Coin dealers and taxes
COINS MAKE CENTS
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Wow so I just finished my taxes for my coin business. It's amazing the amount of work that goes into it all year long . My accountant wants me to make a list of what each coin I bought, the amount I paid what the date was i purchased it and where it was purchased. Since most dealers I buy from don't give receipts he's asking me do this.
Does this sound right? Is there any other easier way to do this? I buy a lot of coins and this is a very long process that's added to the processing of coins
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How else could you determine your profit or loss?
it's crackers to slip a rozzer the dropsy in snide
I know that part I'm saying does anyone have other ways of doing it like do they use a barcode system or anything or does everyone manually type or write each coin into there records
HAPPY COLLECTING
Why coin dealers drink.....
ANA LM
USAF Retired — 34 years of active military service! 🇺🇸
Don't see where you purchased it is relevant to your tax return. Your accountant should have also requested all of your selling expenses (supplies, postage, fees, etc.)
This is why you keep good records for every coin you purchase and sell. Custom made Excel spread sheet work great.
Repetition of ignorance is ignorance raised to the power two.
You could make a good faith estimate; and it depends on the volume you are doing. As my profits have almost always been minimal taxes owed are also small. There are lots of ways to do taxes on collectibles.
I don't do a massive volume, but excel seems to do the trick.
edit: I don't actually use excel. I use Google sheets. It's free and lets me work on things when I'm away from my office.
Since I do not sell coins, it is not an issue.... but sure sounds complex. Good luck with your records... I recommend either Excel or one of the packaged coin inventory programs...there are a couple of good ones out there...Cheers, RickO
You accountant is spot-on when he tells you that you should receipts from dealers every time you buy a coin from them. In addition, you should issue checks or have some sort of paper or computer trail for every purchase you make. Cash purchases should be avoided except for very small purchases. This provides a third party record for your transactions which supports the cost of your inventory and cost of goods sold.
The only area where I quibble with him is the requirement to provide a list of every coin you bought and sold. That is a lot of work, and it is not a schedule which I have ever seen for any company for which I worked when I was in the corporate world, or one that I had to provide to the CPA who did my taxes when I was dealer.
Having well detailed records of your beginning and ending inventory is a must as well as records of all purchases you made. That list of every item bought and sold sounds over the top for me, especially if you happen to have “junk box” type items.
Most of the dealers do not issue receipts though, so I guess the only way to prove everything you bought is to write each coin down and what date you bought it and what you paid for it right?
HAPPY COLLECTING
I have a little booth in an antique mall, and have to do the same thing for my purchases. (I sell coins there too). It's very difficult determining what you paid for something when you buy a whole collection for one price. Do you average the cost over each item? Probably not, but then you have to decide how much you paid for everything individally.
I've decided it's not really worth it financially, which is OK since it's so much fun. I'm not ready to give up.
Virtually all of the dealers with whom I did business issued invoices. A very small number of them wrote something on a piece a paper. Most of them had pre-printed generic invoices or had invoices printed up with their name and address on them. I always paid for invoice blanks with my name on them. That is the professional thing to do.
Operating the other way can get you in a world of hurt. If you don't have good records, the IRS will make some up for you, which almost never good. You also run the risk of getting into money laundering problems if you are not careful. Good records are worth the time and expense. This was one area where my accounting degree paid dividends.
Ya well, hand him the bag of 20,000 Wheat cents you just bought and ask him to help you document.
I don't do a "Ton" through my business, ~35k a year, but given my business model is a bit towards the bottom end (ie buy/sell about 1/3 in that $100-500 range, 1/3 in that $20-100 range, and 1/3 in .25/.50/$1 bins and lower priced stuff), I don't keep an inventory by coin (try tracking 2000 Indian heads bought for .50 each sold through the $1.00 bin). I gave up on a coin-by-coin spreadsheet the first time I cycled 50 rolls of Mercury Dimes through. Although folks who sell bigger coins, I can see it helping.
