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Originally Posted by tha-rock
I heard about this today from a member and reading this post has not only been informative, but confusing and frustrating. It is going to be a nightmare to do this. Is IRS really so desperate for funding that they need to create a system that will sweep up millions and millions of ordinary folks who manage to sell $600 or more in a year in an online marketplace? Can the $600 threshold be raised to a more reasonable amount? What would it take to do that?
I am refining and downsizing my collection. Most of the items I'm selling were acquired at a cost, although I have no written sales records of what I paid for 99+% of those items. I understand paying taxes on sales at the capital gains rate, but how do I establish a price paid for something I sell so that I don't have to pay taxes on the gross amount? Will the IRS just take my word for what I paid? I imagine many of you are in the same boat. How are you going to handle it?
Not long ago I sold a Jim Rice signed baseball for $25, which is what I paid for it, when I bought a few from Sure Shot Promotions. After ebay fees, I lost money on this baseball, but under the new law ebay would show this as a $30 income ($25 + $5 postage), when in reality it was a net loss to me. Having to pay tax on a net loss is salt in the wound. Many of you probably have clear memories of what you paid for certain things but would be at a loss if IRS asked you to prove it. Some of the things I am selling, I purchased 20- 40 years ago. No sales receipts and memory would not be reliable. Some items were acquired in trades. How do we deal with these issues?
If I bought a card in 1990 for $500 and sold it in 2022 for $1000, and have no documentation of my buy price, how can I avoid paying tax on the entire $1000? This has been fun as a 'hobby' and if I made money selling an item, it has been my means of funding other purchases for my collection.
It seems that this may push many hobbyists into creating "businesses" and all of the headaches that will bring just to avoid overpaying taxes. I don't want to look at my hobby as a business. Am I wrong? Am I making any sense?
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You make a lot of sense and I can understand your confusion, but don't think you're alone. If you're thinking you have to form a business now, you don't. If you look at and read my posts, in this thread and back in others from prior months/years, I've talked and written about the various ways people in this hobby can end up reporting their sales activity, and at least some of the pros and cons of each way to possibly report what they're doing. As I've been saying for quite a while now, people buying and then selling sports cards, like many of us do, will basically fall into and end up reporting their card sales activity as either a dealer/seller/flipper that is actually in business and treating what they do as such, or as an investor, and also finally as a true collector/hobbyist. And I've also said you can probably be reporting as any of these three different sales types (dealer/investor/collector) all at the same time, depending on your unique set of circumstances.
I'm merely passing along information so fellow collectors will at least have and know the basics of what they should be doing, so they are better informed and able to best decide how to handle and report things for their own unique situations and circumstances. And I'm a big proponent of advising people to seek out good, qualified professional help with tax reporting and preparation when they need it. If you start going back and reading through my posts, you'll soon see I keep saying the same things over and over again, and I'm really getting tired of all this typing. LOL
Anywy, to specifically answer your question about costs and records, even if you don't have an actual receipt or other specific documentation to support every single thing you've ever bought, I would not go and just report the cost of such an item as $0 then if I sold it. Instead, I would give it my best effort to recreate what the cost was, and failing that, would give it my best educated guesstimate as to what I paid for something, and use that to report on a return. You could even create or maintain some type of log, notes, spreadsheets, or other written records to keep track of such undocumented acquisitions, like cash purchases you had from a show you attended years ago. It may not be perfect, but you do the best you can to be reasonable and as accurate as possible. Hope this hopes. Good luck.