Tax efficient profits?14814
 Collector
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jaysonslade private msg quote post Address this user | |
| 45 year collector here, but... complete newb to selling as a business. I understand I should keep good records in order to pay appropriate sales tax. But where I'm confused is this. If I'm in a constant cycle of buying, grading, selling, and using the profits earned to buy and grade more inventory... do you suggest maintaining individual inventory records where every book stands on its own? As it would be at a car dealership? (Ex: This book earned $72 and this book lost $5. Then just calculate them all out at the end of the year?) Or would I be better off if there were less specific entries like "spent $400 on 6 books, $687 on grading fees, $413 on supplies; and earned $2350 from selling 12 books... for a net profit of $850 this month. Then either pay income tax on the $850 or (here's the real question) just spend $850 more for comics or grading fees and essentially wash out all the profit? In other words, if I'm constantly buying more "bigger and better" books and grading more other books, couldn't I potentially never show a profit until the day comes that I actually sell the last one? Or am I missing a blatantly glaring piece of the taxable pie? It seems like if my day job pays my bills and living expenses and I have a business license to sell comics and never (until the end) take out funds as profit to keep, wouldn't that be a tax efficient way to do business? Then when I finally slow down the buying and start selling off, have the tax implication at that time? It certainly feels like I'm missing something huge. Any advice is appreciated. | ||
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 Collector
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cesidio private msg quote post Address this user | |
| You have to itemize. Keep track of profit and losses for each book. Have the buy and sales receipts. With this new 500 dollar rule be prepared to issue 1099s for each person you sell more than 500 dollars worth to. This coming year is going to be a mess. You might want to consider getting an accountant and filing quarterly returns, that's what I'm doing. It's not just taking more money out of my pocket, it's also taking alot of the fun out of it for me. | ||
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 The apple sauce and pudding were the best part...
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Bronte private msg quote post Address this user | |
| Has anyone heard back from MCS to see if we can avoid all the headaches and let them deal with it? I emailed them months ago but never got a reply. | ||
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Collector
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cesidio private msg quote post Address this user | |
| @Bronte doubt it. These are personal/buisness taxes. I know ebay and amazon go back for a few years on transactions. MCS might too. Don't have any experience with them untill 1 week ago. Regardless, it's up to the filer to make sure all the receipts are in order. This is what is killing me, up untill this year shops, private transaction, cons ect. Never gave receipts unless you asked. Most of the stuff I've sold this year with no reciept had to declare 100% as profit. I'm thinking of instead of selling the stuff I have no paper for (90+%) just trading it and work toward a grail or two that way. But shops usually give 20-30% FMV in trade. Either way thinking private trades for my stuff with no paper is the way I'm going to go. | ||
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The apple sauce and pudding were the best part...
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Bronte private msg quote post Address this user | |
| Not what I wanted to hear, but I appreciate your insight. I am going to talk to accountant before the end of this year to figure this out. Last thing I need is to incur wrath of the IRS. | ||
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Collector
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jaysonslade private msg quote post Address this user | |
| If you had slabbing fees or supply costs equal to or greater than the prices realized for sold books, wouldn’t that be a legit expense? | ||
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Collector
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cesidio private msg quote post Address this user | |
| @Bronte yep. Audits are not fun. Best to try and stay ahead of this train wreck | ||
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Collector
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cesidio private msg quote post Address this user | |
| @jaysonslade my understanding is yes you would show a loss from that transaction. As long as you have the receipts. At the end all all the losses are subtracted from the gains. But collectibles are not like stocks or earned income. You have to pay a higher rate on gains and can not deduct the full loss amount as I understand it. | ||
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 Collector
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doog private msg quote post Address this user | |
| “You have to pay a higher rate on gains” Yes I have heard as high as 40% on collectibles and art. Luckily I do not have to sell anything, I will pause my sales for awhile December 31 and watch it play out for awhile. |
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 It's like the Roach Motel for comic collectors.
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chester15 private msg quote post Address this user | |
Quote:Originally Posted by jaysonslade It doesn't work that way. If you take your profits and reinvest them into something else, it does not change the fact that you made a profit on what was sold. You owe tax on the profit, as income. What you do with what is left is up to you. Just like if you took your entire pay from your regular job, without any withholding, and invested that in comics or any other business, you can't erase the fact that you had realized and recognized income. So now you owe taxes on what you earned, and can't pay it because you tied up the cash in other assets. When you buy something, anything - a single comic, a run, an entire collection, the price you pay for it is your "basis". Then you might add other costs, such as storage, supplies, grading, shipping, even travel to obtain it. Those all are subtracted from your sales amount. What you have left is your profit, and it is taxable. If you have a comic you paid $5 for in 1980, just now had it graded for a total of $80 (pressing, grading, shipping both ways), you have $85 into it. If you sell for $400, you made $315, and owe taxes on that (state and federal), less any other expenses you can apply. If you take the $315 and put it into other comics or other expenses, it doesn't matter. Still taxed on the $315. Those purchases and expenses are on their own separate schedule, waiting to see if that purchase/expense made or lost money when sold. On the flip side, maybe you bought an expensive comic for $4000, and it got caught in your flooded basement at home. You take $400 for your damaged comic. You have a $3600 loss you can use to offset some of your "winnings". Or if you were a comic retailer from the 1990's selling off long boxes of drek for 5 cents each that you paid $1.50 each (your basis). Those losses can be used against your profits. |
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 Masculinity takes a holiday.
