@logger7 said:
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%
Actually, I intentionally do NOT take all the deductions that I could. For example, my entire office is a shipping area with boxes and inventory stacked everywhere. I could take the home office deduction, but I'm afraid of triggering an audit. LOL. I do take minimal travelling expenses, but only bigger trips because, again, I don't want every 10 mile drive to end up creating a gigantic expense that triggers an audit.
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.
This is not true as you lay it out. If you have NEW unsold inventory at the end of the year, you have to increase the value of your inventory which decreases the expenses. The formula the IRS uses on schedule C to calculate gross profit is:
[Final inventory value + sales]-[initial inventory+purchases] = gross profit
gross profit is NOT simply sales-purchases. If it were, you could simply defer taxes until death by simply buying more every year than you sell and shoving the rest of it into your "inventory" (read "collection"). You would show a net loss every year even though your inventory grew into the millions in value.
Am a CPA with a tax practice. Do a spreadsheet listing all coins bought and sold in a year. update it weekly so you aren't inundated at year end. Provide detail re coin, grade, when purchased, when sold, etc. Have documentation to back it up. Hand it to CPA at year end. He'll list annual totals re receipts and cost of good, and then attach your spreadsheet as a pdf file to the electronically filed tax return as backup, much as I do for people with endless securities sales.
Then provide other expenses. Travel, phone, rent, if applicable, meals, auto, etc. etc.
Be aware that if you get $10,000 or more in any one transaction in cash, you must timely file a Fed form 8300. Failure to do this gets some dealers major legal problems. And if you are required to pay sales tax on some or all coins sold, don't play games with that, either. Auditors love people with poor recordkeeping. It makes them look good to their bosses.
"Vou invadir o Nordeste, "Seu cabra da peste, "Sou Mangueira......."
@logger7 said:
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%
Actually, I intentionally do NOT take all the deductions that I could. For example, my entire office is a shipping area with boxes and inventory stacked everywhere. I could take the home office deduction, but I'm afraid of triggering an audit. LOL. I do take minimal travelling expenses, but only bigger trips because, again, I don't want every 10 mile drive to end up creating a gigantic expense that triggers an audit.
You may find the IRS doesn't like this either. Deliberately not taking a deduction can get you in trouble.
@tommy44 said:
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.
I write my 'code' on the 2x2 or flip. I know what I paid , even if I've had a coin for 30 years.....Of course a baggie of silver dimes doesn't get a code, but they're probably not going to be in next years inventory.
When you make a sale enter the data, cut and paste the line into a second spreadsheet for that year's sales. Let Excel's formulas do all the math for you. A row at the bottom of each sheet can be set up to give you totals for each column to provide you with a current snapshot of your total costs, individual expenses and profit. The annual Sales sheet is invaluable at tax time.
Attached is the Excel template for these two sheets. Customize it to fit your needs. I have left data in the first row of each sheet because the data cells contain the hidden formulas. Just replace the data with your data but do not first delete the data (just replace it with your data) in the cells or you will lose the formulas. If you are not proficient with Excel do not trust your inventory system to it. It is very unforgiving when you make mistakes. Save often during use to reduce how far you have to back up when you do make an unforgiving mistake.
@logger7 said:
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%
Actually, I intentionally do NOT take all the deductions that I could. For example, my entire office is a shipping area with boxes and inventory stacked everywhere. I could take the home office deduction, but I'm afraid of triggering an audit. LOL. I do take minimal travelling expenses, but only bigger trips because, again, I don't want every 10 mile drive to end up creating a gigantic expense that triggers an audit.
You may find the IRS doesn't like this either. Deliberately not taking a deduction can get you in trouble.
They are certainly not going to force me to take home office. It is one of the deductions that can trigger an audit as it is abused. And the mileage is impossible for them to calculate.
But, be that as it may, I have never heard of anyone being audited for failing to take a deduction.
Gee, I hope they don't realize that I put $5 in the collection plate at church and forgot to deduct it.
@mustangmanbob said:
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.
This is simply not true. Turbotax does not assume anything about what got sold when. It takes the beginning of year inventory that YOU provide and the end of the year inventory that YOU provide and then looks at the difference as an increase in inventory. It doesn't know and care whether the inventory is all new, all old or somewhere in between.
@jmlanzaf said:
Folks, please. Turbotax is not an inventory management system.
Totally correct, but that was not the point I was making.
