Question about tax on negative profit

brendanlam

Hi, I just run excel on all sales I made last year and profit turn out to be NEGATIVE due do bad purchased I have made couples year back. What should I put in sale tax form? Zero or negative profit? Thank you



-----------------------UPDATE-------------------------------------



THANK YOU TO ALL OF YOU SPENT TIME TRY TO ANSWER MY QUESTION.





I am just normal collector. I collect as hobby or invest for my retirement ( NOT as Business). The reason, I have ALMOST 200 transactions and over $20,000 in sale ( BOTH Amazon and eBay combined) is I am moving to soon to small house and can't keep all my coin collection. So I sell off those coins not worth to keep, heavy, take space in long term and take a loss ( not big deal) and keep what I think worth it. and it only 1 year deal since I sold most of it.



I want to file tax not because of my loss. I read input from forum member and online talks about how we all have to report sale tax on every sell or might run in problem with IRS audit later and pay penalty a lot more.



My last question is: if I'm not do this for business, just a hobby and investment. Didn't make any profit from my sale, CAN I JUST FORGET IT AND MOVE ON? or still (required) have to file tax C schedule as loss?



""""I didn't charge any buyer for Sale Tax.""""" Just listing price and shipping fees.



I hope this help answer a lot of you guys questions, thank you



Brendan

derryb

Assuming you are not a business (IRS schedule C) consider them investments and complete schedule D for investment income/loss. you will have to itemize each transaction just as if they were stocks on associated forms and then transfer to schedule D where the bottom line gets transferred to your 1040.













It's not that difficult to accomplish and the instructions for schedule D make it doable. Forms and instructions available at the IRS website. I use H&R Block software, but the way the program is set up (and after talking to H&R) my selling expenses on each coin have to subtracted from the sale price I report on the form. Has something to do with their software only allowing one selection where you identify it as a collectible.

Bochiman

1) "Negative profit" = "Loss"

2) You can only deduct if you call it a business and not a hobby. For what you do, I think you qualify. I am NOT an accountant, or with the IRS, so nothing I say should be construed as absolute in this case. If it were me, I would get the bits together and give to my accountant to handle.

From what I have heard, if you consider yourself a business, and you only show losses, that will look fishy and an audit may be in your future.



There's a lot to doing this right, if you haven't done it before, so, as I mentioned, unless you want to spend a lot of time going through things and learning (and potentially making mistakes...some in your favor, some maybe not), then I would again suggest getting a tax consultant (CPA) to do it all.

oih82w8

Negative Profit is an oxymoronic phrase. I agree with Bochiman "Loss".

derryb

Originally posted by: Bochiman
You can only deduct if you call it a business and not a hobby.

You do not have to be a business to claim capital losses on your tax return. Businesses do it on Schedule C, investors (individuals) do it on Schedule D. Your schedule D losses can only be used to offset schedule D gains. If there are no gains or the losses exceed the gains, any any losses over $3,000 can be carried forward to the next year and applied against the next year's gains.











IRS filings are not normally that difficult for individuals nor for investors. The IRS website is a wealth of information. Even someone who has a professional file their returns needs to know what information to provide that professional. Getting the information in order is most of the work.

TwoSides2aCoin

Here's a nice coin I'm going to lose my *** on.



Should have sent it to PCGS on my last submission.

brendanlam

Thanks Derryb.

Originally posted by: Bochiman

1) "Negative profit" = "Loss"

2) You can only deduct if you call it a business and not a hobby. For what you do, I think you qualify. I am NOT an accountant, or with the IRS, so nothing I say should be construed as absolute in this case. If it were me, I would get the bits together and give to my accountant to handle.

From what I have heard, if you consider yourself a business, and you only show losses, that will look fishy and an audit may be in your future.



There's a lot to doing this right, if you haven't done it before, so, as I mentioned, unless you want to spend a lot of time going through things and learning (and potentially making mistakes...some in your favor, some maybe not), then I would again suggest getting a tax consultant (CPA) to do it all.

Bochiman, I am just a collector and as hobby. I bought and recieved the collection from my dad over the year, some of which I think is good to keeps, and some of them are big loss which I sold on eBay and Amazon. I did some research and read comment from forums members that " all sells need to file tax, sell 200items and over $20,000" and how IRS audit penalty happened. I donot have a tax consultant, I probably use turbotax this year again.

derryb

Keep in mind that the IRS requires all total gross income to be reported that meets a certain dollar amount for the the filing status. How income is reported depends on how it is earned. If you had only $200 income from coin sales but your total gross income exceeds the minimum for your filing status then you are expected to also report the $200.

bigjpst

Originally posted by: brendanlam

Thanks Derryb.

