Any tax advice for a newbie?

[shadroch]

The only audit I've ever undergone was my own fault. I skipped two quarters of NY State Sales Tax back in the Millenium Parachute days. I had a partner and we each assumed the other would handle it.

NY State hit me with a $22,000 back tax bill. After about three hours, we settled on less then $200 and two $50 failure to file penalties. Perhaps foolishly, I represented myself. Didn't have a lawyer and my book-keeping service refused to help since we didn't file.

The NY State Liquor Authority told us they had requested the Sales Tax Division audit Atlantis back around 1998, but nothing ever came of it. We sold the place about 18 months later so maybe the wheels just turn real slow.

[W16227]

Just hoping someone would throw out some info that my tax preparer had not told me or may have not thought of.

OK, here's an idea;

 

Since the crux of this entire predicament is the PayPal tax form,

split your online (eBay, etc.) business into two separate entities, with the new one having a different email addy to be used with PayPal. Then run auctions or advertise using each, and accept payments into two different PayPal accounts.

 

Ideally at the end of the year, neither will display 200 trades or 20 grand in receipts on it's own, although combined that might be the case.

 

Next, or maybe even beforehand, consider getting a CPA; not a "tax preparer" or a tax accountant, if you feel that advice on a more professional level is needed.

 

I am not suggesting simply because you might be able to avoid PayPals tax form to the gubbamint by this little ploy that you shouldn't report the earnings, however. Let a CPA make that determination.

 

 

 

 

 

tax evasion 101 - split things up to hide income from the IRS

 

not a good idea

 

The crux was not the paypal form - the paypal form is generated when you hit a threshold - but even those with less comic book income may owe taxes - even if you consider it a hobby.

 

Someone flipping random books and making "$500" in a year will probably fall well under any audit radar - and even be treated better but the IRS if somehow it is discovered. Look at Shadrock's example - a simple mistake made and the final resolution was not too painful.

 

 

Someone making enough to have the form issued - then taking deliberate actions to hide this fact - hey you may be under the radar but good luck with that and how far it will take you.

 

 

 

 

 

 

 

[shadroch]

Tax Avoidance is an American Tradition.

Tax Evasion is a Felony.

[Jeffreykli]

The statute of limitations for adjustments to a tax return is 3 years from filing, although in cases of fraud, the statute is extended to 6 years.

 

If you're on the fence morally and ethically, do not commit fraud.

[Shrevvy]

Maximize your deductions.

Donate books to a charity. It's possible to deduct a books cover price, no matter what the actual costs was.

 

This is interesting. I donated boxes of old comics to the Salvation Army in the past. They gave me an empty receipt or receipts with just "comics boxes" on them. I did not deduct anything at that time.

 

If I am going to donate more, should I have them write at least the quantity of comics? Can I then deduct at least $1 per comic book donated? That would be a cool way to get rid of old comics hard to sell and get the deduction.

 

You need to speak to a tax professional before you do that. I believe that "fair market value" means something.

 

If the fair market value is 10 cents, then you can't deduct $3.95. They ask you two questions.

1. What did you pay for it?

2. What is is worth now?

 

They go by what it's worth now.

 

So if you buy something for 10 cents and donate it, but it's now worth $20, it works in your favor.

 

You can't just pull this stuff out of the air, you need proof.

 

 

 

No one is pulling anything out of the air. The book has a price attached to it- ie the cover price.

It has a value assigned to it by Overstreet, the leading hobby price guide.

Search ebay closed sales- find examples of the book selling for a dime. Odds are you won't.

Search MCS, Mile High and or any dealer site. If the two biggest comic retailers have a book valued at X, it is reasonable to infer that the FMV is X.

No one is saying dump 250,000 copies of GI Jack Rabbit and try to write off $750,000 but donate four boxes of books to a school for a reading program for at risk youth and no one will tell you can't deduct $1,000 from your taxes.

In the same vein, I can put down I donated $250 to any charity without jumping through hoops but can't deduct $250,000

Have you ever actually been audited and had that pass Bill? I'm not saying something can't slip through, of course it could, but it's a gamble. If you like to gamble, it's how you'll do your taxes.

 

 

Can the general public walk into a comic store and buy a comic book for ten cents? No

Do professional comic sellers routinely offer their inventory for sale to the public for ten cents? No.

So how is the FMV ten cents?

 

Under most circumstances, businesses cannot deduct inventory at FMV. Their deduction is limited to its cost basis. FMV is not relevant in this case...unless tax law has changed recently, which why a tax professional is needed.

