Reporting sales of large $$ items

[Fred]

What is the "right" way to report sales of large $$ items and what is the obligation for paying taxes on those sales?

Intuitively, I would think that if a sale is made, then for simplicity, let's just call it PRICE SOLD - PRICE PAID = PROFIT.

Is there a difference between a "collector/hobbyist" and "dealer" when it comes to paying taxes on PROFIT?

My guess is that most of the "collector/hobbyist" types pretty much ignore paying a "capital gains" tax on the profit because the profit was minimal and the hassle of filing is just that, a hassle.

What happens in today's market when cards that may have been purchased for a few hundred dollars are now being sold for thousands of dollars? For example, a decade ago you could easily buy T206 Cobbs for under a grand. Let's say you bought about 20 of them a decade or more ago and are now liquidating because it's a good time to sell them. You could easily be looking at $40K of pure PROFIT. How is that supposed to be reported?

How many people ("collectors/hobbyist) on this board will actually, or already have, paid taxes on these PROFITS?

What are the ramifications of NOT paying these taxes? I would think that it would be impossible for the government to go after everyone because there have got to be a lot of people out there making unreported sales. I'm going to go out on a limb and guess that the number of people ("collectors/hobbyist") buying/selling/trading that are actually paying taxes on these gains, is minimal.

Perhaps I should have started a poll with the following selections:

1 - I pay taxes on PROFITS (begrudgingly or willingly)
2 - No way Jose - I'm not paying a dime
3 - I pay taxes but my PROFITS are slightly understated
4 - I pay taxes but my PROFITS are grossly understated

Do auction houses report the amount of money that they pay out to consignors? I'm guessing they log all of this and that at some point, if the government asked for these records, then they would be obligated to provide that data.

[BeanTown]

A poll might be a better way to get your question answered

[LincolnVT]

I have always understood it this way.

Paid 15k for a card. Sold the card for 20k. Income tax is paid on the 5k profit.

Paid 1k for a card. Sold the card for $20k. Income tax is paid on the 19k profit.

Different rules may apply in different states. Where I live the income tax is about 25% of the profit I think.

[philliesfan]

When is ebay going to start sending the IRS sales information? Or did they already start? I sell things for a friend and I don't want to be accountable for those sales. Maybe I should have him start an ebay account and list things for him on there.
Bob

[scooter729]

Originally Posted by philliesfan

When is ebay going to start sending the IRS sales information? Or did they already start? I sell things for a friend and I don't want to be accountable for those sales. Maybe I should have him start an ebay account and list things for him on there.
Bob

I believe you will get a 1099 on any sales you have, if you have more than $600 in a year. It used to be if you exceeded $20K of sales and 100 or 200 transactions, but the threshold now is lowered significantly. So you certainly should consider having your friend open a separate account for his activities.

[Aquarian Sports Cards]

Currently auctions in PA are not required to report consignor sales numbers but we are required to keep records for 7 years in case anyone comes looking IRS, Divorce lawyer, estate lawyer etc.

[BobC]

Originally Posted by philliesfan

When is ebay going to start sending the IRS sales information? Or did they already start? I sell things for a friend and I don't want to be accountable for those sales. Maybe I should have him start an ebay account and list things for him on there.
Bob

Originally Posted by scooter729
I believe you will get a 1099 on any sales you have, if you have more than $600 in a year. It used to be if you exceeded $20K of sales and 100 or 200 transactions, but the threshold now is lowered significantly. So you certainly should consider having your friend open a separate account for his activities.

Originally Posted by Jewish collector
A related question -

I recently received a message in ebay asked for my tax id # (social security number) because I went above the $600 threshold here in 2021 and ebay says they're required to generate a 1099 for year 2021 due to IRS requirements. My question is I never received this request in previous years when I was above the $600.

Is this request new because they moved me to managed payments in August 2021 or did something else changed ?

