Home Office in it from 1997-2003, and then I sold it in 2008. I spent, best I can remember $3-4K just on that portion of my taxes that year pertaining to Recapture/Capitol Gains/Conversion/Lots of CPA GobbledyGook Terms. It was the most time/cost intensive thing I have ever done. I had to fill out dozens of Forms/Papers/Notary stuff. Thank all that's Holy I am very Anal and had all my taxes going back 20+ years, as almost all of it came into play with the CPA at one time or another, including the costs back to when I purchased the House. I started in Jan with the CPA and met 10-12 times and we had two extensions and didn't submit to the IRS until about July. My hit on my Capitol gains including profit on the house and the Recapture was $35-40K that year paid in taxes
Never and mean Never again.......I have sweated an Audit for years because you never have everything and have to do some stuff from memory !!!
When Paypal reports me this year I have enough Reciepts and expenditures this year to more than cover my Sales. Will I be able to do it year after year, doubtfully, at some point I really do need to start making some money or why do it??
And to the question about Rentals....Clearly those who ask have never had Rentals......As a Good Friend told me 25 years ago....If you can't show a loss on Rentals...Then your an Idiot! In the last 25 years in 17-18 of those years I have shown a Loss for the year, the other 7-8 years was when I sold a Rental so obviously had Capitol gains and showed a profit! Due to depreciation and Morgtage/Interest/Rental Costs/Mileage/++++, you would really have to be SLOW to not be able to come up with a Legitimate loss!!! And this does not, and normally will not trigger an audit. Your right, the system is geared towards the Property Owner/Slum Lord with the IRS, and I am not shy about exploiting it! (Although my Properties aren't Slums)
YeeHah
Neil
It should be noted, though, that if you have a Schedule C activity that traditionally shows income and you legitimately have a designated room in the home that meets the various requirement of the internal revenue code, there would be more benefit taking the depreciation on that portion of the home. The deduction not only reduces your taxable income, but it reduces income subject to self-employment tax (FICA & Medicare). If you ever sold the home, the depreciation recapture is only ordinary income.
So, you are able to take a deduction today, save income tax, AND save self-employment tax. When you sell the home, you would only pay income tax on the depreciation recapture. Assuming your marginal tax bracket when you sell the home is the same or lower than what it was when you took the deduction, you will come out ahead.
That said, the IRS still looks at business use of home because many people who take it shouldn't, i.e. the room isn't their principal place of business, or they don't ordinarily meet clients/customers there, etc.