Posted By:
Eric BrehmJohnny H -- you are a thoughtful fellow, I like your take on what is important in collecting and life in general.
Regarding the tax question -- that is fairly complicated and the technical aspects of it have been discussed here on this board before, including input from accountants who are experts in the field. Bottom line is you are liable to pay taxes on profits you make from the sale of collectibles, including baseball cards. Generally you can also take collectibles losses as deductions against other gains or income. How you do this depends on whether you are, for IRS purposes, classified as an 'investor' receiving gains on the sale of capital assets, or a 'business' dealing in collectibles. I have always done mine as an 'investor', and reported my gains and losses on Schedule D. I have no experience with declaring myself as a business, where I believe Schedule C comes into play.
In any case, my advice is not to refrain from paying taxes on profits just because you don't think the transactions will be reported to the IRS, because as you mentioned, you can be audited and held accountable for taxes due. (Or just because it's the legal thing to do, however you look at it.) In that event, if the IRS discovers unreported sales, I have no idea how they decide whether you just 'forgot' to pay, and then sends you a bill, or actually tries to prosecute you for evading taxes. One thing several tax experts have told me for sure is that you should keep good records of your collectibles purchases, so that you can prove what your capital gains were on items sold, because otherwise the IRS will assume that your cost basis is zero and you will end up paying more taxes than necessary. Apparently they do this all the time with things like stock sales. You need to know your cost basis, as accurately as you possibly can.