Tax question for the dealer/collectors out there...

[shadroch]

Push part of the sale into next year.

 

In that scenario, would I make my cost on the book part of my 2013 ending inventory and 2014 beginning inventory(the books in question were sold out of my personal collection in 2013)?

 

 

One question per thread. Sorry.

[blazingbob]

I agree with this. Personal books are not business inventory.

 

 

[Silver]

Personal books would be capitol gains, inventory is not subject to capitol gains. They would be treated separately.

[toytastik]

I track all my sales by what the individual item cost me. Sure it's a lot of bookkeeping but it's accurate.

[G.A.tor]

I agree with this. Personal books are not business inventory.

 

Depending on what Jeff's tax bracket is, he is legally allowed to sell personal books to his business inventory, if the long term Capitol gains tax is higher than his business bracket. No diff than if Jeff bought a book from Bob and resold. He just needs to make sure it is accounted for at original cost to avoid issues

[EC ed]

One other interesting point about these semantics....let's stick with treating it as personal property sold at a capital gain, reported on Schedule D. I'm assuming you've held the books longer than 1 year, so it'd be a long-term capital gain. Then, it's either going to be taxed at 15%, 20% or 28%, depending on what you call it.

 

If you call it a "collectible," the rate is 28%. The IRS explicitly defines a "collectible" as "...a work of art, rug, antique, metal (such as gold, silver, and platinum bullion), gem, stamp, coin, or alcoholic beverage." Note that "comic book" doesn't appear in the IRS' explicit definition of a "collectible".

 

If it's an "investment," and not a "collectible," the rate is only 15/20% (depending on your bracket). I'm trying to envision how the argument/discussion would go with an auditor if one were to take the position that the comics are merely an "investment", not a "collectible"...you'd certainly have it on your side that the IRS chose to write down the list of "collectibles", and they didn't include comics in that list. But, the auditor would say, a comic is a "work of art", right? Well, perhaps....etc, etc...

[G.A.tor]

I believe there is an IRS addendum classifying comics as collectibles (maybe under the "work of art"?)

[keever]

I suspect among tax practitioners there would be little doubt that comic books are "collectibles," even though not expressly mentioned in Section 408(m) of the Internal Revenue Code. Under 408(m)(2)(F) the definition also includes any other kind of tangible personal property that the Secretary of the Treasury says. There is a proposed regulation 1.408-10 that adds a couple more things to the list but not expressly comic books. I don't know of any official pronouncement by the IRS or a court that flat out says comic books are collectibles, but I would think it is almost frivolous to dispute it.

[bluechip]

I suspect among tax practitioners there would be little doubt that comic books are "collectibles," even though not expressly mentioned in Section 408(m) of the Internal Revenue Code. Under 408(m)(2)(F) the definition also includes any other kind of tangible personal property that the Secretary of the Treasury says. There is a proposed regulation 1.408-10 that adds a couple more things to the list but not expressly comic books. I don't know of any official pronouncement by the IRS or a court that flat out says comic books are collectibles, but I would think it is almost frivolous to dispute it.

 

Comic books are definitely considered collectibles, and if you owned it more than a year you pay a high rate. I know because I have recently written some painfully high checks at tax rates nearly twice the tax rate Mitt Romney said he paid on the millions he made in 2011.

[Shrevvy]

You have two choices. The first is to have your business purchase your books from you. This is like any other purchase. Your begining inventory does not change because the business did not own the inventory at 12/31/12. Your purchases rise by an equal amount as do your COGS. You can write yourself an invoice/receipt if you like.

 

The second choice is to claim the sale as a personal sale as mentioned by a post above. In the eyes of the IRS, it is not an "investment," but a "collectible" and will be treated negatively under tax law (higher tax rates and no recognition of tax losses). You would only do this if your marginal rate is higher than 28% ($146,401 of taxable income for married filing jointly). If you are selling at a loss (from your post, I gather you are not), you would never claim it as an individual sale but as a sale of the business. You cannot deduct a loss from the personal sale of a collectible (only to offset other collectible gains), but can deduct a business loss on the sale of inventory below cost

 

To add another wrinkle to the equation, you can sell the books to your business for whatever you want (within reason). You do not have to sell them for $100 just because you paid $100. Say you sold another collectible outside your business for a loss in the same year. You could sell the books to your business at a price that gave you a personal gain equal to loss. Your net personal taxable exposure would be $0 and you will have reduced the profit available for taxation in your business.

