Taxes ? on Auction House Consignments

[insidethewrapper]

I thought I read somewhere on here that consigners don't have to pay taxes on sales of their consignments . Is that true ? The government has no record of someone selling a big item like T206 Wagner etc. for 1 million + dollars.

[swarmee]

You probably should ask an accountant.

But... before 2018, it was routinely accepted that "hobbyists" with sales could subtract the expenses incurred (original cost of item, fees, shipping, etc) and then were only expected to self-report and pay Federal income taxes on their profit margin.

That changed in 2018 with the passage of the new tax law that doubled the standard deduction. Hobbyists now owe taxes on their entire sales prices, while businesses can still subtract deductions. PayPal will send the IRS a 1099 if you have transactions (goods) of over $20,000 in sales and 200 transactions. They might send it anyways. Just because you and the IRS are not sent a 1099 does not mean that you don't owe taxes. Just because you sell through a consignor doesn't mean that you don't owe taxes. You do. You may want to register as an LLC to qualify as a business.
But please confirm with an accountant.

Edit: You may be able to debit cost of goods sold if you report the sale as a Collectible investment, rather than ordinary income.

[sb1]

Collectibles tax rate is 28%. That is net of the cost less the price sold for, regardless of tax bracket. Unless you inherited it, then you would need an appraisal at time of inheritance which would provide you a stepped up basis.

I am not an accountant either but believe these to be the correct answers.

[insidethewrapper]

My question is: If the consignor doesn't let the IRS know , how would they(IRS) know of the sale if not reported by the auction house ? I've never consigned before so I don't know how that works.

[swarmee]

You are required to report the income yourself, and you sign that you've done so on your tax form. Are you willing to lie to the federal government on your official tax form?

[insidethewrapper]

Thanks for the answer, now I know what I need to report if I consign in the future or decide to just leave for inheritance. It appears as a collector ( not business) you must report the full amount ( it doesn't matter what you paid for the item initially ).thanks

[Kidnapped18]

Yes any gains are taxed at the 28% rate
Yes you must self report, unless you want to expose yourself to tax underpayment penalties
You are responsible for your taxes not the auction house

You can check the Code sections for this info, which should also define collectibles which can include baseball cards
As always confirm with an accountant

Tony

[Casey2296]

In my State it's fairly simple to set up a small LLC in which case you could write off expenses against profits and report as Schedule C on line 12 of schedule 1. If you're talking about a substantial profit you may want to look into that. Also, if your heirs inherit your collection their cost basis goes up to current value at time of death, so if they sold the collection there would be no capital gain taxes assessed.
Sidenote, If you trade cards with another person that is a non-taxable transaction.

[Rhotchkiss]

Time out, I think there is some potentially dangerous advice being given out here. To qualify, I am a tax attorney by trade, with a masters in tax law from Georgetown; although I gave that racket up 16 years ago. I have not actively practiced for a long time and I am hardly an expert on the taxation of collectibles. But here is what I think:

Baseball cards can be considered collectibles. It will be considered a collectible if it was purchased for investment. This is a determination based on the taxpayer’s intent. A business that deals in cards does not buy cards for investment. Rather, they buy cards for resale (it’s inventory), which leads to different, and potentially worse, tax results (I.e., ordinary gains, which are often higher than 28%). This is one of the many reasons I would be weary about establishing an LLC or other business entity. Whether to collect through a business entity is a whole separate topic and I won’t go into that here except to say that it’s probably unnecessary or a bad idea for most of us. Assuming the card is not acquired by a business entity......

A card will be considered a collectible based on the intent of the acquirer. Cards are tough, so let’s use an antique car instead: you have a much better argument that you had investment intent If you buy the car and store it somewhere safe for 10 years than sell it vs you drove it around all the time, showed it off at car shows, and then sold it; the latter looks more like acquired for personal enjoyment than investment. If the item was acquired for personal use, you may have gains nevertheless, but it will be at ordinary rates; you likely will not be entitled to claim losses.