I use the generic starting cost of inventory line on taxes (from previous year), enter sales for the year, enter inventory purchases for the year, enter various expenses, out pops the magical # your business made each year and sets next year's starting Inventory figure.
My "Books" are simple entries such as - 3/18/18 - BNA Show Buffalo - $362 purchases from customers. $1287 Sales. (782 Taxable, 505 Non-Taxable) - Expenses: Tolls $3.60, Mileage: 108 (I keep those numbers like that for my state sales tax). During the show I do keep a book with sales like: $115 1908s IH, or $8.00 - Junk Bin, $32 - Misc Buffalo's $260 - Chris (NT), etc. or -$200 Raw Morgans, -$40 bag of foreign, but I don't go per coin for the most part. I keep the sheets and just put totals in the book. Also keep the book with stuff like: 3/20/18 - $55 Facebook Group - Morgan (Out of State - NT) or 1/15/18 - Check from Greatcollections - $3,822.44 for 22 coins (NT) 1/16/18 - $55 push cart Harbor Freight, etc etc
My accountant is fine with my record keeping - the dreaded random audit a few years back was fine with my record keeping, although I did get warned for not having NY State ST-120/Resale Certificate on record for every dealer I sold to and claimed Non-Taxable Sales. Just writing their name down or even their Sales Tax ID was not enough.
I have some records online as far as PayPal, Greatcollections, eBay, etc - but physical paper receipts either buying or selling in person I log in my little book is all - only made out 2 physical receipts in the last 10 years, and both were guys leaving the show and going over the border into Canada and needed them for Customs. Not saying it's good way or bad way, but for now, everyone is happy, and I'm not making a part-time hobby so laden in work that it sucks the fun out of it with spreadsheets thankfully.
"You Suck Award" - February, 2015
Discoverer of 1919 Mercury Dime DDO - FS-101
As the accountant if he wants you to scribe the date of sale on each coin -- not the holder.
Just record purchases and sales by transactions and individually for higher value coins.
But...I'm not an accountant, CPA, APC, AAA, CCC or whatever, so it doesn't make any difference.
I'm not a seller....
But thinking about coins I buy at shows, I've noted a few ways that dealers document sales:
That is right.
Any dealer who refuses to give you a receipt shouldn't be dealt with. IMHO. It's customer relations. They may well be cheating on their taxes and, in the process, forcing you to either cheat on yours or overpay.
Where you buy it is potentially an issue if 1099's are supposed to be issued.
exact inventory on 1/1
Add purchases throughout the year
Subtract expenses throughout the year
Subtract ending inventory 12/31=
profit.
I'm waiting for the coin dealers and bartender's thread. Where's Longacre when I need him ?
You don't necessarily need to determine the profit or loss on each coin. You only really need the total profit or loss for the year. Cumulative sale, cumulative purchases, and initial inventory costs are enough to determine total profit/loss. And the IRS is generally fine with that. In fact, when I made a mistake on my taxes a few years ago, I offered to send them a 40 page spreadsheet with all transactions on it and they said "no". LOL.
Maybe I'm missing something but how would you determine the above totals if you didn't know what each coin or group cost and what they sold for? Correct, they don't want to see that detail but if they decide to audit the business you can bet they will want to see it then.
it's crackers to slip a rozzer the dropsy in snide
Here is the accounting algorithm that has been accepted for many years:
Beginning Inventory
= Cost of good available for sale
Less: Ending Inventory
= Cost of Goods Sold
Sales
Less Cost of Goods Sold
Less Expenses
= Net Income
You don’t need to show the gross margin (Sale price – cost) on every sale. If you did, the detail would only make things more confusing with too much information.
You do have to keep excellent documentation on all your purchases and sales. But, each purchase and sale on it's own is a waste of time. If you bought a collection for $10k you do not need to itemize each and every coin. As the collection is sold you DO have to record each sale as it happens. You'll be fine in an audit. I've been through one and it was just fine. But, by doing a Fed audit the State decided also and that was a bitch as the agent was an ass. In the end the Feds were fine with my record keeping and the State said I overpaid them by $33.
bob
Bill, I agree with your algorithm. I also agree that you don't have to report the gross margin on every sale. But, at the end of the year how do you determine the cost of your ending inventory unless you have some idea of what you paid for each item in that inventory? Just saying. I think we are saying the same thing, just in a different way.
