Bubbles Bursting 8 8

[Flex Mentallo]

Making sure he had not been followed, he went to view his secret collection, only to find the darned rats had taken everything.

 

Edited January 30, 2022 by Flex Mentallo

[Flex Mentallo]

In a hidden dimension, far from here...

[Professor K]

On 1/30/2022 at 2:33 AM, lou_fine said:

Did you hire a "fly by night" accountant as I thought you would have to pay capital gains taxes to the IRS only on the profit which you made after selling your books, as opposed to having to give all 100% of your profit to them?  

I had no purchase receipts for anything I sold so I thought claiming I paid 50% of what I sold them for was a safe number. I have no receipts for anything I sold in 2021 so I gonna claim the same even though I paid more for most f what I sold. And I'm not even sure if the capital gains thing applys to collectables. We'll see how far they go with all this but there is a good chance theyre gonna go after us for 100% of it. Meaning if you bought a book for 600 10 years ago and sold it for 600 yesterday they are going to want 100% of the tax on the full 600. 

I'm going with 50% again just to be safe. 

On 1/30/2022 at 3:19 AM, fifties said:

I just checked my PayPal account, "Tax Documents", and they posted, "Less paperwork for you. You don’t have any tax document on PayPal yet."

They don't post 1099's until 1/31 usually. 

[buttock]

On 1/30/2022 at 4:00 AM, Professor K said:

I had no purchase receipts for anything I sold so I thought claiming I paid 50% of what I sold them for was a safe number. I have no receipts for anything I sold in 2021 so I gonna claim the same even though I paid more for most f what I sold. And I'm not even sure if the capital gains thing applys to collectables. We'll see how far they go with all this but there is a good chance theyre gonna go after us for 100% of it. Meaning if you bought a book for 600 10 years ago and sold it for 600 yesterday they are going to want 100% of the tax on the full 600. 

I'm going with 50% again just to be safe. 

They don't post 1099's until 1/31 usually. 

Capital Gains applies if you've had them a sufficiently long time.

[rjpb]

On 1/29/2022 at 11:21 PM, Professor K said:

 I went to an accountant. We claimed the items I sold cost me 50% of what I sold them for. Deducted 13% for fees, 10.00 shipping on each item, arrived at a number and sent them a check with the amended tax form. They took the money (which was pretty much all my profit) and I never heard from them again. 

 

If you had a rough idea of what your profit was, then you should have a rough idea of what you paid. You should have claimed that as your cost. In the unlikely event that the IRS comes to you asking for purchase receipts for everything, they aren't going to give you special considerations because you picked 50% instead of 75% as a guess.

I don't know what tax bracket in you are in, but if shipping costs represented a minimum of 2% of the total, you were reporting no more than 35% of the total as gains. Even if you were taxed on that amount at 40% state and federal, including self-employed social security and medicaid taxes, that would be 14% percent of your gross, meaning if that was your actual profit, you should have calculated your cost of items at around 70% of the selling price. 

[Professor K]

On 1/30/2022 at 11:02 AM, buttock said:

Capital Gains applies if you've had them a sufficiently long time.

Hmmm. That's a little vague you gotta admit. Can you give a bit more detail? Or a lot more would be even better. 

On 1/30/2022 at 12:15 PM, rjpb said:

If you had a rough idea of what your profit was, then you should have a rough idea of what you paid. You should have claimed that as your cost. In the unlikely event that the IRS comes to you asking for purchase receipts for everything, they aren't going to give you special considerations because you picked 50% instead of 75% as a guess.

I don't know what tax bracket in you are in, but if shipping costs represented a minimum of 2% of the total, you were reporting no more than 35% of the total as gains. Even if you were taxed on that amount at 40% state and federal, including self-employed social security and medicaid taxes, that would be 14% percent of your gross, meaning if that was your actual profit, you should have calculated your cost of items at around 70% of the selling price. 