[jmg3637]

Not an accountant here, only an Actuary, but it was my understanding that if a business donated items to a charity it could only deduct the cost of inventory, or the depreciated value of the items being donated.

 

On the other hand if it is an individual you can use the FMV of the items involved. The only time I did this was when I donated a few boxes of books to a library, had a spreadsheet listing the books, and used the values from Overstreet. Since i kept the total amount fairly low there was no issue.

 

 

[shadroch]

And therein is what people here are missing.. The OP is not a corporation, nor an LLC , or Sub-chapter S, he's an individual. His profits are taxed as personal income, and he can write off charitable donations at their FMV.

Even in the worse case scenario where he is gets audited and they rule against him, what do you think is going to happen? Instead of the $1,000 deduction he claimed, they will give $250, which might end up costing him $200 in taxes, and a lecture on proper behavior?

[Tuffy]

Not an accountant here, only an Actuary, but it was my understanding that if a business donated items to a charity it could only deduct the cost of inventory, or the depreciated value of the items being donated.

 

On the other hand if it is an individual you can use the FMV of the items involved. The only time I did this was when I donated a few boxes of books to a library, had a spreadsheet listing the books, and used the values from Overstreet. Since i kept the total amount fairly low there was no issue.

 

 

What exam are you on? Or are you a full fledged actuary? I've been thinking about taking p and moving into that field after I pass the CPA.

 

This is about right. This is from the IRS website:

 

If you give property to a qualified organization, you generally can deduct the fair market value of the property at the time of the contribution.

 

If you're an individual, you can deduct 50% of your AGI. Only 10% if you're a corporation. You can deduct hobby losses to the extent of income, but there are limitations and if you've turned a profit 2/3 years then it isn't looked at as a hobby.

 

People have said that you should consider creating a corporation, and I'd agree. I don't know if you'd be able to do this retroactively, but if you created an LLC and contributed assets (comic books...but they may be considered inventory so always ask your tax preparer) you would be able to increase your basis with your basis in them. That's tax free schenanigans based on how much you contribute, profits from the LLC also increase your basis.

[rsouxlja7]

As far as charitable deductions go:

 

1. Less than 30% of the people in the US actually qualify to itemize according to a website I just read, although I've prepared hundreds of individual tax returns (and not some H&R Block mess) for high income individuals and very few people itemize. I do live in area with low property taxes though so that is a factor. Anyway, charitable contributions are useless for the majority of people.

2. If you donate more than $500 in non-cash goods to an organization, you will need a written letter from that organization with the FMV of those items.

 

I don't see why this is even something anyone would want to do. If you're in the 25% bracket, why would you want to give away $1000 in books (even if they're unsellable) just to save $250 in taxes? You're better off not having the $1000 in books in unsellable inventory in the first place or selling them on craigslist by the box for cash that you could use to pay your tax bill .

[revat]

also note that if you happen to be donating comics for a specific purpose (other than selling) to another non-profit, like a museum for display or exhibition, that there may be other tax rules involved. If this is the case, make sure you get a letter from the museum saying so. Also note that, if you have anything this valuable, you can probably afford to work with a tax professional.

[wombat]

This is from 2009, but I assume it is still relevant.

 

[revat]

As far as charitable deductions go:

 

1. Less than 30% of the people in the US actually qualify to itemize according to a website I just read, although I've prepared hundreds of individual tax returns (and not some H&R Block mess) for high income individuals and very few people itemize. I do live in area with low property taxes though so that is a factor. Anyway, charitable contributions are useless for the majority of people.

2. If you donate more than $500 in non-cash goods to an organization, you will need a written letter from that organization with the FMV of those items.

 

I don't see why this is even something anyone would want to do. If you're in the 25% bracket, why would you want to give away $1000 in books (even if they're unsellable) just to save $250 in taxes? You're better off not having the $1000 in books in unsellable inventory in the first place or selling them on craigslist by the box for cash that you could use to pay your tax bill .

 

+1

 

If you're middle class married filing jointly, its pretty tough get into the sweet spot where you're above the standard deduction, in a financial position to make a significant donation, and still below the threshold where they start phasing out deductions.

 

Businesses are another issue, of course.

[rsouxlja7]

Charitable deductions through your business still go to your Schedule A so if you're not itemizing you're not getting the deduction.

[revat]

Charitable deductions through your business still go to your Schedule A so if you're not itemizing you're not getting the deduction.

 

right sorry I meant like corps and stuff.

[shadroch]

So buying books for $100 to gain a $250 savings makes no sense to you?

Got it.