If the item is considered a collectible, and it was held over 1 year, it will be taxed at a maximum rate of 28%. You will be taxed on the amount recognized, which means gross sales price, minus your basis (acquisition costs) plus all costs (these get capitalized to the asset). So, if I bought a card for $500 and paid 6% state tax and $25 shipping, my initial basis is $555. If I hold it for a year or more and the sell it for a gain- lets say I sell for $700- I am liable for tax on $145 ($700 realized minus basis). You can net losses against gains, and sometimes you can bet normal longterm capital losses against longterm collectible gains, and vice versa, but this gets complicated.

We live in a country that depends on self reporting. You are supposed to report income/gains and pay taxes on that income/gains. If you don’t, the IRS may never find out. But if they do, you may get in trouble and pay penalties and interest on top of the tax you owed; and rightly so. It’s your choice whether you report gains on cards.

BTW- collectibles were distinguished from other capital assets and the 28% rate was initially enacted based on the theory that collectibles are the purview of the wealthy and the wealthy can afford to pay extra taxes on these assets; in other words, it was a politically correct tax aimed at generating additional revenue off gains in assets normally owned by the wealthy; as opposed to stock or real estate, which is more “common”. Opinions about this aside (I don’t mind the logic), it will be interesting to see what, if any, changes are made to the taxation of collectibles under a democratic administration seeking to amend the tax code.

[Eric72]

So, here's a situation most of us (presumably) will find ourselves in.

I bought a card at a show...paid cash, no receipt. For the sake of argument, let's say I paid $200. I keep a record of the sale; however, have nothing other than my spreadsheet (and maybe an ATM receipt) to show what and when I paid for it.

Fast forward a year or more. I now sell the card on eBay or some similar online site. Let's say I net $250 after fees and shipping.

Do I pay taxes on the entire $250 - or - does my record-keeping, along with self-reporting correctly, allow me to only pay taxes on the $50 gain?

[Bicem]

What Ryan said.

[Rhotchkiss]

So, here's a situation most of us (presumably) will find ourselves in.

I bought a card at a show...paid cash, no receipt. For the sake of argument, let's say I paid $200. I keep a record of the sale; however, have nothing other than my spreadsheet (and maybe an ATM receipt) to show what and when I paid for it.

Fast forward a year or more. I now sell the card on eBay or some similar online site. Let's say I net $250 after fees and shipping.

Do I pay taxes on the entire $250 - or - does my record-keeping, along with self-reporting correctly, allow me to only pay taxes on the $50 gain?

You pay taxes on $50. That’s what your net gain is, or gain recognized. If you are audited, your spreadsheet plus the eBay receipt is fine proof of basis and net sale proceeds; in fact, the spreadsheet can be great proof if it is meticulously -and contemporaneously maintained.

[Casey2296]

Ryan has some good points to consider. I'm no CPA so please consult one before you do anything, I do however qualify people based on their tax returns everyday. If you form an LLC you are telling the government I am in the business of buying and selling cards, it could be anything but lets stick to cards. As a business you are allowed to write off expenses against profits. Basic schedule C stuff on your 1040's. To be clear you are buying and selling cards as an investment in that scenario. Also be aware as a business the IRS requires you make a profit at some point, usually 2 of the first 5 years.

In the collectibles as an asset category you should consult an estate planning attorney. Think of a painting that you bought and hung on the wall for 30 years, that would not be an investment. Its value may go up, it may go down. As an asset of your estate the cost basis on things like real estate and other assets increase to current market value at time of death when your heirs inherit the assets.

Again, this stuff is complicated and can vary from state to state. Consult a professional before you do anything.

[Eric72]

You pay taxes on $50. That’s what your net gain is, or gain recognized. If you are audited, your spreadsheet plus the eBay receipt is fine proof of basis and net sale proceeds; in fact, the spreadsheet can be great proof if it is meticulously -and contemporaneously maintained.

