IRS Form 1099 from Mastro Auctions

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Posted By: Mike Garcia

Since it is now February 23rd and I have not as yet received any official IRS-type paperwork from Mastro regarding an auction of some pre-war very expensive baseball cards they sold for me last year , I'm going to assume I'm on my own here.------ Could someone on this forum , who perhaps is also in this situation , please give me some idea of which line ( on long form 1040 ) to list the funds I received ?----- It's a substantial sum (to me anyway )and far more than I paid for the cards a looooong time ago ; I'm not a businessperson or seller/dealer , just a low-level collector that got lucky---- I'm in the 15% bracket most years but the check from Mastro will put me up a notch if I just add it to my taxable W-2's.;; thanks guys---- regards , MikeGarcia

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Posted By: Steve Murray

21?

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Posted By: Jim Manos

They do not send a 1099. I have consigned with them for yrs and have never got one. I do claim my gains however.

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Posted By: Eric Brehm

I'm not an accountant, but I believe unless buying and selling baseball cards is a business for you, you need to report gains and losses from selling your baseball cards on Schedule D (Capital Gains and Losses). You will need to report what your cost basis in each card is (basically, how much you paid for it) and the net sales price (sales proceeds less cost of sales including commissions, etc.) in figuring your gains and losses. My understanding is that the IRS considers baseball cards and other sports memorabilia to be 'collectibles' (along with coins, stamps, art work, etc.) that are subject to a 28% tax rate on net long term gains (for assets held more than one year).

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Posted By: Doug Allen

Hey Mike,

As an auction house we are not required to provide 1099's nor are we required or asked to provide information on sales to the IRS.

All the best,
Doug Allen
President
Mastro Auctions

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Posted By: dennis

there is an IRS web site that can answer any questions about this subject.....just google IRS.

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Posted By: Frank Wakefield

Hello Mike,

You need to look at that IRS website and ask an accountant.

My recollection is that the entire sales is ordinary income. You don't just pay taxes on the gain. You didn't sell stocks... and the IRS rules on old baseball cards is more brutal than it is on selling stocks. That isn't how collectors want it to be, but I think that may well be the way it really is.

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Posted By: raymond g. pasternak

The first thing you must do is determine if the income is from a Hobby or a Business: Take a look at this!
Business or Hobby? Answer Has Implications for Deductions

FS-2007-18, April 2007

The Internal Revenue Service reminds taxpayers to follow appropriate guidelines when determining whether an activity is a business or a hobby, an activity not engaged in for profit.

In order to educate taxpayers regarding their filing obligations, this fact sheet, the eleventh in a series, explains the rules for determining if an activity qualifies as a business and what limitations apply if the activity is not a business. Incorrect deduction of hobby expenses account for a portion of the overstated adjustments, deductions, exemptions and credits that add up to $30 billion per year in unpaid taxes, according to IRS estimates.

In general, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business. An ordinary expense is an expense that is common and accepted in the taxpayer’s trade or business. A necessary expense is one that is appropriate for the business. Generally, an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit.

In order to make this determination, taxpayers should consider the following factors:

Does the time and effort put into the activity indicate an intention to make a profit?
Does the taxpayer depend on income from the activity?
If there are losses, are they due to circumstances beyond the taxpayer’s control or did they occur in the start-up phase of the business?
Has the taxpayer changed methods of operation to improve profitability?
Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business?
Has the taxpayer made a profit in similar activities in the past?
Does the activity make a profit in some years?
Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity?
The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year — at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses.

If an activity is not for profit, losses from that activity may not be used to offset other income. An activity produces a loss when related expenses exceed income. The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations.

Deductions for hobby activities are claimed as itemized deductions on Schedule A (Form 1040). These deductions must be taken in the following order and only to the extent stated in each of three categories:

Deductions that a taxpayer may take for personal as well as business activities, such as home mortgage interest and taxes, may be taken in full.
Deductions that don’t result in an adjustment to basis, such as advertising, insurance premiums and wages, may be taken next, to the extent gross income for the activity is more than the deductions from the first category.
Business deductions that reduce the basis of property, such as depreciation and amortization, are taken last, but only to the extent gross income for the activity is more than the deductions taken in the first two categories.
Link:

Further information is available in IRS Publication 535, Business Expenses


Its FUN FUN FUN!
Ray

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Posted By: leon

Very recently I asked my CPA about income with regard to selling some cards. He said it's 28% in Texas as they are considered collectibles and that is what they are taxex at. I then zipped over to my accounting person that does my restaurant (debacle) accounting. I have huge write offs unfortunately.....so my net taxable income won't be huge.....Just make sure you can show everything and explain everything if there is an audit. I have been audited before and my cards, and income and loss associated, passed with flying colors....best regards

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Posted By: barrysloate

There is that gray area when you both sell regularly and keep a collection. At what point is it a business sale, and when are you just selling off a piece from your collection?

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Posted By: brian

you are a hobbyist. That sale doesn't need to be reported.

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Posted By: Jeff Lichtman

Leon -- interesting choice of a name for your restaurant: debacle. I'm guessing with a name like that the place had no chance to do well.