Originally posted by: Bochiman

1) "Negative profit" = "Loss"

2) You can only deduct if you call it a business and not a hobby. For what you do, I think you qualify. I am NOT an accountant, or with the IRS, so nothing I say should be construed as absolute in this case. If it were me, I would get the bits together and give to my accountant to handle.

From what I have heard, if you consider yourself a business, and you only show losses, that will look fishy and an audit may be in your future.



There's a lot to doing this right, if you haven't done it before, so, as I mentioned, unless you want to spend a lot of time going through things and learning (and potentially making mistakes...some in your favor, some maybe not), then I would again suggest getting a tax consultant (CPA) to do it all.

Bochiman, I am just a collector and as hobby. I bought and recieved the collection from my dad over the year, some of which I think is good to keeps, and some of them are big loss which I sold on eBay and Amazon. I did some research and read comment from forums members that " all sells need to file tax, sell 200items and over $20,000" and how IRS audit penalty happened. I donot have a tax consultant, I probably use turbotax this year again.

The 200 transactions and $20,000 is a reporting threshold for receiving a 1099 for online sales. Many people who sell on ebay/online seem to think that if they don't exceed these limits they don't have to claim the income. They are completely wrong. You are still required to report the income and if it is taxable in your bracket, pay the tax due.

Bochiman

Like I said, take anything I say about this with the idea to consult someone who gets paid for it. It's not my area of direct knowledge.



Personally, I think it may be opening up a kettle of worms, depending on how it is done.



While there are people on the boards who have likely done it, and there are CPAs on the board, something like this is something I would consult a local tax professional on...at least the first time, in order to learn what to do, what to ask about, and how to do it.



That's just me though.....go for broke

TwoSides2aCoin

The thing is, even in a hobby, there's not profit when there's a loss. If you purchased the coin for XXX and it sold for XX, you lose X. Taxes in your case are on the income minus the costs (purchase price/ listing fees/postage/etc., are costs). If at the end of your year you derive income, it's taxable.



There's no negative profit (that's a loss) and no gains… only negative prophets warning of impending doom.

TopographicOceans

On your Sales Tax form you would put the total of all your sales that were delivered to your State (assuming your State collects sales taxes on coins)

When you file your Income Tax 1040 that is a different story.
You can either file a Schedule C and report the sales there as a business (with your costs and expenses) or
A Schedule D to treat the sales as an investment income. Note that you can only get credit for $3,000 per year in losses and any amount greater than that has to be carried over into the next year.

TopographicOceans

PayPal will issue you a 1099 if you meet the required minimum reporting amount of 200 transactions or $20,000 in sales.

You have to report either as business income (on Schedule C) or as an investment (on Schedule D)

You should go to the IRS web site and get the instructions for these forms.

If you use TurboTax and decide to use Sch. C, you have to pay extra for their "Small Business" version.
There are also limits on how many years you can have a business that loses money, but if it is a one year thing that is not an issue.

And keep in mind that the guy working at H&R Block was probably selling cars last month.

derryb

Keep in mind that just because you don't receive a 1099 for income you are still required to report the income. The 1099 requirement is set by the IRS to facilitate reporting of income to the IRS by some payers of income. It is an additional requirement aside from the reporting of income by the person who received the income. It's one of the IRS's tools for catching individuals who don't themselves report receiving the income.

coinkat

Like the term "Negative profit"... Its right up there with "shortfall of revenue"

1Bustcollector

+1 Derryb

BIGAL2749

Certainly not an accountant but I believe if you are collecting sales tax, you need to send that amount in to the state. That's on any sale regardless if sold for a profit or loss, sales taxes needs to passed on to state.



Much better to be considered a hobby and not a business.

Cougar1978

You put the sales amount on your sales tax form. P&L is IRS Form Schedule C.

derryb

Originally posted by: Cougar1978
You put the sales amount on your sales tax form. P&L is IRS Form Schedule C.

Profit and Loss for a business is Schedule C. OP stated he is a collector, not a business, therefore he will put his capital gains/losses as an investor on schedule D.

ricko

I am glad I do not sell coins.... saves a bunch of hassle at tax time. No profits, no

losses.... Just coin viewing enjoyment.....Cheers, RickO

TwoSides2aCoin

Selling coins is not the problem, Ricko. Hobbyists who are conforming to the law by applying sales tax in their respective states have to file different reports than individuals who are NOT operating as a business. Sticky matters and I'm not the expert so I'll just leave this at that.

