Quote:
Originally Posted by Exhibitman
You can be both a collector and in the business of buying and selling cards.
New Shimmer. It's a dessert topping and a floor wax!
Sorry, where was I before the commercial? Ahh, yes. You can be more than one thing, like a homeowner and a commercial real estate owner. It all comes down to record keeping and conducting your business in a businesslike manner. You have the resale permit and track your sales, you are 90% of the way to legitimacy. File a Schedule C every year to report your profits and losses in the business and show a profit 3 of 5 years and you are golden. No way the IRS calls your reported activity a hobby with all that evidence. The folks I fear for are the tax scofflaws. Give Caesar nothing and you get caught you are going somewhere there are no cards.
 |
Adam, that is hilarious. The stuff you come up with and post sometimes is priceless!
On a different note, and for the benefit of our viewing audience, just wanted to expand slightly on what Adam was saying about reporting your card/collectible business for tax purposes. First off, everything he's saying is true, and good advice to follow. Record keeping for a business is a must, and you want to keep things separate as much as possible. Get a separate bank account just for the business. Try not to run any activity or transactions for your personal collection or items you want to hold as investments through the business. If ever questioned, it makes it easier to demonstrate and support your claim that different portions of the cards/items you have are for your collection, held as investments, or part of your business inventory.
Now this doesn't mean that you can't take something from your personal collection or cards/items held as investments and decide to transfer them to your business for sale as inventory, or vice versa. But the more frequently you do that kind of stuff, especially if you aren't keeping really good records of what is being transferred between the different groups, the harder it will be to convince an IRS agent you can and are operating as a Dealer, Investor, and/or Collector, all at the same time.
Adam also mentioned filing a federal Schedule C for your card business with your individual federal income tax return (Form 1040) each year, and to try and make sure you show a profit at least 3 out of every 5 consecutive tax years. Schedule C is titled "Profit or Loss From Business", and is the tax form individuals include with their Form 1040 return to report their business income and expenses, and resulting net taxable business income, or loss, each year. But just because you operate a card business as a Dealer, it doesn't necessarily mean you'll report the activity on a Schedule C form as part of your personal tax return. It depends on how you set up the business, and if you operate it as a sole proprietor, or if you incorporate the business, form a partnership to run it, or set it up as a limited liability company or entity. I'm not even going to try and get into all the different options and nuances. Suffice it to say that someone involved as a Dealer in a card business isn't always going to be reporting the activity from that only on a Schedule C form.
The advice by Adam to try and show you had a profit from your card business at least 3 out of every 5 years is spot on, and relates to what is commonly known as the "Hobby Loss Rule". This rule gives the IRS and it's agents the ability to review your tax returns, and if they find you had a questionable business that just kept losing money and creating tax losses year after year, they can invoke this rule and declare your so-called business is really a hobby, and therefore none of the losses generated by it are allowed as tax deductions anymore. It is not something that is automatically triggered by the IRS computers, but if they do notice the pattern and investigate (ie: audit), an IRS agent can invoke the rule and negate your loss deductions, even if you are 100% trying to operate as a valid, for-profit business.
Clarifications over, carry on.