That wasn't exactly aimed at you, but you are implying that Turbotax's approach to Schedule C has implications for the way inventory is valued when Turbotax doesn't calculate inventory value at all.
That wasn't exactly aimed at you, but you are implying that Turbotax's approach to Schedule C has implications for the way inventory is valued when Turbotax doesn't calculate inventory value at all.
Still missing the boat completely.
No where near what I meant, no where near what I mean, and no where near what I said.
If you do not understand what I am saying, back off posting until you understand.
Posting lots and lots and lots and lots and lots and lots of times without understanding, while still missing the point completely is tedious.
You may find the IRS doesn't like this either. Deliberately not taking a deduction can get you in trouble.
They are certainly not going to force me to take home office. It is one of the deductions that can trigger an audit as it is abused. And the mileage is impossible for them to calculate.
But, be that as it may, I have never heard of anyone being audited for failing to take a deduction.
It happens all the time, but not for reasons you may think. There are lots of tax credits that are based on income and deliberately not taking a deduction to maintain a certain level of income can get you in trouble.
@logger7 said:
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%
I would think that most dealers take most if not all of these expenses. IIRC collectors/hobbyists are not entitled to use some of them.
If you do not understand what I am saying, back off posting until you understand.
Posting lots and lots and lots and lots and lots and lots of times without understanding, while still missing the point completely is tedious.
At the risk of being tedious, while you may not have meant to imply that Turbotax has anything to do with inventory management, you can hardly blame my taking that inference when you specifically referred to Turbotax "assuming" a FIFO approach to the sale of your widgets.
I always started the year by weighing my barrel of inventory and then weighing it at the end of the year and adding an imaginary figure.
Which I would deduct.
I'd let you talk to my accountant, but he won't be out for another 7 years.
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
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.
I am an accountant turned college professor with about 25 years under my belt.
Based on the information you have given me, I think you are confusing sales with cost and this is creating an unrealistic ending inventory.
This is how I would see it:
Starting inventory: $10,000
Purchases: $50 (lets assume you bought 2 rolls) Ending inventory: $10,048 (96 not sold/100 bought X $50 = cost of what is still in inventory of your purchases)
Cost of Goods Sold = $2
** Remember, lower of cost or market would still value your wheat cents at cost since it is lower than the current market value after your grading. This will net the largest taxable income for the IRS which makes them happy
Sales $28,000
Cost of Goods Sold $2
Gross Profit = $27,998
Less Operating Exp = $3,000 (grading and auction fees, etc)
Earnings Before Taxes = $24,998 (Great year!!!!)
I may have misunderstood your post as stated earlier but this is how I would explain it to my clients or students based on the information given. The way the IRS calculates cost of goods sold by using an ending inventory number is brilliant because it automatically adjusts for loss due to theft and does not force the business owner to itemize every sale if they don't have a good point of sales system. It is no different than a bar selling shots from a bottle of booze. Instead of itemizing each transaction to keep track of COGS and inventory, just figure it out at the end of the year by taking a physical inventory.
My worry is 200 miles and 12h turning into 5500 taxable income. From Feb to now I've pulled in 4800 and still have hundreds of samples left at 25-95 dollars for walking around the woods.
A coin dealer needs the internet, for research if nothing else.
Don't forget the IRS expects tax payments at least quarterly, otherwise you get hit with a penalty at the end of the year. Look at your quarterly profit, multiply it by your actual tax bracket and send them a check; quarterly payments are just an educated estimate. If you overpay you will get it back when you file your return. Quarterly payment slips available at IRS.com. At the end of the year don't forget that you already paid some of your taxes with the advance quarterly payments. Keep a record of what you send in quarterly.
All expenses related to your business are deductible, even the space in your home devoted to your business but because of the hassle of depreciating it and then later selling the house I find it not worth it. It is not unusual for many small businesses to take a few years to turn a profit.
Repetition of ignorance is ignorance raised to the power two.
@derryb said:
A coin dealer needs the internet, for research if nothing else.
Don't forget the IRS expects tax payments at least quarterly, otherwise you get hit with a penalty at the end of the year. Look at your quarterly profit, multiply it by your actual tax bracket and send them a check; quarterly payments are just an educated estimate. If you overpay you will get it back when you file your return. Quarterly payment slips available at IRS.com. At the end of the year don't forget that you already paid some of your taxes with the advance quarterly payments. Keep a record of what you send in quarterly.
All expenses related to your business are deductible, even the space in your home devoted to your business but because of the hassle of depreciating it and then later selling the house I find it not worth it. It is not unusual for many small businesses to take a few years to turn a profit.