TwoSides2aCoin

Originally posted by: coinkat
Like the term "Negative profit"... Its right up there with "shortfall of revenue"

Yes , similar to pork barrel spending. It's right up there with raising the debt ceiling and quantitative easing.

Sorry. No politico intended

Elcontador

A business must file sales tax reports, charging applicable sales tax on sales (usually, but not always, of tangible personal property), and remitting it to the appropriate taxing authorities. Such business is required to have a sales tax permit. An individual who is not in business does not have a requirement obtain a sales tax permit, and accordingly, does not have to charge sales tax on what is deemed to be an "occasional sale."



In terms of income taxes, a business reports all activity and either shows a gain or loss. An investor shows gains / losses on the sale of coins on Schedule D. Gains are taxed at either short term or the collectibles rate of 28%. Losses are deductible on Schedule D as long as you are in the activity to make a profit, and it is not considered to be a 'hobby.' Hobby losses are never deductible.

coinpictures

Originally posted by: TopographicOceans
PayPal will issue you a 1099 if you meet the required minimum reporting amount of 200 transactions or $20,000 in sales.

Just to correct an inaccuracy, it is AND, not or. It is a two-pronged test (200 transactions, $20,000 in gross receipts) and you must meet BOTH in order for PayPal (or any other third-party payment processor) to issue a 1099-K.


For example, 5 PayPal transactions in the year totaling $45,000 would not cause issuance of a 1099-K, nor would 475 transactions totaling $18,000.

tyler267

Some of the info in this thread is pretty good, some of it could cause some problems with the IRS (if they looked at the return). This forum is a truly wonderful place to learn about and share info about our great hobby, but when it comes to tax and legal questions, I'm not sure this is the best place to seek advice. For these kind of questions, I would seek out the advice of a qualified professional who can answer the questions based on your unique situation.

derryb

For the record, my comments in this thread are related to federal income taxes only. Reporting and paying state sales tax that is collected on your sales is another matter.

pmac

Originally posted by: ricko
I am glad I do not sell coins.... saves a bunch of hassle at tax time. No profits, no
losses.... Just coin viewing enjoyment.....Cheers, RickO

Are putting your heirs in the squeeze when the time comes?

tradedollarnut

Don't forget that you get a step up basis when inheriting a collection

oreville

brendanlam:



You sound very confused and seem to be mixing up income tax, sales tax etc etc.



The worst thing you can do is try to do this by yourself and you are only going to potentially create huge problems for yourself.



Get a good CPA you can sit with face to face NOW before they get real busy with income taxes in a couple of weeks and make sure he understands the ENTIRE story including how and WHEN you received these coins (inheritance?)

oreville

Furthermore, if you are NOT an investor and these coins were strictly inherited from a family member there is a real question as to whether you can even deduct the LOSS as a capital loss.

derryb

Originally posted by: tradedollarnut
Don't forget that you get a step up basis when inheriting a collection

Or step-down if the market tanked. Inherited assets get a new basis (cost) at moment of inheritance. This new basis is determined by current fair market value (FMV) and should be properly documented by the new owner for future reference. The new basis is used to determine profit or loss when sold when the inherited asset is eventually sold. What the deceased paid for the asset becomes irrelevant.










Normally when an inherited asset is sold there is less profit than if the deceased sold it before he died because the new basis (cost) is higher than what the deceased paid for the asset. However, when markets decline and the new FMV is less than the original basis a greater taxable profit is realized.

derryb

Originally posted by: oreville
Furthermore, if you are NOT an investor and these coins were strictly inherited from a family member there is a real question as to whether you can even deduct the LOSS as a capital loss.

A person who sells an inherited asset (or any asset) fills out the same Form 1040 Schedule D (capital gains/losses) as would an "investor." You do not have to be an investor in the traditional since to be liable for taxes on capital gains when you sell an asset and you do not have to be an investor to take tax breaks on your capital losses. Your are required to report any capital gains as income and are throwing way money if you do not report your capital losses.

Bochiman

Given his occupation, and given his involvement in this hobby, I would go the route that Oreville stated......which is also why that was my original advice as well

derryb

Hopefully Oreville will point out any inaccuracies in the information I have provided so that I can immediately make corrections.