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EbayMafia private msg quote post Address this user | |
| So I hear about this 40% tax rate on collectibles. But I'm pretty sure there is a difference between selling one or two collectibles and being in the business of selling collectibles? I would think that if I do $20,000 in sales over 200 books and have associated expenses it won't be looked at as a collectibles windfall but as an ongoing home business and taxed as normal income? | ||
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The apple sauce and pudding were the best part...
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Bronte private msg quote post Address this user | |
| 20k / 200 books was reasonable in my opinion. But the 2022 is like 600$ bux total. So I don't think that argument will fly. I sincerely hope I'm wrong, but only time will tell. | ||
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It's like the Roach Motel for comic collectors.
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chester15 private msg quote post Address this user | |
| Technically, the volume of sales in dollars or quantity of items has no bearing. In general, income is income. If you sell something and make a profit, it is taxable to some extent. Casual sales may be different per state law. Most people don't report what they deem "not so significant" sales or income. Maybe they should, maybe not. Just like any money you might make at a yard sale, plowing driveways, etc. You are supposed to report all income, but in general practice that may become "eroded". If you are audited, the IRS considers every incoming dollar they can track as income, and it is up to you to show why a specific entry, a deposit for instance, is NOT income. Or show how your expenses erase the income. Cash will be hard to track. Collectibles held for a year or less and then sold are considered ordinary income, taxed at your bracket. Held over a year, they become long term capital gains, taxed at the capital gains rate. To my knowledge, that is still 28%. I believe the 40% thrown around these days is a proposal. Here is a one page article about the taxes on collectibles: https://www.investopedia.com/articles/personal-finance/061715/how-are-collectibles-taxed.asp |
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Masculinity takes a holiday.
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EbayMafia private msg quote post Address this user | |
Quote:Originally Posted by Bronte @Bronte I think we are talking about 2 different things. You're referring to the IRS reporting requirement which has dropped from $20K to $600. I'm referring to the tax percentage that will be paid on those reported sales. People are saying that collectibles get taxed by the Federal Government at 40% but I'm pretty sure it would just be taxed as normal income (which for many of us is in the 20% range) if it's an ongoing enterprise and not just a one-off sale of a collectible. |
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 Please continue to ignore anything I post.
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southerncross private msg quote post Address this user | |
| Does this mean books will go up in value, if a book hits the $600 threshold will it suddenly be a $700 or $800 book depending on the tax percentage? When buying off non businesses? So the owner of the book gets the seller to pay some of the tax indirectly with a increase ticket price? We will see  |
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 Suck it up, buttercup!!
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KatKomics private msg quote post Address this user | |
| offshore 'company' and bank account seems like a fix? | ||
| Post 16 • IP flag post | ||
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Masculinity takes a holiday.
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EbayMafia private msg quote post Address this user | |
Quote:Originally Posted by southerncross @southerncross No, for a couple reasons A) Very few people sell just one book per year. The IRS reporting is cumulative for the year, so once you hit $600 Ebay will be reporting it to the IRS regardless how many books you sell or how much you sell afterwards. B) Only in situations of very low supply can the seller dictate price based on their costs. Almost always the price is dictated by what the market is willing to pay, not what the costs are to the seller. What I do see happening is a shortage of publicly recorded sales. Sales could move underground to places like forums, facebook and cons...and information from GoCollect and GPA may become very limited. Or, to your point, those fewer sales that happen publicly may in fact be at a higher price than the sales that happen in private. |
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 Collector
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Darkseid_of_town private msg quote post Address this user | |
| The arguments above are valid if you do indeed accept income from each sale and then reinvest it into another book...but if you never get that income and it is rolled directly into the new inventory that is another matter......so for instance when selling at MCS, I sell all items as "trade value same as cash" .....since there is no transaction of funds, and I trade my old books for different ones, there is zero income ever paid. I never get any money from my sales period. They all vanish into the abysss of incoming books. I would question how they could possibly tax me for that until I sell for actual income |
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Masculinity takes a holiday.