I know in the year 2022, the thresholds change to $600, but year 2021 should be the $20,000 and 200 transactions. Correct ? Thanks.

The reporting of electronic sales by third parties to the IRS has been around for a few years now, and is accomplished through the filing of Form 1099-K. Form 1099-K is used to report income received from electronic payments such as credit cards, debit cards, PayPal, and other third party payers. In most cases, the payment settlement entity (PSE) will send you a 1099-K by January 31 of the following year. This income needs to be included in your total business earnings, or otherwise be included elsewhere in your return.

Under current law in effect through the end of 2021, the threshold for requiring a PSE to send a 1099-K to the seller and IRS is $20,000 or more of total gross sales for the taxable (calendar) year AND 200 or more total sales transactions. Beginning on January 1, 2022 and going forward, the threshold for required reporting by a PSE of electronic sales activity via form 1099-K is reduced to simply $600 of total gross sales for the taxable (calendar) year and no minimum required number of sales transactions.

If Ebay is asking for your social security/tax ID # now, and saying they are going to then issue and send you and the IRS a 1099-K form for 2021 based on a $600 gross sales threshold, they can do that. Even though the 2021 reporting threshold is still $20,000 of gross sales and 200 transactions, that is just the required minimum threshold. There is no rule or law that says the PSE can't report gross sales below the threshold, and it has always been like that.

It seems to me that Ebay may be starting to use this new reporting threshold early so they can start gathering everyone's tax and reporting data now so that next year (2022) they don't have any issues or problems implementing this when the new threshold really takes effect. You can try contacting Ebay and ask them why they need this tax info now if the new threshold doesn't take effect till 2022, and you aren't going to go over the 2021 sales or transaction threshold. My guess is they'll simply tell you they need the info now so they can start the proper reporting.

And failure to provide them with your proper tax iD information won't necessarily get you kicked off selling on Ebay, but it could ultimately result in the seller being subject to what is known as Backup Withholding. In that case, Ebay would be required to deduct Backup Withholding right off the top of a seller's gross sales, and send that money to the IRS. And I believe the current federal Backup Withholding rate is 24%.

So let's say you don't give Ebay your correct tax reporting ID info and become subject to mandated Backup Withholding. Now you sell something that cost you $75 on Ebay for $100. Ebay is going to take $24 of your money and send it to the IRS, they'll also take their commission and sales fees, and send you whatever is left over. So you probably just lost money. The only way to then get any overpayments from this Backup Withholding back is to file a tax return after the end of the year, claiming the proper income and expenses from your card sales on the return, and treating the Backup Withholding like an estimated federal tax payment or the federal withholding off you W-2 wages. Otherwise, the IRS just keeps the cash.

It is also possible that Ebay could alternatively terminate your ability to sell on their platform if you don't give them your proper tax ID info, but that will be up to them.

And as Scott from Aquarian said, his auction house currently isn't required to report gross sales of consignors to the IRS or his home state of PA. I believe that will be pretty much the same for all the other auction houses out there, at least for now. But that could change in the future. I would not be surprised if in the coming years the government institutes a further requirement of Nominee reporting of sales income by Scott/Aquarian to his consignors, as well as requiring it of all other auction houses and consignment type sellers out there. As Scott said, he's already required to hold onto the sales info to individual consignors for a number of years, so any appropriate tax authority could walk in and demand to see such information. Keep that in mind. (Scott, Sorry for using your and your AH in my example, but since you already posted in this thread, I figured you wouldn't mind. Thanks.)

[Aquarian Sports Cards]

Not at all. I try and explain without giving advice, sometimes I think people hear what they want.

[mrreality68]

Originally Posted by BobC

The reporting of electronic sales by third parties to the IRS has been around for a few years now, and is accomplished through the filing of Form 1099-K. Form 1099-K is used to report income received from electronic payments such as credit cards, debit cards, PayPal, and other third party payers. In most cases, the payment settlement entity (PSE) will send you a 1099-K by January 31 of the following year. This income needs to be included in your total business earnings, or otherwise be included elsewhere in your return.