I agree with others here that any tax decisions should be made only after discussing them with a tax professional or directly with the IRS. The information I have provided, based on my personal experience with selling both estate assets and personal assets, is provided only to give the OP an understanding of filing requirements so that he is better prepared to meet with and ask questions of the tax professional of his choosing.

mariner67

Great advice derryB!
Others also.

oreville

DerryB stated:

Hopefully Oreville will point out any inaccuracies in the information I have provided so that I can immediately make corrections. I agree with others here that any tax decisions should be made only after discussing them with a tax professional or directly with the IRS. The information I have provided, based on my personal experience with selling both estate assets and personal assets, is provided only to give the OP an understanding of filing requirements so that he is better prepared to meet with and ask questions of the tax professional of his choosing.

I happen to be a CPA with experience in taxes and can comment that so far you (DerryB) have been on the mark with the only caveat about the instance if the OP has a net capital loss which may or may not be deductible (against other capital gains and carried forward to next year after allowing for a net applied $3 000 loss on page 1 of form 1040) as we do not know if the OP is a coin collecting investor. It sounds like it is possible he is because he has been on these boards for a good number of years but we do not know for sure.



Quite frankly, when reading these posts, there simply isn't enough information to avoid stabbing in the dark with mutliple suggestions that may only confuse rather than clarify what to do.

Furthermore, I had a pretty smart investor client (who understands capital gains and losses and business income reporting quite well) read these posts and he came away more confused than before. LOL

TwoSides2aCoin

Thanks Orville… and DerryB. I cannot put into words the complexities of our tax code.

brendanlam

Just updated the post, hope that help clear up my question. Thank you

derryb

From your updated post:

I want to file tax not because of my loss. I read input from forum member and online talks about how we all have to report sale tax on every sell or might run in problem with IRS audit later and pay penalty a lot more.






My last question is: if I'm not do this for business, just a hobby and investment. Didn't make any profit from my sale, CAN I JUST FORGET IT AND MOVE ON? or still (required) have to file tax C schedule as loss?

When you say "report sale tax" I assume you are talking about reporting the income from the sales and not about state sales tax you collected from your buyers.





Technically you are required to report income including that from investments. If you lost money on the investments then you prove it when you show your losses along with the income on the Schedule D. The IRS bases their requirement to report on the fact that you had the income. The fact that it is offset by losses does not remove the requirement to report the income. The advantage to reporting a net loss is that it can be carried over to the next year and used to offset gains next year. Most do-it yourself tax software carries the loss over for you when you import the last year's tax data into the current year.








If you don't include your income and net loss on your tax forms at lest keep records of both in case someone else told the IRS about your income from the sales. The IRS normally learns of your income from someone else when that someone else files a 1099 reporting to the IRS the income they processed/paid to you. Paypal does this at a certain threshold of sales/payment to you. If you receive a 1099 on your sales then you definitely want to include the sales on your tax return because the 1099 informed the IRS of your sales and there is a very strong chance they will look for you to report it. Hope this makes sense.








Again, a professional tax consultant should provide the answers that direct your course of action.

TwoSides2aCoin

After reading your update, it's over my head where you get "sales tax" from. If you charged people sales tax, then go to your state.gov website and remit a payment for all you charged the people. You didn't derive income in this hobby, but incurred costs. Welcome to the club. That's a zero sum game. You need to file a schedule C, from my view.

derryb

Originally posted by: TwoSides2aCoin
After reading your update, it's over my head where you get "sales tax" from. If you charged people sales tax, then go to your state.gov website and remit a payment for all you charged the people. You didn't derive income in this hobby, but incurred costs. Welcome to the club. That's a zero sum game. You need to file a schedule C, from my view.

Sounds like the OP is referring to reporting income from his sales (to the IRS) when he uses the statement "report sales tax." If he is in fact referring to state sales tax he collected from his buyers then you are correct, he is operating as a business and should use Schedule C, and not Schedule D, to report business income.





OP should let us know if he in fact collected sales tax (on behalf of the state) from his buyers. Based on the tone of his posts I believe he did not and is just trying to learn the reporting requirements on the income and loss from his on-line sales so that he does not get in trouble with the IRS.

brendanlam

Based on the tone of his posts I believe he did not and is just trying to learn the reporting requirements on the income and loss from his on-line sales so that he does not get in trouble with the IRS.

Yes derryB, that is what I trying to ask.

derryb

Originally posted by: brendanlam

Based on the tone of his posts I believe he did not and is just trying to learn the reporting requirements on the income and loss from his on-line sales so that he does not get in trouble with the IRS.

Yes derryB, that is what I trying to ask.

Using what you have learned here, go to the IRS website and read the instructions for completing Schedule D. You will learn a lot. Knowing what the IRS wants you to document will help you understand what kind of records you should keep, even if you have someone else do your taxes. Keeping unnecessary records just makes things harder.