Comic Book Related Income Tax Question

[skybolt]

Now that it's income tax season, I have some concerns.

 

Thus far I've only been buying comic books, and have only sold a few. However, I find my self in a situation where I have to sell off some of my collection to purchase additional books. Here are my current assumptions, so please tell me if I'm mistaken:

 

1.) I have to keep records of all my significant purchases (> $50 each), and be able to prove what I initially paid for the books.

 

2.) Each item or individual sale is considered a separate purchase. I can't lump everything together when I'm selling individual books.

 

3.) You can't take credit for Inflation even if a book's value only goes up by a few percentage points every year (less than inflation rate). If you purchased a book 10-years ago for $200 and sold it today for $210, then you made a $10 profit.

 

4.) If I sell off my 5-year old collection for $20,000 ($2,000 profit), but used that money to purchase additional books, I still have to report the $2,000 profit on my income tax papers.

 

Here are some problems and questions I have about the system:

 

1.) Each year is different. Let's say in 2006 I sell off books that I'd purchased in 2003 (for $14,000) for only $10,000. Since I have all my records, I can easily prove that I didn't make any money that year. However, let's say in 2007 I sell my better collection that I'd purchased in 2002 (for $20,000) for $24,000. Now all of a sudden I've supposedly made a profit of $4000, where in reality I actually broke even between the 2 years. Why should Uncle Sam gain from my good purchases, but turn a blind eye towards my bad ones. If the above statement is true, then maybe I should balance off my sales from each year to show a zero net gain.

 

2.) How do I include Ebay frauds in my final tally. For instance, last year some one took me for $720 on EBay. However, this amount will be completely forgotten about 5 years from now, if I decided to start selling my books.

 

3.) Can comic book insurance, safety deposit box fees, travel expenses, etc. count towards initial payment for the books? I'm already assuming that shipping and CGC grading fees can be included.

 

Don't get me wrong, I'm not in this hobby to make money, but I certainly wouldn't want give Uncle Sam a penny from the few books I sold for a profit. If by some miracle my collection sells for double what I paid for it 10-years down the line, then I have absolutely no problem with paying my taxes. However, if I broke even or lost money during 20 years of collecting, then why should I pay taxes for those 2 good years where I sold the majority of my HG books.

 

Sorry for my rant, but I would greatly appreciate some feedback from the experts on these boards. Any piece of information would be really helpful.

[shadroch]

Lets just say that a great many of your assumptions are a bit off the mark.

Then I'll say that free advice is worth less than what you pay for it,and suggest you either read up on the subject or pay a tax consultant.

[Jeffreykli]

Even though your post is pretty long and detailed, there are a lot of other questions that need to be answered. This isn't a simple question or situation, since you're talking about potentially a lot of books bought and sold over a number of years.

 

My advice?...Talk to a tax professional.

[skybolt]

Even though your post is pretty long and detailed, there are a lot of other questions that need to be answered. This isn't a simple question or situation, since you're talking about potentially a lot of books bought and sold over a number of years.

 

My advice?...Talk to a tax professional.

 

Thanks. I'll contact one and get educated on the subject.

[FlyingDonut]

You need to talk to your tax professional. Many of your assumptions are incorrect.

[skybolt]

You need to talk to your tax professional. Many of your assumptions are incorrect.

 

Thank you. I appreciate the advice. At least now I know that it's a little bit more complicated than what I originally assumed, so I'll seek professional help.

[whomerjay]

You first need to decide whether this is a hobby or legitimate business, or some of both.

 

I concur with the advice to read up on all of this. And a one hour consulting session with a tax accountant is a good investment (if you are well- prepared with questions)

 

If a business, and you report on a Schedule C (sole proprietor), you are allowed to deduct all expenses associated with conducting your business against what you net. If your hobby-related expenses/buys are intertwined, you need to separate them out.

 

If you are not talking about a lot of money, you should consider how much effort you want to put into considering everything and calculating everything accurately to the penny. Good faith efforts on small $ amounts are typically not punished by the IRS. It's not exactly a "nobody expects the Spanish inquisition" scenario.

[fantastic_four]

You first need to decide whether this is a hobby or legitimate business, or some of both....Good faith efforts on small $ amounts are typically not punished by the IRS.

 

I was thinking the same thing. Unless you've crossed that tough-to-define "my selling of comics is now considered a business" line, the detail into which skybolt is going seems more than is necessary.

 

Or maybe I haven't had an IRS auditor up my arse yet and I'd be in for a shock. I just keep track of how much I pay, how much I sell for, and report the gain or loss every year. Or at least that's my story, and I'm sticking to it.

[FlyingDonut]

You first need to decide whether this is a hobby or legitimate business, or some of both.

 

I concur with the advice to read up on all of this. And a one hour consulting session with a tax accountant is a good investment (if you are well- prepared with questions)

 

If a business, and you report on a Schedule C (sole proprietor), you are allowed to deduct all expenses associated with conducting your business against what you net. If your hobby-related expenses/buys are intertwined, you need to separate them out.

 

If you are not talking about a lot of money, you should consider how much effort you want to put into considering everything and calculating everything accurately to the penny. Good faith efforts on small $ amounts are typically not punished by the IRS. It's not exactly a "nobody expects the Spanish inquisition" scenario.

 

 

NOBODY expects the Spanish Inquisition!

[sfilosa]

Quick Hits:

 

1) Comic books are ALMOST like stocks. If you sold a book, you would show it's cost (plus any other cost such as CGC grading fees) as you COST BASIS. For the SALE BASIS you would take your NET PROCEEDS (which means Sale Price, Less Fees to Sell the book as in eBay fees, PayPal fees, etc.) That is similar to including the commission to buy a stock and the commission to sell a stock.