Under current law in effect through the end of 2021, the threshold for requiring a PSE to send a 1099-K to the seller and IRS is $20,000 or more of total gross sales for the taxable (calendar) year AND 200 or more total sales transactions. Beginning on January 1, 2022 and going forward, the threshold for required reporting by a PSE of electronic sales activity via form 1099-K is reduced to simply $600 of total gross sales for the taxable (calendar) year and no minimum required number of sales transactions.

If Ebay is asking for your social security/tax ID # now, and saying they are going to then issue and send you and the IRS a 1099-K form for 2021 based on a $600 gross sales threshold, they can do that. Even though the 2021 reporting threshold is still $20,000 of gross sales and 200 transactions, that is just the required minimum threshold. There is no rule or law that says the PSE can't report gross sales below the threshold, and it has always been like that.

It seems to me that Ebay may be starting to use this new reporting threshold early so they can start gathering everyone's tax and reporting data now so that next year (2022) they don't have any issues or problems implementing this when the new threshold really takes effect. You can try contacting Ebay and ask them why they need this tax info now if the new threshold doesn't take effect till 2022, and you aren't going to go over the 2021 sales or transaction threshold. My guess is they'll simply tell you they need the info now so they can start the proper reporting.

And failure to provide them with your proper tax iD information won't necessarily get you kicked off selling on Ebay, but it could ultimately result in the seller being subject to what is known as Backup Withholding. In that case, Ebay would be required to deduct Backup Withholding right off the top of a seller's gross sales, and send that money to the IRS. And I believe the current federal Backup Withholding rate is 24%.

So let's say you don't give Ebay your correct tax reporting ID info and become subject to mandated Backup Withholding. Now you sell something that cost you $75 on Ebay for $100. Ebay is going to take $24 of your money and send it to the IRS, they'll also take their commission and sales fees, and send you whatever is left over. So you probably just lost money. The only way to then get any overpayments from this Backup Withholding back is to file a tax return after the end of the year, claiming the proper income and expenses from your card sales on the return, and treating the Backup Withholding like an estimated federal tax payment or the federal withholding off you W-2 wages. Otherwise, the IRS just keeps the cash.

It is also possible that Ebay could alternatively terminate your ability to sell on their platform if you don't give them your proper tax ID info, but that will be up to them.

And as Scot from Aquarian said, his auction house currently isn't required to report gross sales of consignors to the IRS or his home state of PA. I believe that will be pretty much the same for all the other auction houses out there, at least for now. But that could change in the future. I would not be surprised if in the coming years the government institutes a further requirement of Nominee reporting of sales income by Scot/Aquarian to his consignors, as well as requiring it of all other auction houses and consignment type sellers out there. As Scot said, he's already required to hold onto the sales info to individual consignors for a number of years, so any appropriate tax authority could walk in and demand to see such information. Keep that in mind. (Scot, Sorry for using your and your AH in my example, but since you already posted in this thread, I figured you wouldn't mind. Thanks.)

Great information and in the end partner with your tax adviser for your specific situation and state laws

[BobC]

Originally Posted by Fred

What is the "right" way to report sales of large $$ items and what is the obligation for paying taxes on those sales?

Intuitively, I would think that if a sale is made, then for simplicity, let's just call it PRICE SOLD - PRICE PAID = PROFIT.

Is there a difference between a "collector/hobbyist" and "dealer" when it comes to paying taxes on PROFIT?

My guess is that most of the "collector/hobbyist" types pretty much ignore paying a "capital gains" tax on the profit because the profit was minimal and the hassle of filing is just that, a hassle.

What happens in today's market when cards that may have been purchased for a few hundred dollars are now being sold for thousands of dollars? For example, a decade ago you could easily buy T206 Cobbs for under a grand. Let's say you bought about 20 of them a decade or more ago and are now liquidating because it's a good time to sell them. You could easily be looking at $40K of pure PROFIT. How is that supposed to be reported?