 Hey how you been? I kind of lost you about halfway into that 2nd paragraph but I get your meaning. At the time I was kind of at their mercy. I figured 50% profit, 13% fees, and 10.00 to ship each item was a safe choice for the amended return. So I paid taxes on about 30% of the money I received that year which still came to around 5k. Had I went with 25% profit plus the other deductions I don't think they would have accepted it as the check I sent would have been less than 1k. They wanted 15K.  I'll never know. .

I'm just trying to figure out the best way to go about all of this. A lot of us here are going to have to deal with this sooner than later. My plan this year is to claim 50% profit with 13% fees and 15.00 shipping for each item, and perhaps a few refunds I gave, and hope they accept it. If anyone has a better plan based on any knowledge or experience please share with the class. I was just having fun, buying and selling books, building a collection........now the dream is over. 

Edited January 30, 2022 by Professor K
spelling correction

[Ryan.]

On 1/30/2022 at 2:58 PM, Professor K said:

Hmmm. That's a little vague you gotta admit. Can you give a bit more detail? Or a lot would be even better. 

 Hey how you been? I kind of lost you about halfway into that 2nd paragraph but I get your meaning. At the time I was kind of at their mercy. I figured 50% profit, 13% fees, and 10.00 to ship each item was a safe choice for the amended return. So I paid taxes on about 30% of the money I received that year which still came to around 5k. Had I went with 25% profit plus the other deductions I don't think they would have accepted it as the check I sent would have been less than 1k. They wanted 15K.  I'll never know. .

I'm just trying to figure out the best way to go about all of this. A lot of us here are going to have to deal with this sooner than later. My plan this year is to claim 50% profit minus 13% fees and 15.00 shipping for each item, and perhaps a few refunds I gave, and hope they accept it. If anyone has a better plan based on any knowledge or experience please share with the class. I was just having fun, buying and selling books, building a collection........now the dream is over. 

I can tell you what I do. Every time I buy something I record the purchase price on a spreadsheet. When I sell it I record the sell price and any fees, including shipping and materials costs. I use those numbers to determine my net profit. 

[rjpb]

On 1/30/2022 at 11:58 AM, Professor K said:

Hmmm. That's a little vague you gotta admit. Can you give a bit more detail? Or a lot more would be even better. 

 Hey how you been? I kind of lost you about halfway into that 2nd paragraph but I get your meaning. At the time I was kind of at their mercy. I figured 50% profit, 13% fees, and 10.00 to ship each item was a safe choice for the amended return. So I paid taxes on about 30% of the money I received that year which still came to around 5k. Had I went with 25% profit plus the other deductions I don't think they would have accepted it as the check I sent would have been less than 1k. They wanted 15K.  I'll never know. .

I'm just trying to figure out the best way to go about all of this. A lot of us here are going to have to deal with this sooner than later. My plan this year is to claim 50% profit with 13% fees and 15.00 shipping for each item, and perhaps a few refunds I gave, and hope they accept it. If anyone has a better plan based on any knowledge or experience please share with the class. I was just having fun, buying and selling books, building a collection........now the dream is over. 

I get it, a letter from the IRS reminding you that you failed to report income and here's what we we'd like with penalties and interest assuming the full amount is taxable is going to make one nervous about what they deduct against it.

On the other hand if you are reporting your income, don't underreport actual expenses because you're afraid the IRS might disallow them. Chances are it will never come to that, and if it does, you can then pay what additional they say they are owed with some interest. As Ryan says, keep a spreadsheet with your costs and expenses plugged in, even if you don't have a receipt on hand, and start keeping them (even if in the form of ebay and credit card purchase histories) for the future.  If your sales were through ebay and you printed postage through them, you can download your actual fees and shipping expenses and not have to guess at them.  The IRS won't automatically disallow an expense because there is no receipt, though who knows what they might consider reasonable, but likely millions more will be filing Schedule Cs than in the past, overwhelming an already understaffed investigations arm.

Maybe I'm a bit sanguine about this as my only correspondence with the IRS other than filing taxes was when I made an error in calculating a credit and they sent me a letter explaining why I was getting some of my payment back. 