I don't think you'd need to pay quarterly as long as you have paid at least 90% of your tax obligation by 12/31 of your business/tax year. Actually, I think I saw recently where they give you until like 01/12 of the following year. Just go to the IRS website and use the DirectPay option for form 1040-ES.
I'm not a dealer, just a collector, but I have complete records on every coin I've ever bought. I use one of the many coin collector programs that track purchases, sales, and keeps an image of the coin. It also calculates reports of inventory value, sale profit/loss... It's easy and no big deal.
Great transactions with oih82w8, JasonGaming, Moose1913.
Comments
Actually, I intentionally do NOT take all the deductions that I could. For example, my entire office is a shipping area with boxes and inventory stacked everywhere. I could take the home office deduction, but I'm afraid of triggering an audit. LOL. I do take minimal travelling expenses, but only bigger trips because, again, I don't want every 10 mile drive to end up creating a gigantic expense that triggers an audit.
This is not true as you lay it out. If you have NEW unsold inventory at the end of the year, you have to increase the value of your inventory which decreases the expenses. The formula the IRS uses on schedule C to calculate gross profit is:
[Final inventory value + sales]-[initial inventory+purchases] = gross profit
gross profit is NOT simply sales-purchases. If it were, you could simply defer taxes until death by simply buying more every year than you sell and shoving the rest of it into your "inventory" (read "collection"). You would show a net loss every year even though your inventory grew into the millions in value.
Am a CPA with a tax practice. Do a spreadsheet listing all coins bought and sold in a year. update it weekly so you aren't inundated at year end. Provide detail re coin, grade, when purchased, when sold, etc. Have documentation to back it up. Hand it to CPA at year end. He'll list annual totals re receipts and cost of good, and then attach your spreadsheet as a pdf file to the electronically filed tax return as backup, much as I do for people with endless securities sales.
Then provide other expenses. Travel, phone, rent, if applicable, meals, auto, etc. etc.
Be aware that if you get $10,000 or more in any one transaction in cash, you must timely file a Fed form 8300. Failure to do this gets some dealers major legal problems. And if you are required to pay sales tax on some or all coins sold, don't play games with that, either. Auditors love people with poor recordkeeping. It makes them look good to their bosses.
"Seu cabra da peste,
"Sou Mangueira......."
You may find the IRS doesn't like this either. Deliberately not taking a deduction can get you in trouble.
My Ebay Store
The IRS of 2018 is not like the IRS of 20-30 years ago, audit rates are fairly small: http://www.taxdebthelp.com/tax-problems/tax-audit/irs-audit-statistics https://www.irs.gov/statistics
I write my 'code' on the 2x2 or flip. I know what I paid , even if I've had a coin for 30 years.....Of course a baggie of silver dimes doesn't get a code, but they're probably not going to be in next years inventory.
Totally correct, but that was not the point I was making.
Inventory management with Excel:
When you make a sale enter the data, cut and paste the line into a second spreadsheet for that year's sales. Let Excel's formulas do all the math for you. A row at the bottom of each sheet can be set up to give you totals for each column to provide you with a current snapshot of your total costs, individual expenses and profit. The annual Sales sheet is invaluable at tax time.
Attached is the Excel template for these two sheets. Customize it to fit your needs. I have left data in the first row of each sheet because the data cells contain the hidden formulas. Just replace the data with your data but do not first delete the data (just replace it with your data) in the cells or you will lose the formulas. If you are not proficient with Excel do not trust your inventory system to it. It is very unforgiving when you make mistakes. Save often during use to reduce how far you have to back up when you do make an unforgiving mistake.
Repetition of ignorance is ignorance raised to the power two.
They are certainly not going to force me to take home office. It is one of the deductions that can trigger an audit as it is abused. And the mileage is impossible for them to calculate.
But, be that as it may, I have never heard of anyone being audited for failing to take a deduction.
Gee, I hope they don't realize that I put $5 in the collection plate at church and forgot to deduct it.
This is simply not true. Turbotax does not assume anything about what got sold when. It takes the beginning of year inventory that YOU provide and the end of the year inventory that YOU provide and then looks at the difference as an increase in inventory. It doesn't know and care whether the inventory is all new, all old or somewhere in between.
That wasn't exactly aimed at you, but you are implying that Turbotax's approach to Schedule C has implications for the way inventory is valued when Turbotax doesn't calculate inventory value at all.