On the other hand in my 23 years as a tax preparer in another life, I have had several clients pull a number for their ending inventory off one of the ceiling tiles above my desk if you know what I mean.
it's crackers to slip a rozzer the dropsy in snide
I have used this for my business for 20+ years. Ebay has made it a lot easier, as all sales can be downloaded along with shipping costs, and add in the paypal detail.
I buy a lot of "lots" (automotive). I buy a car and scrap it, I do not enter every bolt and washer with a "cost" but just keep track of "Paid $200 for car, sold $1800 in parts off of it. Once I sell the beginning price, the inventory "value" of anything left goes to zero. In the automotive world, swap meets, etc. there is basically NO OPTION but cash, period, and since most of the sellers are "people" no receipts.
I buy many thousands of coins per year in maybe 100 different transactions. I know what the 100 transactions cost, but it isn't broken down by coin.
Inventory value is not necessarily cost, especially with bullion. You take an inventory once per year.
It's not even possible to know the individual cost of every coin. If I buy a bag of 250 Canadian large cents for $100 is each coin 40 cents? Are the 1880s coins $2 And the 1910s 10 cents. You ate thinking to much in terms of individual slabbed coins, not large collections.
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I think you are talking about the same thing.
Inventory can be tracked by cost, so if you have an opening $ and know how much you paid out through the year for inventory, then subtract that amount from sales you can determine ending inventory cost. You don't have to track each individual coin if you purchase a group of coins, but you do have to track each time you buy something. You can buy 100 coins and as long as you put down the amount you paid for the whole group as an expense, the IRS doesn't care if you individually assign a cost to each item. So long as you report all income received from said items.
My Ebay Store
Its a good practice to detail cost of goods (COGS) as much as you do millage , meals and whatever else that would go on schedule C. One can miss deductible items easily over a course of a year it adds up. I myself use outright ( its an online accounting program) and use a credit card linked for business use it inputs the buys and the expenses into the software one sets up the way the charges are categorized initially. Cash buys I will get a receipt or write one myself with the address and cost and what was bought this gets entered in as COGS. Quick books and other programs can do this easily. Sounds as though your accountant is proactive and you would be better able to respond to an audit with the cogs information in detail. Taxes are such fun. ( I am not a coin dealer)
You might need the location data to file your sales/use tax report (s). Also for state income tax reporting.
Say you are a TX resident (no state income tax) who works more than a deminimus # of days in CA. You betcha that CA wants it's tax $...
ANA 50 year/Life Member (now "Emeritus")
I suspect he will have no problem with billing you his normal $250 / HR fee for doing this.
I have just tracked purchases, expenses, and sales.
Cash sales are logged on a cash log, as are cash purchases.
Some dealers will only accept cash.
...I use eBay for every coin I buy and sell...I just print the list once a year and do the math...and as noted above, add the expenses (grading, CAC, shipping & supplies)...good luck
That's not quite accurate. You can't take total purchases minus total sales to get your inventory cost. That would essentially undervalue your inventory and give you a net $0 profit every year.
Welcome to IRS's Method to value closing inventory choices.
a) Cost
b) Lower of cost or market
c) Other
I use the Cost method, as do the vast majority of the dealers I know. The guys who are mainly bullion folks - many of them use the Lower of cost or market given their huge swings in inventory valuation when tied to precious metals.
You are right though, the Cost Method (closing inventory + purchases - sales) isn't a very accurate way to truly value your inventory (in say an insurance replacement cost type of situation) - It doesn't account for profit very well, and after many years to actually adjust it to reality is a pain in the butt. It does seem to net you to $0 profit over the course of many years, Some you report/have a +, some a - but unless you get creative, the last year you are in business it all sorts itself out.
It also isn't very forgiving when you have a huge windfall or loss, for example.