 

2) The main difference between stock and comic book transactions ist that a comic book is considered a collectible. Therefore it is subject to slightly different tax rules (mainly that it can be taxes at a higher capital gains tax rate).

 

3) You could deduct certain expenses (i.e. comic publications to determine value, convention fees, etc) on Schedule A, but because there is a threshold that must be met, you probably would get ZERO tax savings.

 

4) The fraud issue is a little bit trickier, as usually causualty loss is subeject to a HUGE threshold amount (so almost no one gets any tax benefit).

 

Hope some of this helps.

[skybolt]

Quick Hits:

 

1) Comic books are ALMOST like stocks. If you sold a book, you would show it's cost (plus any other cost such as CGC grading fees) as you COST BASIS. For the SALE BASIS you would take your NET PROCEEDS (which means Sale Price, Less Fees to Sell the book as in eBay fees, PayPal fees, etc.) That is similar to including the commission to buy a stock and the commission to sell a stock.

 

2) The main difference between stock and comic book transactions ist that a comic book is considered a collectible. Therefore it is subject to slightly different tax rules (mainly that it can be taxes at a higher capital gains tax rate).

 

3) You could deduct certain expenses (i.e. comic publications to determine value, convention fees, etc) on Schedule A, but because there is a threshold that must be met, you probably would get ZERO tax savings.

 

4) The fraud issue is a little bit trickier, as usually causualty loss is subeject to a HUGE threshold amount (so almost no one gets any tax benefit).

 

Hope some of this helps.

 

Thanks sfilosa. You're posts are always helpful.

[aardvark88]

U can move to Canada where u are supposed to remit tax on the profit from a collectible (personal use property) if u sold it for over $1,000 Canadian or as a set for over $1k Cdn.

[Thegoldenage]

Quick Hits:

 

1) Comic books are ALMOST like stocks. If you sold a book, you would show it's cost (plus any other cost such as CGC grading fees) as you COST BASIS. For the SALE BASIS you would take your NET PROCEEDS (which means Sale Price, Less Fees to Sell the book as in eBay fees, PayPal fees, etc.) That is similar to including the commission to buy a stock and the commission to sell a stock.

 

2) The main difference between stock and comic book transactions ist that a comic book is considered a collectible. Therefore it is subject to slightly different tax rules (mainly that it can be taxes at a higher capital gains tax rate).

 

3) You could deduct certain expenses (i.e. comic publications to determine value, convention fees, etc) on Schedule A, but because there is a threshold that must be met, you probably would get ZERO tax savings.

 

4) The fraud issue is a little bit trickier, as usually causualty loss is subeject to a HUGE threshold amount (so almost no one gets any tax benefit).

 

Hope some of this helps.

 

Good points, but 3 isn't quite correct.

 

You can deduct all of your business related expenses (i.e. travel expenses to and from shows, hotel, cost of admission, subscriptions, fees, etc). However some have limitations (such as per-day limit on meals and tips). When the expenses are calculated on schedule A, they are deducted from schedule C profits. What's left is your profit or loss. If you have a regular job, any loss can be deducted from your income taxes and you will get a bigger refund. If you have a profit, you add it to your income and voila! You owe them money or you get a smaller refund.

 

You should get the Dome 2004 expense manual. It lists all of the deductions you can take (you might be surprised at what is listed) and a month-by-month sales/expenses chart. It is very helpful.

[sfilosa]

Good points, but 3 isn't quite correct.

 

You can deduct all of your business related expenses (i.e. travel expenses to and from shows, hotel, cost of admission, subscriptions, fees, etc). However some have limitations (such as per-day limit on meals and tips). When the expenses are calculated on schedule A, they are deducted from schedule C profits

 

I wasn't assuming it was a business, just investments. Obviously, if it is a business then you can deduct more items, but you also have to prove that it isn't just a hobby. PLUS, you could be subject to SOCIAL SECURITY TAX.

[Thegoldenage]

I wasn't assuming it was a business, just investments. Obviously, if it is a business then you can deduct more items, but you also have to prove that it isn't just a hobby. PLUS, you could be subject to SOCIAL SECURITY TAX.

 

There wouldn't be any Social Security Taxes unless you were paying an employee.

[sfilosa]

There wouldn't be any Social Security Taxes unless you were paying an employee.

 

 

If you have a business on Schedule C, depending on the type of business, your profit is like a wage and subject to Soc. Sec. Tax and you have to pay the employee and employer share.

[whomerjay]

There wouldn't be any Social Security Taxes unless you were paying an employee.

 

 

If you have a business on Schedule C, depending on the type of business, your profit is like a wage and subject to Soc. Sec. Tax and you have to pay the employee and employer share.

 

Only if you net $400 or more. If your regular wages exceed the SS limit, (90K), I believe you will either be exempt or limited on this SS payment.

[Aman619]

if your profit is only 2000, dont lose any sleep over it. You would need to be audited, or the person you sold it to would be, but regardless, your interest and penalties starting from a gross capital gain of $2000 (before you sit down and really fill out an amended return etc, would be worth the risk. Unless you are a stickler for paying your fair share of taxes and consider my advice to be unethical, dont worry about it.

 

Ive never had a worry since I moved to Brazil a few years ago for (ahem) health reasons...

[uclapeterg]

if your profit is only 2000, dont lose any sleep over it. You would need to be audited, or the person you sold it to would be, but regardless, your interest and penalties starting from a gross capital gain of $2000 (before you sit down and really fill out an amended return etc, would be worth the risk. Unless you are a stickler for paying your fair share of taxes and consider my advice to be unethical, dont worry about it.

 

Ive never had a worry since I moved to Brazil a few years ago for (ahem) health reasons...

 

Yea, umm, hey IRS, I know this guy....