Fred, yes, I am a CPA, but my certificate has not been active/current since I retired in 2007. I probably am a rare CPA in that I have never done income tax returns for anyone (or any company) other than myself and my family members. FYI, the two major chunks of my career (16+ years each) were spent with the USA subsidiary of a British company where I was mostly involved in contract administration and with the finance department a large county government (which doesn't pay income taxes). However, I do know enough about income taxes "to be dangerous." :)

With respect to the cards I've sold that I got out of wax packs as a kid, while my cost of these cards was zero, I did have some costs to offset against what the cards sold for, such as TPG grading fees and eBay selling fees. The profit on collectibles sales (total sales $$ minus total costs $$) becomes part of one's federal taxable income, and this amount could be enough to put one in a higher incremental federal tax bracket. Here's a link to the federal tax brackets for 2023: https://www.irs.gov/filing/federal-i...other%20filers

You asked, "how does state tax work on that?" I believe state income taxation varies considerably. Having lived in VA my entire life, I am not familiar with other states. In VA, one pays the same income tax rate on the profit on collectibles sales as one does on other types of income.

Fred, I hope I have adequately responded to your questions, except for those you raised related to selling cards as a dealer, which I don't feel I have enough expertise to answer.

hobby vs business
 

One thing to keep in mind: Under the Tax Cuts and Jobs Act, for tax years 2018 through 2025, hobby expenses are not deductible at all.

Beginning in 2018 and lasting through 2025, miscellaneous itemized deductions are no longer deductible and therefore no hobby expense is able to reduce hobby income. If the IRS classifies your business as a hobby, you'll have to prove that you had a valid profit motive if you want to claim those deductions.

If your selling activities are classified as a hobby, it's crucial to understand these rules to correctly file your taxes and avoid issues with the IRS. If your hobby starts to make more money or if you're making concerted efforts to be profitable, it may be time to consider if your hobby could qualify as a business for tax purposes. Consulting with a tax professional can provide clarity and help you make the best decisions based on your specific circumstances.

I haven’t sold a card in several years. “No hobby expense” sounds like you can’t deduct the cost basis for a card any more. Surely that’s not correct?


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Even if you're a hobbyist, your basis in the cards is properly included in the calculation of your gain. That's not technically a deduction.

But if you have a loss on the sale of a card, then you can't take that loss. So for example, you have 10 cards that you sell for a gain, you have to pick up those gains. If you have another 10 cards that you sell for a loss, those losses cannot be used to offset your gains.

And when it comes to other hobby expenses, like traveling to shows, your PSA membership, Net54 dues, home office deduction, tax preparation fees, etc., none of those are deductible.

Thanks for the clarification.

I hate to lose the Net54 deduction; the dues are pretty steep!


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This is exactly why I always recommend getting a CPA. Too many people read stuff on the internet and believe it because it fits what they want to be real like taking deductions you really can't. Home Office deduction LOL good luck on that one if you ever get audited.

I thought that was innate??? No one EVER buys a card hoping that they LOSE money on it???

I have been writing off my Net54 dues for around 20+ yrs now. So far it hasn't been a big tax savings.
The one time I have ever been audited, I had a loss of a few k on a few cards. I counted the losses and showed the cost and sale price. They passed the audit with no issue.
Now, I did have an errant 1099 that I missed and owed taxes on. But my card losses were fine.... (except they were losses :))

ps...I have had the same CPA for about 25 yrs...worth his weight in gold.

I had a big deal many years ago that forced (yes forced and not because I needed money) more to sell through an auction house. Nabbed a ton of money but my issue was that most of the items were purchased many years before and had no receipts. Hence, my accountant had me do a "fair value assessment" on each lot (there were like 80 of them). This basically was me finding three recent sales of the same or similar item. Worked out bout some of the game worn items were tricky. Did my best as I wanted to pay my taxes. However, you can game it a bit (your PSA 4 that you sold was slightly off center but you can find a record of three nicer 4s that sold). In the mind of the government a 4 is a 4.

Topps sent me a 1099 back in 1992 because I had "won" so many packs of the gold winner cards. They valued them at I think $3 per pack and I had gotten so many of them that I was able to put a complete set together.

For those of you who have never put a set together from packs, you probably need 5 or 6 times the number of cards in a set to make a set from packs. Maybe more.

19 year old union grocery clerk Doug got screwed in that deal, hahahaha.

And I still have the set,
Doug

Missing a 1099 is a huge reason many people get audited.

I don't think they drag it out that far anymore. If you get a 1099 that you ignore, and the IRS computers match that up - they'll just send you a bill.

Still dealing with this. Dealing with the government is a nightmare. New info coming soon.

I have been audited by everyone who can and yes it does suck. I was lucky and had a real business and accountants who took care of everything so it wasn't too bad. Can't imagine how messed up your ordeal with the IRS is.

Did you try the hobby approach?

I paid a tax person and she redid my entire taxes. She took out the deductions of my home office to give the IRS a "win".

I’m an IRS Enrolled Agent, and have worked for a CPA firm for 19 years. The last few audits I worked on, have taken 12-18 months to complete. It’s a long drawn out process. The auditor you are dealing with, is working on numerous audits at the same time.

Plus after COVID, some of the auditors are working remotely from home, with limited resources.

Hopefully you’ll get it resolved soon, and can move on with limited exposure. You can always appeal their findings as well.

All the best, and keep the board posted as it progresses.

Tony

She took out the home office deductions because you yourself said you are a hobbyist, yet filed a schedule C and took deductions only a dealer is allowed to take. People need to hire a CPA BEFORE they file taxes, not after they get audited.

Glad you hired a professional. Even when I ran a real tax paying construction business out of my home my accountant wouldn't write off "home office" expenses. He said it always causes problems and the little I might save wouldn't be worth the trouble if audited.

Do you still sell and if so have you decided to became a real business or still trying the "hobby" route. I am interested in the differences if you decided to go the business route.

Schedule Cs are highly scrutinized and are usually audited the most out of all the returns we have filed out of our firm. Odds are they will get you on something. Very few audits end in a no adjustment.