 

[Professor K]

On 1/30/2022 at 3:02 PM, Ryan. said:

I can tell you what I do. Every time I buy something I record the purchase price on a spreadsheet. When I sell it I record the sell price and any fees, including shipping and materials costs. I use those numbers to determine my net profit. 

Hi Ryan. Yes that's a great method. Also keep receipts of everything you bought. 

Only here is the thing- a lot of people regardless of what they sell had accumulated those items years ago. They have no record of it. So what to do? Go by memory I suppose. Or think of a number that feels safe.

They made these changes to extract most likely billions from the population. Its about money. Without getting into why let me just put forth an example.  Say 2 years ago you paid 10,000 for a book. 2 years later for whatever reason you need to sell. You get 12,000 for it. Minus fees you recieved 11,000. You get a 1099 showing 12,000. You do your taxes and pay tax on 1,000 of that 12,000. Well I'll state with extreme confidence there is no way in heck they are going to accept that. So they'll contact you by mail. But you have no record of what you originally paid. Where does it end? Who knows.

Also, if we're going to be treated like a business and we sell 10k this year. But we bought 10k of books. Inventory by all legal standards I would think. But the books we sold were not the same books we bought. What shall we do? Pay full tax on everything we sold while paying tax on everything we bought? I don't think any "business" could survive that. I just don't know. Got a headache now.

On 1/30/2022 at 4:07 PM, rjpb said:

I get it, a letter from the IRS reminding you that you failed to report income and here's what we we'd like with penalties and interest assuming the full amount is taxable is going to make one nervous about what they deduct against it.

On the other hand if you are reporting your income, don't underreport actual expenses because you're afraid the IRS might disallow them. Chances are it will never come to that, and if it does, you can then pay what additional they say they are owed with some interest. As Ryan says, keep a spreadsheet with your costs and expenses plugged in, even if you don't have a receipt on hand, and start keeping them (even if in the form of ebay and credit card purchase histories) for the future.  If your sales were through ebay and you printed postage through them, you can download your actual fees and shipping expenses and not have to guess at them.  The IRS won't automatically disallow an expense because there is no receipt, though who knows what they might consider reasonable, but likely millions more will be filing Schedule Cs than in the past, overwhelming an already understaffed investigations arm.

Maybe I'm a bit sanguine about this as my only correspondence with the IRS other than filing taxes was when I made an error in calculating a credit and they sent me a letter explaining why I was getting some of my payment back. 

 

That all makes sense. Pain in the butt but makes sense.

Edited January 30, 2022 by Professor K

[Ryan.]

On 1/30/2022 at 4:40 PM, Professor K said:

You do your taxes and pay tax on 1,000 of that 12,000. Well I'll state with extreme confidence there is no way in heck they are going to accept that. 

I don't see why they wouldn't. Stock traders do this routinely. Cost basis and COGS are real. 

[Professor K]

I hope you're right. I'm going to an accountant in a few weeks and I'm going to run these things by him. 

[lou_fine]

On 1/30/2022 at 1:43 PM, Ryan. said:

On 1/30/2022 at 1:40 PM, Professor K said:

You do your taxes and pay tax on 1,000 of that 12,000. Well I'll state with extreme confidence there is no way in heck they are going to accept that. 

I don't see why they wouldn't. Stock traders do this routinely. Cost basis and COGS are real. 

Totally agree with Ryan here as you should most definitely simply report what you had to pay for the book in the first place plus expenses, as opposed to some made up lower number that you believe will keep the IRS happy.  

Or like some other lucky boardies here, move to a place like Hong Kong, Singapore, or some other exotic places where there are no capital gains taxes at all and then you can sell your collectibles for hundreds of thousands of dollars and pocket the whole entire amount for yourself.    

[rjpb]

On 1/30/2022 at 1:45 PM, Professor K said:

I hope you're right. I'm going to an accountant in a few weeks and I'm going to run these things by him. 