Thanks, Ryan. I appreciate you weighing in on this.

[insidethewrapper]

John above stated the tax law changed in 2018 and you have to pay taxes on the entire $ 250 ( not the Net) if you are not a business in the example stated above. Net is for businesses only. So I'm reading 2 different things on here. Guess I need a tax expert about the current laws to determine who is right.
Business : Sale - cost of goods, etc = Net Profit ( Use Schedule C )
Collector(Non business): Tax on Gross or Net Sale of item ???

[steve B]

If you are a business, there may be other taxes to consider. My city has a tax on a business inventory as long as it's held in the city. Sort of panicked me when I found out, since I'd briefly had a resale certificate, and lots of "stuff" which a taxman might consider to be inventory since I'd sold stuff in most categories of collectibles. T say nothing of the random assortment of rusty metal rods, wood pieces, other random metal pieces etc that I sometimes make things out of.

[Casey2296]

If you are a business, there may be other taxes to consider. My city has a tax on a business inventory as long as it's held in the city. Sort of panicked me when I found out, since I'd briefly had a resale certificate, and lots of "stuff" which a taxman might consider to be inventory since I'd sold stuff in most categories of collectibles. T say nothing of the random assortment of rusty metal rods, wood pieces, other random metal pieces etc that I sometimes make things out of.

Nothing worse than paying annual possessory tax to the local gendarme on that Oak table from the 1980's cuz it's too heavy to take to the dump.

[Rhotchkiss]

John above stated the tax law changed in 2018 and you have to pay taxes on the entire $ 250 ( not the Net) if you are not a business in the example stated above. Net is for businesses only. So I'm reading 2 different things on here. Guess I need a tax expert about the current laws to determine who is right.
Business : Sale - cost of goods, etc = Net Profit ( Use Schedule C )
Collector(Non business): Tax on Gross or Net Sale of item ???

You are big boy, capable of deciding whether or not to report taxable gain, capable of deciding whose tax advice on a baseball card message board to follow, and capable of googling your query and finding the answer out for yourself. But just bc I am capable of using a search engine myself, here is one (of a zillion) articles I found (much cheaper than a “tax expert”, which btw, I am (or was)):

https://1040return.com/collectibles-tax-collector/

[russkcpa]

Time out, I think there is some potentially dangerous advice being given out here. To qualify, I am a tax attorney by trade, with a masters in tax law from Georgetown; although I gave that racket up 16 years ago. I have not actively practiced for a long time and I am hardly an expert on the taxation of collectibles. But here is what I think:

Baseball cards can be considered collectibles. It will be considered a collectible if it was purchased for investment. This is a determination based on the taxpayer’s intent. A business that deals in cards does not buy cards for investment. Rather, they buy cards for resale (it’s inventory), which leads to different, and potentially worse, tax results (I.e., ordinary gains, which are often higher than 28%). This is one of the many reasons I would be weary about establishing an LLC or other business entity. Whether to collect through a business entity is a whole separate topic and I won’t go into that here except to say that it’s probably unnecessary or a bad idea for most of us. Assuming the card is not acquired by a business entity......

A card will be considered a collectible based on the intent of the acquirer. Cards are tough, so let’s use an antique car instead: you have a much better argument that you had investment intent If you buy the car and store it somewhere safe for 10 years than sell it vs you drove it around all the time, showed it off at car shows, and then sold it; the latter looks more like acquired for personal enjoyment than investment. If the item was acquired for personal use, you may have gains nevertheless, but it will be at ordinary rates; you likely will not be entitled to claim losses.

If the item is considered a collectible, and it was held over 1 year, it will be taxed at a maximum rate of 28%. You will be taxed on the amount recognized, which means gross sales price, minus your basis (acquisition costs) plus all costs (these get capitalized to the asset). So, if I bought a card for $500 and paid 6% state tax and $25 shipping, my initial basis is $555. If I hold it for a year or more and the sell it for a gain- lets say I sell for $700- I am liable for tax on $145 ($700 realized minus basis). You can net losses against gains, and sometimes you can bet normal longterm capital losses against longterm collectible gains, and vice versa, but this gets complicated.