Let's say it's a slow year, I have 10k inventory from last year's purchases. I'm kind of taking the year off, and the only thing I buy is a few BU rolls of wheaties at local coin club for $50. I find 4 I like, send them into PCGS, all 4 come back MS68 - now top pops. Sell all 4 of them for $7k each and after grading/auction fees, netted $25k.
Starting inventory: $10,000
Purchases: $50
Sales: $25,000
Ending Inventory = -14,950?
I still have all my 10k starting inventory - you can see how it screws things up.
Cost method also doesn't work well when you make a mistake. Same scenario, except only purchase for the year is friend of a friend who has a deceased great grandma and you buy her gold for $15k. But when you send it in, it's all fake worthless crap. I end up selling them for $50 to someone teaching a counterfeit recognition class.
Starting Inventory: $10,000
Purchases: $15,000
Sales: $50
Ending Inventory = $24,950?
Nope - my inventory is still my starting $10k.
But... That is how the IRS values inventory with the Cost Method. I think many of us are carrying unrealistic inventory balances due to this on paper, but... it's that last year you are in business it will catch up to you If you go out of business and sell everything you have for 100k - and you were carrying only 20k inventory on paper- you will pay your taxes on 80k then.
"You Suck Award" - February, 2015
Discoverer of 1919 Mercury Dime DDO - FS-101
I use Turbotax, and it "assumes" if I have a starting inventory of $X, and purchases of $Y, and have sales more than $X + $Y, then all my starting inventory has been sold (first in, first out) It assumes I have only 1 type of widgit, and I start selling with the oldest widgit moving forward.
That certainly makes sense, but the tax forms don't have a place to deduct some sales from some parts of Inventory - it is a net - Total purchases for the year and total sales for the year, calculated against starting inventory (last year's ending). It is factored under a lump sum situation, not a line-by-line or this sales vs this inventory line type of thing. At least the way I do my taxes.
Edit - should have quoted, that was a reply to a deleted post.
"You Suck Award" - February, 2015
Discoverer of 1919 Mercury Dime DDO - FS-101
They don't require that you supply the inventory itself - unless audited.
The inventory valuation number they want is the value of your inventory (by either cost method or current market). That valuation should be based, using the cost method, on the cost of each coin or group of coins. [When a friend got audited a few years back, they told him he could leave unbroken collections on the books at total cost but then needed to adjust the value of the remaining pieces when the collections were broken up.]
So, if I have a $10k inventory and buy a set of Eagles (1 oz, 0.5 oz, 0.25 oz, 0.1 oz) for $2400 ($10 back of spot) then my inventory increase to $12,400. I can keep it there as long as the Eagles remain together. If I then sell the 1 oz for $1400, I could get away with revaluing the Eagles at $1000. That gives me a new inventory value of $11,000 and technically no profit yet. This understates my inventory value, but the IRS won't dive that deep unless they think you're a cheat.
On the other hand, the more accurate way to do it is to reduce the inventory amount by $1300 (the price actually paid for the 1 oz.) which leaves me with an inventory value of $11,100, sales of $1400 and a gross profit of $100. That is the way most of us do it.
When you have a giant bag of widgets - say, Indian cents - it is more common to just figure the individual value on a per coin basis. So, if I buy 100 IHCs for $100, I put the coins on my inventory at $1 each and then as they sell, I reduce the inventory cost by $1 for each coin. Again, this is somewhat inexact for the value of the IHCs but it is simply impossible to make money if I had to assign individual prices to bags of widgets, especially when most of the bag of widgets ends up getting resold as a smaller bag of widgets.
Turbotax does NOT calculate your inventory value. Turbotax uses your declared inventory value as a means of calculating your gross profit. Your gross profit is (Final inventory + sales)-(initial inventory + purchases).
Cost method relies on costs of the actual items, NOT total costs. Otherwise, you are always showing $0 profit even as your inventory keeps growing in size. This is highly inaccurate and probably illegal.
Using your methodology, if you have a $10k starting inventory, buy one $5000 coin which you sell for $3000, then you are going to show your initial inventory INCREASING in value by $2000 even though it hasn't changed nor has its actual cost.