A good accountant should be able to tell you whether your sales should be treated as capital gains or as a business. If a business, the inventory method of accounting may not be desirable and generally isn't required if you have less than a million in gross sales, but these details are what you pay accountants to figure out, at least the first time. I used a tax accountant for a couple of years when I was flipping houses, but then figured I could return to doing my own taxes once I was clear on how to handle them, you have to do all the work yourself anyway totaling up everything for them. 

[Aman619]

Profits on the sales of comicbooks are taxed as at the higher capital gains rate: 28%. Plus the 3.8 surcharge related to the AFA.  Doesn’t matter if short term or long term gains.   Only the gains, profits, is taxable.  Therefore you state what your cost basis was and use it to calculate your profit, for each item sold. Certain expenses can also be added to your costs, like shipping.  But storage and storage materials would be allowable only as a fraction of the number of items in your collection.  Meaning if you bought 100 mylars, you could add the cost of one mylar and backing board.  Similarly you can add the slabbing and pressing fees.  Plus shipping, also on a fractional basis: FedEx it 25 slabs for $38 means you’d get to add 38/12 to your cost basis too.  You don’t have to prove what you paid… but as was the case here, if the IRS questions you, you’ll have to show a receipt.  If you can’t, they will say you paid nothing, unless your accountant is skilled at negotiating IRS audits.  

that’s for collectors.  If you are a dealer, operating as a business, the rules are different.  

[lou_fine]

On 1/30/2022 at 8:28 PM, Aman619 said:

You don’t have to prove what you paid… but as was the case here, if the IRS questions you, you’ll have to show a receipt.  If you can’t, they will say you paid nothing,

That's actually totally absurb for them to think you would pay nothing at all for a book, instead of basing it on the concept of reasonableness  

Does that mean if you don't have a sales contract for your sale of Adolescent Radioactive Black Belt Hamsters, they can then claim you sold it for $100K.  

And are there long term collectors who really have a purchase receipt for every single comic book which they have in their persoanl collection?  

[Professor K]

On 1/31/2022 at 1:55 AM, lou_fine said:

That's actually totally absurb for them to think you would pay nothing at all for a book, instead of basing it on the concept of reasonableness  

Does that mean if you don't have a sales contract for your sale of Adolescent Radioactive Black Belt Hamsters, they can then claim you sold it for $100K.  

And are there long term collectors who really have a purchase receipt for every single comic book which they have in their persoanl collection?  

They can't claim you sold anything for anything if there's no record of it. No 1099. They can't invent your income. But like I've been saying , they want money, and if you get too extreme with your deductions they most likely will contact you and ask for proof. and if you don't have it like Aman said they can say you paid nothing for it. At that point its either pay up or fight it, all the while the interest is accruing.

You said reasonableness. If like most of us we don't have receipts for the books in our collections then to you what is a reasonable percentage of profit to claim? Fees and shipping are black and white deductions but the profit on books we have no receipt for, that is the question. 

Edited January 31, 2022 by Professor K

[fifties]

I think the best course of action would be to discuss the matter with a competent tax accountant, and preferably a CPA.  I've seen all kinds of well meaning but mis-information in this thread.  We're obviously no experts in the tax consequences of collectibles, so best to seek the advice from someone whose full time business it is.

[Aman619]

Of course!  Everyone should be aware right off the top though that the IRS considers gains on the sale of comics as a taxable event.  That being the case, the normal rules of taxation apply even though most of us have rarely if ever considered it.  

[fifties]

On 1/31/2022 at 2:21 PM, Aman619 said:

Of course!  Everyone should be aware right off the top though that the IRS considers gains on the sale of comics as a taxable event.  That being the case, the normal rules of taxation apply even though most of us have rarely if ever considered it.  

Correct, and this is why a tax accountant would know what would satisfy the government, and at the least taxable amount, regarding acquisition cost when one doesn't have proof of it.

[Aman619]

well yes and no. Many accountants play it straight.  They sign the returns too.   "Dont have a receipt and you wanna give me a cost basis, fine, but my advice is you shouldn't."  They say their clients want to falsify stuff all the time, but its never recommended by any lawful accountant.  If youre in the .1%, well, maybe thats another story. Some of their accountants are shameless and stretch the rules all the time.