How many people ("collectors/hobbyist) on this board will actually, or already have, paid taxes on these PROFITS?

What are the ramifications of NOT paying these taxes? I would think that it would be impossible for the government to go after everyone because there have got to be a lot of people out there making unreported sales. I'm going to go out on a limb and guess that the number of people ("collectors/hobbyist") buying/selling/trading that are actually paying taxes on these gains, is minimal.

Perhaps I should have started a poll with the following selections:

1 - I pay taxes on PROFITS (begrudgingly or willingly)
2 - No way Jose - I'm not paying a dime
3 - I pay taxes but my PROFITS are slightly understated
4 - I pay taxes but my PROFITS are grossly understated

Do auction houses report the amount of money that they pay out to consignors? I'm guessing they log all of this and that at some point, if the government asked for these records, then they would be obligated to provide that data.

Are you actually asking about the correct way to determine taxable income from card sales, and then how to properly report it on your federal tax return, or are you just asking others on here to say whether or not they even bother reporting any, some, or all of their income from card sales on their tax returns?

If it is the former, I can probably help with that.

If the latter, please keep in mind this is a public forum so any IRS, state, or local tax official can simply come on here then and see people talking about how they don't report and pay taxes on all their income from card sales. So do you really, really, really, really, really think it is a good idea to put such a questionnaire poll like that on here so people can publicly respond and possibly incriminate themselves for tax evasion?

[Fred]

Originally Posted by BobC

Are you actually asking about the correct way to determine taxable income from card sales, and then how to properly report it on your federal tax return, or are you just asking others on here to say whether or not they even bother reporting any, some, or all of their income from card sales on their tax returns?

If it is the former, I can probably help with that.

If the latter, please keep in mind this is a public forum so any IRS, state, or local tax official can simply come on here then and see people talking about how they don't report and pay taxes on all their income from card sales. So do you really, really, really, really, really think it is a good idea to put such a questionnaire poll like that on here so people can publicly respond and possibly incriminate themselves for tax evasion?

Are the polls taken on this board "anonymous"? If so, then polling responses would be interesting.

Thank you for the additional information.

[darkhorse9]

Not looking to delve into any political debates (please) but there currently is a proposal to make "Unrealized capital gains" taxable. That basically means that if you bought a card 20 years ago for $100 and it's current value is $5,000, you would be taxed on the $4,900 worth of value your item has today even if you don't sell it. You would be taxed just for having it.

This is for informational purposes only...not for political debate.

[conor912]

Maybe the $600 rule will significantly boost buying and selling at shows?

[BobC]

Originally Posted by conor912

Maybe the $600 rule will significantly boost buying and selling at shows?

Or other sources like the B/S/T threads on here.

[conor912]

Originally Posted by darkhorse9

Not looking to delve into any political debates (please) but there currently is a proposal to make "Unrealized capital gains" taxable. That basically means that if you bought a card 20 years ago for $100 and it's current value is $5,000, you would be taxed on the $4,900 worth of value your item has today even if you don't sell it. You would be taxed just for having it.

This is for informational purposes only...not for political debate.

Interesting. Can you post a source?

[Papergoy]

The unrealized gain is only currently being debated (if it's even getting any traction) on billionaires as I recall. AT THIS TIME it would not apply to average folk- only saying AT THIS TIME as often once a tax is established...

I run a business, and thus if I sold cards they would go through my schedule C. Of course I'd be liable for both halves of the FICA etc. But if I remember my rules correctly, for anyone not running a business, the gain is reported as a capital gain (just google capital gains on collectibles to read for yourself).

And I am certain everyone pays all taxes due.

[dacubfan]

How many of us actually have documentation proof of what we paid for even some of the items in our collection? Therefore taxes will be due on the entire sale amount. I had planned to liquidate much of my collection while alive but am now rethinking that idea due to the tax implications. Instead upon my death my sons will receive a stepped up basis when they sell with little tax due unless they hold the items for another 20 years. Any thoughts on this approach? I've heard rumors of the stepped up basis being eliminated. Wouldn't doubt it.