Still missing the boat completely.
No where near what I meant, no where near what I mean, and no where near what I said.
If you do not understand what I am saying, back off posting until you understand.
Posting lots and lots and lots and lots and lots and lots of times without understanding, while still missing the point completely is tedious.
It happens all the time, but not for reasons you may think. There are lots of tax credits that are based on income and deliberately not taking a deduction to maintain a certain level of income can get you in trouble.
https://eitc.irs.gov/tax-preparer-toolkit/frequently-asked-questions/earned-income-self-employment-income-and-business
This is different because we aren't talking about a business.
My Ebay Store
Its tax season - we are too busy working......
I would think that most dealers take most if not all of these expenses. IIRC collectors/hobbyists are not entitled to use some of them.
>
At the risk of being tedious, while you may not have meant to imply that Turbotax has anything to do with inventory management, you can hardly blame my taking that inference when you specifically referred to Turbotax "assuming" a FIFO approach to the sale of your widgets.
It’s a schedule c filing for many.
I always started the year by weighing my barrel of inventory and then weighing it at the end of the year and adding an imaginary figure.
Which I would deduct.
I'd let you talk to my accountant, but he won't be out for another 7 years.
I am an accountant turned college professor with about 25 years under my belt.
Based on the information you have given me, I think you are confusing sales with cost and this is creating an unrealistic ending inventory.
This is how I would see it:
Starting inventory: $10,000
Purchases: $50 (lets assume you bought 2 rolls)
Ending inventory: $10,048 (96 not sold/100 bought X $50 = cost of what is still in inventory of your purchases)
Cost of Goods Sold = $2
** Remember, lower of cost or market would still value your wheat cents at cost since it is lower than the current market value after your grading. This will net the largest taxable income for the IRS which makes them happy
Sales $28,000
Cost of Goods Sold $2
Gross Profit = $27,998
Less Operating Exp = $3,000 (grading and auction fees, etc)
Earnings Before Taxes = $24,998 (Great year!!!!)
I may have misunderstood your post as stated earlier but this is how I would explain it to my clients or students based on the information given. The way the IRS calculates cost of goods sold by using an ending inventory number is brilliant because it automatically adjusts for loss due to theft and does not force the business owner to itemize every sale if they don't have a good point of sales system. It is no different than a bar selling shots from a bottle of booze. Instead of itemizing each transaction to keep track of COGS and inventory, just figure it out at the end of the year by taking a physical inventory.
Edited
?????????
Good luck, I am sure you will get some good responses here.
Successful transactions with : MICHAELDIXON, Manorcourtman, Bochiman, bolivarshagnasty, AUandAG, onlyroosies, chumley, Weiss, jdimmick, BAJJERFAN, gene1978, TJM965, Smittys, GRANDAM, JTHawaii, mainejoe, softparade, derryb
Bad transactions with : nobody to date
My worry is 200 miles and 12h turning into 5500 taxable income. From Feb to now I've pulled in 4800 and still have hundreds of samples left at 25-95 dollars for walking around the woods.
A coin dealer needs the internet, for research if nothing else.
Don't forget the IRS expects tax payments at least quarterly, otherwise you get hit with a penalty at the end of the year. Look at your quarterly profit, multiply it by your actual tax bracket and send them a check; quarterly payments are just an educated estimate. If you overpay you will get it back when you file your return. Quarterly payment slips available at IRS.com. At the end of the year don't forget that you already paid some of your taxes with the advance quarterly payments. Keep a record of what you send in quarterly.
All expenses related to your business are deductible, even the space in your home devoted to your business but because of the hassle of depreciating it and then later selling the house I find it not worth it. It is not unusual for many small businesses to take a few years to turn a profit.
Repetition of ignorance is ignorance raised to the power two.
I don't think you'd need to pay quarterly as long as you have paid at least 90% of your tax obligation by 12/31 of your business/tax year. Actually, I think I saw recently where they give you until like 01/12 of the following year. Just go to the IRS website and use the DirectPay option for form 1040-ES.
Also you can check your IRS account here.
https://www.irs.gov/payments/view-your-tax-account
Once you become more of an established business, you'd probably want the quarterly option.
I'm not a dealer, just a collector, but I have complete records on every coin I've ever bought. I use one of the many coin collector programs that track purchases, sales, and keeps an image of the coin. It also calculates reports of inventory value, sale profit/loss... It's easy and no big deal.
Great transactions with oih82w8, JasonGaming, Moose1913.