Any tax advice for a newbie?

[01TheDude]

you are making the same mistake I did (partly his fault for not stating the initial cost in his examples for the 1000 dollars of inventory because h is only basing things on a margin number.

 

 

never mind-- I remember I saw that error myself but then kept reading and focused on example two.

anyway. the concept is pretty basic

[01TheDude]

If you have ever watched the show American Pickers-- they do a piece by piece evaluation of items they picked.

 

They typically haggle for a price where they can get a 50% margin on total valuation (not that they actually get that number all the time).

 

so they buy a sign let's say:

cost 125

value 250

=========

profit 125

 

CGS is cost

inventory is value

profit is margin.

 

buy a collection:

cost 60K (the part left out in the example)

value 100K

======

profit 40K

 

sells 50K (1/2 total value), get 20K profit (1/2 total profit)

ending inventory 50K

 

1st example (suspected error)

cost 1000

factor 40% margin

=========

profit 400

sell 500 (1/2 total value), get 200 (1/2 total profit) -- CGS 300

ending inventory = 500

 

 

 

[wombat]

And lets not forget to add in other costs before we get to profit.

[Wilson3d]

At first I was - OMG! NOOOO! But I am small potatoes just selling books to buy more books. I will not be close to the 20k.

 

This has some more info on it.

 

http://blog.ebay.com/the-paypal-1099-k-what-is-it/

[W16227]

Yes. Worth $100,000, bought for $60,000. Of the $100,000 you have only sold $50,000 of it.

 

Carry over inventory COGS for future years is $30,000. $30,000 COGS for sold items.

 

ya ----

 

Cost of goods sold (for comics) - based on what you bought the books for. This is why you need to keep records as complete as possible - as the accuracy of this "inventory" is critical to the math.

 

Another element in his example - using a generic profit margin - also important to be as accurate as you can - as over or under estimation of your margin will result in too much/too little being declared as profit.

[W16227]

At first I was - OMG! NOOOO! But I am small potatoes just selling books to buy more books. I will not be close to the 20k.

 

This has some more info on it.

 

http://blog.ebay.com/the-paypal-1099-k-what-is-it/

 

 

people will have to use their own best judgement - but the 20K number is when paypal sends you and the IRS the 1099

 

 

at this point - you will be paying some taxes - and you will also be on the radar

 

if you are not making that much - but still have an income - you may still have a legal obligation to pay taxes. That 20K number is not the magical ceiling of when you have to pay taxes - but when a formal 1099 is issued.

 

 

 

 

 

 

 

 

 

[ft88]

Yes inventory is value but for my purposes I maintain the value at cost until I sell it. Periodically I check that what's sold and/or remaining makes sense for the margin. I've adjusted the margin once to make it accurate.

[the blob]

I don't know about you, but many of my books are worth less than what paid for them 10—15 years ago. In the rare instance when I sell a comic for a profit, in order to offset that profit I will turn around and sell one or two books that I know I'm going to have to take a loss on. You can't deduct a loss on collectibles, so try not to record too large of a loss in any calendar year.

 

If you're one of the few collectors who has seen his collection appreciate in value long-term, good for you! You're making money on something most people lose money on.

 

 

Very few dealers lose money selling comics. Stores, yes. Dealers no.

 

having some sort of proof of what you paid so that you can document those unprofitable (and thus untaxeable) sales is the key. if you get audited the IRS is not interested in your say so as to what something cost 15 years ago. that's one nice thing about paying by paypal and making good notes in the payments.

 

of course, if you go by the sticker prices on all your 1990s and 80s drek then for sure you are losing a ton of money on each sale. $10 for a VG Thor 316? sure!

[Mayor006]

Wait, are you guys using LIFO or FIFO on your inventory?

[Shrevvy]

Wait, are you guys using LIFO or FIFO on your inventory?

 

Small businesses don't use LIFO or FIFO...they use WIFL.

 

 

Whatever I Feel Like

[Shrevvy]

There is a lot of poor information in this thread. Get an accountant that knows small business. You cannot write off inventory for more than you paid. You cannot "plow the money back into a biz" and not pay taxes. You should not be paying 45% tax rates unless you are in the highest marginal tax brackets.

[skypinkblu]

Count your RAKs as a charity right off...

 

 

Hire or marry a tax professional.

 

H&R Block doesn't really count.

 

Please don't take deductions for items not given to an approved charity registered to the IRS, I don't want to have to mail cakes with files in them;)

[01TheDude]

At first I was - OMG! NOOOO! But I am small potatoes just selling books to buy more books. I will not be close to the 20k.

 

This has some more info on it.

 

http://blog.ebay.com/the-paypal-1099-k-what-is-it/

 

 

people will have to use their own best judgement - but the 20K number is when paypal sends you and the IRS the 1099

 

 

at this point - you will be paying some taxes - and you will also be on the radar

 

if you are not making that much - but still have an income - you may still have a legal obligation to pay taxes. That 20K number is not the magical ceiling of when you have to pay taxes - but when a formal 1099 is issued.

 

 

 

 

 

 

 

 

 

I also sell back issues of magazines on Amazon-- not a great deal of profit (greedy Amazon blows eBay away with their charges fr the small fries like me).

 

But what I am trying to point out is that their made up threshold has nothing to do with how much you sell -- it is based on total number of orders. If you sell more than 50 items, they require you to provide them with your tax information. It is a little ridiculous considering if I sell 50 books-- which would be abnormal for me at least-- I wouldn't make much more than $300 profit doing so. You have to price the heck out of your items to turn any profit because no matter what you sold it for, if you are not a store, Amazon wants about $3. Those people who try to sell stuff for a $1 are either huge stores or completely out of their mind.

[NP_Gresham]

Lots of great advice here.

Can't wait for the IRS fire sales to start

[Buzzetta]

I do not represent myself in court.

 

I do not do my own plumbing outside of something simple (see WC thread for what I mean)

 

I do not do my own electric outside of something simple

 

I do not do my own surgery

 

I do not do my own dental work

 

I do not even do my own personal taxes. Go to an accountant. Since I have handed off my taxes to someone else, I have never had an issue. I figure, I can spend a few hundred dollars for a licensed tax preparer to do all the work, or pay much more than that in time and energy and fines if I were to try to do it all on my own.

[wombat]

Some of you might need this.

 

[FlyingDonut]

Every year this comes up.

 

And every year, my response is the same.

 

Call a real tax guy. Spend a couple hundred bucks and set it up right.

 

If the OP is paying income tax on the amount he was sent by Paypal, I do hope he hasn't filed yet.

[Columbia Comics]

I love a thread like this...makes me at the majority of people posting...

[1Cool]

Every year this comes up.

 

And every year, my response is the same.

 

Call a real tax guy. Spend a couple hundred bucks and set it up right.

 

If the OP is paying income tax on the amount he was sent by Paypal, I do hope he hasn't filed yet.

 

Nope, I only pay taxes on the net profits after all my expenses and deductions are subtracted. Just hoping someone would throw out some info that my tax preparer had not told me or may have not thought of. I think the only "new" info that I have not thought of is donating more books. I follow all of my tax preparers advice but you never know what gems can be thrown out on these threads.

[MPS]

If you create an S Corp (instead of an LLC), you could avoid part of your social security/medicare taxes, which would partially alleviate your tax woes. Why not file an extension, and explore the possibility of an S Corp with your accountant?

 

So you owe close to 45% in tax on your profits, b/c of the 28% collectibles tax plus ~15% on social security/medicare taxes as a self-employed individual?

 

Edit: You can also deduct self-employment taxes from your AGI.