[BobC]

Originally Posted by conor912

Interesting. Can you post a source?

Just Google and look for "proposed taxes on appreciated assets/investments/stocks", or even "Biden proposed taxes", and you should get lots of threads talking about the speculated changes the current administration may yet propose and try to pass as new tax legislation.

And the specific thing you're asking about in regards to possibly making people pay taxes on investments they own, but haven't acually sold, has a name to it, and is in fact already enforced on certain specific business taxpayers. It is called "Mark to Market". The idea is to impose this "Mark to Market" strategy on very well-off taxpayers by setting some as of yet undecided upon minimum threshold measure. Then when a taxpayer exceeds that threshold, they'll have to look at all their investment/stock holdings at the end of the tax year and see what their then current FMV is as of the year-end date. They would then compare that year-end FMV to what they actually paid (tax basis) for their investments, and to the extent the year-end FMV exceeded their tax basis, report that increase as taxable income on their return and pay the appropriate taxes on the appreciated (or unrealized) gain, as whatever they end up deciding those taxes (and the rates for them) are to be.

Nothing has been finalized in regards to this proposed idea yet, and none of it will matter if this isn't enacted into law. But, I wouldn't be surprised if it doesn't pass into law because while it would tax very wealthy people like Jeff Bezos when his Amazon stock goes up, by now taxing his unsold shares, that will reset Bezos' tax basis in those Amazon shares to the FMV they were taxed on. So then in the following year if the Amazon shares go down in value, Bezos could now in all likelihood claim a loss and possibly be due a big tax refund. Can already hear the masses screaming about how this is really just another tax loophole for the rich then.

And if this did somehow pass, I don't think anyone need worry about having to pay such taxes on their card collection. I would imagine the government would restrict any such "Mark to Market" taxes to only those investments/assets that have an easily discernible and universally accepted method in determing their year-end FMVs, like public traded stocks. The idea of otherwise having people be forced to get annual appraisals of their non-conventional assets/investments is sheer insanity.

[BobC]

Originally Posted by darkhorse9

Not looking to delve into any political debates (please) but there currently is a proposal to make "Unrealized capital gains" taxable. That basically means that if you bought a card 20 years ago for $100 and it's current value is $5,000, you would be taxed on the $4,900 worth of value your item has today even if you don't sell it. You would be taxed just for having it.

This is for informational purposes only...not for political debate.

Taxes themselves are not a poltical debate. Remember the old adage - There are only two guaratees in life, death and taxes!

[BobC]

Originally Posted by Fred

Are the polls taken on this board "anonymous"? If so, then polling responses would be interesting.

Thank you for the additional information.

I honestly don't know if the IRS could, or likely would, do this, but as Scott/Aquarian mentioned earlier, he has to keep the records of consignors sales available for quite a few years. So if some tax authority comes in asking for it, guess what, he's going to have to give them the info.

Now how do you think Leon (Hi Leon!) would like or appreciate it if one day an IRS agent shows up on his doorstep asking for names and contact info of people posting on here about not reporting and paying their taxes from cards they are selling? And yes, I know, you can make the poll anonymous, but there always seems to be a few people who will post on threads like that and go into the "what" and "why" they responded to the poll as they did. My warning is probably more so for them.

And even if we do the poll and people do come right out and say that they are in fact not reporting income and paying all their taxes, the chances of the IRS coming on here and following up to go after them is almost nil. But still, I liken posting that you're cheating on your taxes on a public forum to being a January 6 "capitol rioter" posting selfies of themself in Nancy Pelosi's office online. See where I'm going on this? Why take even an infinitisimally small chance on getting in trouble for something you don't have to do. I'm just playing Jiminy Crickett here, and trying to be helpful.