 

Excluding a $20k sale from taxes altogether when you are in the business of selling comic books is not a good idea. The IRS will frown upon that if discovered. You do not have the option of spreading that over two years or pushing it into 2014 as someone had suggested.

 

EDIT: No one here knows your personal situation. A tax professional that does would give the best guidance.

[nearmint]

 

To add another wrinkle to the equation, you can sell the books to your business for whatever you want (within reason). You do not have to sell them for $100 just because you paid $100. Say you sold another collectible outside your business for a loss in the same year. You could sell the books to your business at a price that gave you a personal gain equal to loss. Your net personal taxable exposure would be $0 and you will have reduced the profit available for taxation in your business.

 

 

 

That's an interesting concept. So, if I bought a book 8 years ago for $1100 for my personal collection, and sold it in 2013 for $6000, what would be a reasonable price for me, as a person, to sell it to my business?

 

I did have a few losses this year. One book that I paid $3700 for I sold for $3060.

[G.A.tor]

Keep in mind if you sell the book to yourself at higher than what you paid, you then personally have a profit on the sale of your collectible.

[nearmint]

Keep in mind if you sell the book to yourself at higher than what you paid, you then personally have a profit on the sale of your collectible.

 

Good point. Think I'll keep it simple.

[Shrevvy]

 

To add another wrinkle to the equation, you can sell the books to your business for whatever you want (within reason). You do not have to sell them for $100 just because you paid $100. Say you sold another collectible outside your business for a loss in the same year. You could sell the books to your business at a price that gave you a personal gain equal to loss. Your net personal taxable exposure would be $0 and you will have reduced the profit available for taxation in your business.

 

 

 

That's an interesting concept. So, if I bought a book 8 years ago for $1100 for my personal collection, and sold it in 2013 for $6000, what would be a reasonable price for me, as a person, to sell it to my business?

 

I did have a few losses this year. One book that I paid $3700 for I sold for $3060.

 

Gator is correct that you will have a taxable gain if you sell it for more than you paid. You would do that if you have a loss that was otherwise non-recoverable for tax purposes (a loss on a collectible cannot be written off against income, only against a collectible gain). For example:

 

Scenario 1

Buy for $3700, sell for $3060. You have a personal collectible loss of $640.

Buy for $1100, sell for $1100 to business. No loss or gain.

Business sells for $6000, gain of $4900.

 

Summary:

Personal loss of $640, non-deductible.

Business gain of $4900

Assuming 25% tax rate, taxes owed are $1225.

 

Scenario 2

Buy for $3700, sell for $3060. You have a personal collectible loss of $640.

Buy for $1100, sell for $1740 to business. You have a personal collectible gain of $640.

Business sells for $6000, gain of $4260.

 

Summary:

Personal gain of $640 is offset by personal loss of $640, net gain is $0. Tax owed is $0.

Business gain of $4260

Assuming 25% tax rate, taxes owed are $1065.

Tax savings is $160

 

My previous example was contemplating a collectible other than comics that was not a business activity. Since both are comics, sell both to the business for cost of $4800. When the business sells both for $9060 combined, you still end up with a taxable gain of $4260 - the same as scenario 2. The key is to not have a collectible loss without a gain. You cannot write off a collectible loss against income (we cannot have our cake and eat it too, but the IRS can). Don't leave any tax benefit on the table.

 

A good tax professional should not cost you (much) money.

[peewee22]

Consider it a hobby and don't report or pay any tax (as long as profits are near break even).

[stanley1883]

So I'm not a tax professional, but I am in Finance. Also I have not read the entire thread, just wanted to give my .

 

Losses from collectibles cannot be written off so your stuck there, however I would advise all of you to consider depositing gains into an IRA, better yet a Roth IRA. Keep in mind that there is a certain income limit where your IRA contributions are no longer tax deductible, but if your not there, you can at least write off some gains by using the IRA deductions. Also other accounts to consider that aren't considered a part of your Estate. Just a few thoughts, consult a tax professional regarding tax questions, I'd be happy to answer any financial questions within reason.