We live in a country that depends on self reporting. You are supposed to report income/gains and pay taxes on that income/gains. If you don’t, the IRS may never find out. But if they do, you may get in trouble and pay penalties and interest on top of the tax you owed; and rightly so. It’s your choice whether you report gains on cards.

BTW- collectibles were distinguished from other capital assets and the 28% rate was initially enacted based on the theory that collectibles are the purview of the wealthy and the wealthy can afford to pay extra taxes on these assets; in other words, it was a politically correct tax aimed at generating additional revenue off gains in assets normally owned by the wealthy; as opposed to stock or real estate, which is more “common”. Opinions about this aside (I don’t mind the logic), it will be interesting to see what, if any, changes are made to the taxation of collectibles under a democratic administration seeking to amend the tax code.


Excellent post and I agree 100%. We just had a client in selling 4 cards in the current Heritage auction that should bring in $20K+ He was elated to hear that Heritage does not "1099" sellers. I clearly explained the law and what his obligation is. All I can do is put a note in the file and make him sign his Income Tax Questionnaire.
Russ

[swarmee]

John above stated the tax law changed in 2018 and you have to pay taxes on the entire $ 250 ( not the Net) if you are not a business in the example stated above. Net is for businesses only. So I'm reading 2 different things on here. Guess I need a tax expert about the current laws to determine who is right.
Business : Sale - cost of goods, etc = Net Profit ( Use Schedule C )
Collector(Non business): Tax on Gross or Net Sale of item ???

If you record it as an investment, there may be additional ways of categorizing it on your taxes, as Ryan laid out. That's one reason I also recommended talking to an accountant.

[insidethewrapper]

https://www.nolo.com/legal-encyclopedia/can-you-deduct-your-expenses-from-hobby.html

According to this article, since 2018 tax law ,if you are a collector ( hobby vs business) , you must report the total sale as income.

[GeoPoto]

I am not a lawyer, accountant, or experienced "hobbyist taxpayer". Using common sense, however, I would suggest that the taxable activity is the gain (if any) from selling your cards. The gain is the net sales proceeds minus the original purchase price (including BP and shipping). Just like stocks. The 2018 "change" is a limitation on deducting home "office" expenses like you would have if you ran a business out of your house. It is hard to see how anybody could buy cards at auction, sell them soon thereafter, and come out ahead. If you are doing that, you are running a business and should file a separate tax return in the name of your business.

Sent from my moto g(6) using Tapatalk

[puckpaul]

https://www.nolo.com/legal-encyclopedia/can-you-deduct-your-expenses-from-hobby.html

According to this article, since 2018 tax law ,if you are a collector ( hobby vs business) , you must report the total sale as income.

No.. you are misreading it. You have to report the total income and cannot deduct ordinary expenses and costs... but you most certainly can deduct the cost of the items you sold. It’s income that is taxed, not sales prices.

[Directly]

So the AH pays in cash, no checks or paper trail 1099--nice!!

[Aquarian Sports Cards]

Auction houses don't usually pay in cash because they need the paper trail for their OWN records.

We do NOT report sales to the IRS or the state Departments of revenue but are required to keep our records for 7 years in case they are ever needed for divorces, taxes, estates etc. If you get audited and they somehow get to us, they are going to get the info so I would suggest honesty might be the best policy.

[egbeachley]

Some bad information here.

You do NOT pay taxes on the total sales price. You can always deduct the cost of the item. Doesn’t matter if you are a business or collector. Only the gain amount is taxed, just the tax percentage rate may change.

2018 tax laws did NOT change the fact that you pay taxes on the gain amount, NOT total sales price.

[Natswin2019]

I think the best advice in this whole thread was the first sentence of the first reply. Go see your tax guy or accountant.