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EbayMafia private msg quote post Address this user | |
Quote:Originally Posted by Darkseid_of_town @Darkseid_of_town I was just about to bring this up. In another thread @DrWatson and I went back and forth on this subject and it caused me to do some internet research. Because I know you're right, if I trade in my car on a new car it does not create a taxable event even though the dealer is giving me value for my car. The best conclusion I could come to is that it's "Barter" and barter income is supposed to be reported on it's own W-9. If a Doctor and a house painter swap services they are supposed to give each other a W-9 for the value of work done. But this creates an interesting point...if MCS gives us a W-9 but we do not give one back it would create on inequity...we would have a taxable liability and they would have a deduction equal to the value of the W-9. Best I can conclude, if you've been exchanging with MCS you should be prepared to give them a W-9 if they give you one. Strange as that may sound. |
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Collector
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Darkseid_of_town private msg quote post Address this user | |
| I will wait and see what they send, but I somehow doubt that its worth the IRS pursuing since no funds exchanged hands at any point. Any books I sell are handled this way...and if I wind up with too large of credit built up, I just splurge and get a silver age higher grade something that can be liquidated at a future time when i want to become more directly involved with cash returns | ||
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Collector
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cesidio private msg quote post Address this user | |
Quote:Originally Posted by EbayMafia Based on what my accountant says is no. Collectibles are collectibles. Doesn't matter if it's a coin comic sports card or art. Just because you are in buisness of selling collectibles doesnt matter. It's still a collectable. I don't know for sure what the tax rate is, but I know it's higher than earned income capital gains or intrest from a bond CD or bank account. The rules and laws are way over my head when it comes to taxes. I just believe it's better to pay someone that knows instead of postulating my own thoughts on the issue. I've already gotten 1 1099 from PayPal and expect a second early early July since I'm filing quarterly. Regardless on if you are going to wait or start now save all your receipts and go back as far as you can on what ever site (s) used and print out all transactions. Wish I had been doing that all along. |
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 I'm good with splotches.
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Nuffsaid111 private msg quote post Address this user | |
| We're going to begin seeing slabbed books at Yard Sales and Flea Markets in 2022; which as of today is very uncommon | ||
| Post 22 • IP flag post | ||
 You can't get good wood on the ball every time.
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HotKeyComics private msg quote post Address this user | |
| What legally separates a collectible from a regular asset in a business? | ||
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Collector
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cesidio private msg quote post Address this user | |
Quote:Originally Posted by HotKeyComics That I don't know. The accountant might be able to answer for me when I see her next. I could guess but it would only be a guess. |
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Collector
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cesidio private msg quote post Address this user | |
Quote:Originally Posted by HotKeyComics Collectibles defined According to the IRS: “Collectibles include works of art, rugs, antiques, metals (such as gold, silver, and platinum bullion), gems, stamps, coins, alcoholic beverages, and certain other tangible properties.” 1 What makes something a collectible is that it carries additional value based on its rarity and its market demand. What ever that means |
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 I live in RI and Rhode Islanders eat chili with beans.
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esaravo private msg quote post Address this user | |
| Don’t most assets depreciate in value? You would expect most collectibles to appreciate. | ||
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Suck it up, buttercup!!
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KatKomics private msg quote post Address this user | |
| You guys could move to Canada? No tax on sales unless over $1000 (for an item not in total) and then you only pay on the amount over $1000. So $1500 you would pay on $500 This is for personal items (comics fall into that) like at a yard sale you would pay no tax on anything because it is unlikely any 1 item you would charge over the $1k Hmmm....maybe I found some extra income here....I could "sell" your books - not pay any tax up here in Canada and just take a small "fee" for the service oh! and I think you self report - no one is sending this info to our tax authority! |
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Masculinity takes a holiday.
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EbayMafia private msg quote post Address this user | |
Quote:Originally Posted by esaravo This could explain the unusual tax situation of higher rates for long-term and lower rates for short-term. Dealers who buy and sell the same collectible within 12 months don't pay the big premium. Those who hold for value appreciation pay a much higher rate. Typically capital gains rates would be the opposite, but that's for investment in companies through stock purchases. |
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It's like the Roach Motel for comic collectors.
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chester15 private msg quote post Address this user | |
Quote:Originally Posted by HotKeyComics A link from the earlier article I posted covers it: https://www.investopedia.com/articles/basics/06/contemplatingcollectibles.asp |
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Masculinity takes a holiday.
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EbayMafia private msg quote post Address this user | |
| What seems strange to me is that an owner of a LCS who deals in back issues would have to separate his revenue into three categories for taxation purposes. There would be normal revenue on new items, short-term collectibles and then long-term collectibles. Seems it would be almost impossible to expect sales associates to even ring up sales in a way that could be properly accounted for. I suspect the collectibles tax rate is one of those things that is so messy it's rarely enforced on small timers. | ||
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