The IRS is going to love auditing you guys.
Folks, please. Turbotax is not an inventory management system.
jmlanzaf - all of that is sound business practice, and it all makes perfect sense from the actual business books kept to better identify how your business is doing. But we're talking about IRS Tax forms
The baseline tax forms/Schedule C doesn't work that way by default. If all you do is fill in the blanks with the yearly lump sums - you get exactly how I've been describing, which I do probably 9 years out of 10. The one year I decided that my "on-paper" inventory was straying too far from reality, I checked the Part III Box 34 of "Was there any change in determining quantities, costs, or valuations between opening and closing inventory? If 'Yes,' attach explanation. I explained an actual physical inventory and value of remaining inventory after years of selling parts of large purchases required a closer look than using purchases + leftover inventory minus sales to determine. That was the year I too submitted spreadsheets, figured out what was left and its value compared to large purchases, etc (basically what you described above). I don't remember the actual numbers, but the "starting inventory" changed from the last year's carryover of something like $20k to a new number of 40k. That's when I got my friendly visit.
I told them, years of buying 40k, selling 35k on my taxes does not mean by the letter/calculations of the forms that I had 5k of inventory left or that I lost 5k in reality that year. That my 35k sales might have only been from 25k of the actual purchases, etc. He was good with all my records, but suggested I not have such huge manual swings (% wise) every year with the Cost Method or we would more than likely become well acquainted.
I'm small potatoes though, guy next to me at shows runs 1M through his shop a month, guy behind me does several M just doing shows (big gold/silver guy) - those guys I'm sure have much bigger headaches than trying to keep track of circulated Mercs and Indian Heads. I don't envy them.
"You Suck Award" - February, 2015
Discoverer of 1919 Mercury Dime DDO - FS-101
But, again, Schedule C DOES NOT CALCULATE YOUR INVENTORY. It is not an inventory management or valuation system. It asks you to provide the inventory valuation.
Could an accountant please weigh in here?
Yeah, where's that accountant guy ?
I am not an accountant but I think we are arguing two separate things. The schedule c is not an inventory management system, but for tax purposes the way inventory is reported using the cost method described is a valid method. In theory at some point you will have sales higher than purchases in some years you will not. Different methods of accounting should be applied to different business models. You are not likely to get an accountant to chime in where his info might be taken as advice.
Accounting methods are all over the map and carrying an inventory definitely complicates things.
My Ebay Store
We have several CPAs on here, maybe you're right they don't want liability, but they usually chime in anyway.
If you can't rely on the info they post here then why would you rely on that same info if you were their client? Just asking.
Are you actually required to pay taxes on unsold inventory?
No. You pay tax on net income. Gross sales-purchase-costs. The methods described above and where I believe the discussion is focusing is that if you purchase inventory and don't sell all of it then you are not valuing your inventory correctly and possibly deducting inventory expense where you should be paying tax. But Sales are reported then cost of items purchased are deducted. Depending on the accounting method you use If your new purchases exceed the total sales then inventory is created and you will have a negative number. Some years this may be the case, some years it may not. I think the IRS expects that most years you will have sales that exceed purchases. It depends on the accounting method you chose and the IRS may not allow certain methods for certain businesses.
My Ebay Store
I wonder if most people take all the deductions that are part of doing business? Travelling expenses, shipping costs and materials, bank related costs including credit cards, storage, loss of value of items in inventory, show expenses; usually these are higher than we expect. Like on ebay I was figuring roughly 8.5% plus shipping but they do a costs summary that are well over 10%
ably 9 years out of 10. The one year I decided that my "on-
Not exactly. I mean, you're not actually paying taxes on the inventory, but your costs are reduced by the increased value of your inventory. If you start the year with $20k in inventory and you spend $10k during the year and sell $5k worth of the new stuff for a total of $8k, your inventory value at the end of the year is $25k. Your gross profit is:
($25k+$8K)-($20K+$10K)=$3k Your profit is not dependent on you selling more than you bought.