Memorabilia and taxes

Tomi

Just curious about what the big collectors do. If you have a set or card and you consign it to an auction house and it sells for $100,000, what happens with taxes? You receive a check from the auction house and deposit it. Do you have to report it as income? Do you just let it go and not report it? You are not a business and are just collecting as a hobby, but you want to sell. How do collectors do it? I don't think many people save every receipt from Ebay and auction house purchases so I'm just curious about certain steps people take in this hobby when they are in a situation like this.

llafoe

What do we do or what are we supposed to do... we can tell you what you're supposed to do on this public forum.

grote15

I believe federal regulations require any banking institution to report a deposit over a certain amount, so if you are depositing a check for $100,000 you best be reporting it
or you will learn a hard lesson eventually.

gemint

I don't think you'll get away with not reporting $100k in income. At least not forever.

buymycards

If you are collecting as a hobby, that is fine. When you start to sell cards - guess what - you are now a business. You should have a sales tax number from your state, pay applicable sales tax (plus a use tax for items that you purchased from another state), along with Federal and State income taxes, plus you will have to pay medicare and social security taxes on your profit.

It isn't very pleasant, but neither is dealing with the IRS when you get caught.

Rick

lahmejoon

Only looking at federal income tax, if you are a collector and not in the business of buying and selling cards/memorabilia, if you consign to an auction house, you would pay capital gains at the collectibles rate (28%). The issue usually ends up being the ability to have proof of your basis in the item to determine the gain.

If you are in the trade or business of buying and selling, then it's ordinary income. EDITED to add that it's ordinary income subject to self-employment tax.

Tomi

<< <i>Only looking at federal income tax, if you are a collector and not in the business of buying and selling cards/memorabilia, if you consign to an auction house, you would pay capital gains at the collectibles rate (28%). The issue usually ends up being the ability to have proof of your basis in the item to determine the gain.

If you are in the trade or business of buying and selling, then it's ordinary income. EDITED to add that it's ordinary income subject to self-employment tax. >>




Do you know what happens if you spend (for example)$20,000 on an item and you sell it at auction for $18,000 and end up losing $2,000? If you have the original receipt that states what you paid for it and you take the loss, do you still have to pay any taxes as you stated (capitol gains at 28%)?

Also, if you bought an item (for example) for $18,000 and you sold it for $20,000, do you just pay on the $2,000 gain or the whole $20,000?

I'm not having these issues but I would like to at least know what the options are if they ever happen. Just trying to keep it legit.
Thanks

lahmejoon

In your example, you would pay tax on the $2,000.

A loss on collectibles is deductible, provided you can substantiate that you held the item as an investment. On the other hand, a loss on a collectible that could be considered for personal use would not be deductible. For example, let's say you bought a Rolex watch, wore it on a daily basis, and as a result, the condition was worn down. If you sold the watch for a loss, you could not deduct it because it was personal use property.

Tomi

<< <i>In your example, you would pay tax on the $2,000.

A loss on collectibles is deductible, provided you can substantiate that you held the item as an investment. On the other hand, a loss on a collectible that could be considered for personal use would not be deductible. For example, let's say you bought a Rolex watch, wore it on a daily basis, and as a result, the condition was worn down. If you sold the watch for a loss, you could not deduct it because it was personal use property. >>



Thanks, that cleared up alot.