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Posted By: raymond g. pasternak

Mike,
I disagree with Brian, if you are truely a hobbyist (ITS NOT A BUSINESS), you must report your NET TAXABLE INCOME from hobby transactions, you can however itemize deductions up to the amount of hobby income, but no more than the income. Its different if your transactions constitute a BUSINESS!!!

Ray

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Posted By: Eric B

Brian is 100% incorrect. Being a hobbyist means you ARE required to pay tax. The difference between a hobbyist and a business is in how you can deduct net losses.

Only a select few posters on this Board can consider cards a business.

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Posted By: raymond g. pasternak

Mike, I think Eric ment Ray is 100% correct, not Brian! Is that right Eric.
Just trying to help out, I am somewhat familiar with Taxation, (past 30 years),Ha maybe I am to old to remember now!

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Posted By: boxingcardman

Anyone who decides to run a business can do so. You do not have to be full-time. You have to be out for a profit and conducting yourself as a business, which mostly means keeping accurate records of what you are doing and preparing a Schedule C for your return. As long as you show a profit 3 out of 5 years, your business will pass muster.

Sic Gorgiamus Allos Subjectatos Nunc

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Posted By: Mike

I think I'll change from a Baseball Card business to an Auction House. As stated above , sales don't have to be reported if your an Auction House. Is that true ?

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Posted By: Eric B

I think I got it right. It was Brian who said......."you are a hobbyist. That sale doesn't need to be reported"....... in reference to Mike.

And boxingcardman is correct when he says anyone can conduct a card business if they so choose. But the key word is "can" and my comment was that few on this Board "are". But I could be wrong.

The key is that there is little advantage to being a business versus a hobby. The main advantage is that a business can deduct net losses on a tax return and go back 3 years. So if you sold cards for $100,000 that you originally paid $150,000 for, the loss of $50,000 can apply to prior year's gains and cancel out taxes paid in those prior years. But I would say it is very hard to have net losses when cards in general have only appreciated in value in the long run.

Another advantage may be that losses in one business can offset gains in another busines.

But here's a strategy you can use when you sell cards for a big profit in one year. If you made a bad purchase, maybe even a reprint or a trimmed card you thought was good and paid full price on years ago. Go ahead and sell that reprint in the same year as a card you made a profit on. Then cancel out some of the gain with the loss.

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Posted By: Eric Brehm

You don't have to have a baseball card 'business' in order to be able to offset your gains with your losses on baseball card transactions each year. Use Form 1040 Schedule D to report both your gains and losses on sales of all capital assets (including stock and bonds, etc., as well as collectibles) and you will pay capital gains tax only on the net gain for all assets combined. For example, if you make $1000 on one card sale and lose $400 on another, your net gain is $600 and that is what you pay tax on. The tax rates that are applied to your net gains depend on the type of assets you have sold and how long you have held them (long term = more than one year): net short term gains are taxed at ordinary (non-gain) income tax rates (which vary with your taxable ordinary income bracket), net long term gains on non-collectibles are taxed at either 5% or 15%, again depending on how much taxable ordinary income you have, and net long term gains on collectibles are taxed at 28%. (However, you are never taxed on any capital gains at a higher rate than you would have been if those gains had been included in your taxable ordinary income.) Also, beginning in 2008, long term capital gains on non-collectibles that would have been taxed at 10% or 15% if they had been included in your ordinary income are taxed at 0% instead of 5%.

The only capital asset class for which losses cannot be deducted or used to offset other gains are so-called 'personal use' assets, such as your house, automobiles, etc. Baseball cards and other collectibles are not considered personal use property; if you buy and sell them you can consider yourself to be 'investing' in them and can treat them for tax purposes just like stocks and bonds.

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Posted By: JK

From the IRS's website:

"Gold, silver, stamps, coins, gems, etc. These are capital assets except when they are held for sale by a dealer. Any gain or loss you have from their sale or trade generally is a capital gain or loss."

"Net capital gain from selling collectibles (such as coins or art) is taxed at a maximum 28% rate."

"Capital gains and deductible capital losses are reported on Form 1040, Schedule D (PDF). If you have a net capital gain, that gain may be taxed at a lower tax rate. The term 'net capital gain' means the amount by which your net long–term capital gain for the year is more than your net short–term capital loss."

"If your capital losses exceed your capital gains, the amount of the excess loss that can be claimed is limited to $3,000, or $1,500 if you are married filing separately. If your net capital loss is more than this limit, you can carry the loss forward to later years."

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Posted By: Anonymous

Thanks to all of you for all the information ; it appears that : bottom line I have a long term capital gain defined as the difference between what I paid for the cards and what I received from for them from Mastro Auction Company ( very nice people to work with by the way ; I took the cards to them in person to their suburban Philadelphia agent's office )------ that amount goes onto schedule ''D'' and then onto form 1040 . I get to keep 72% of the money? Okay. I love this country. Regards , Mike Garcia --and P.S. thanks to whoever bid and won my 1934 PSA 9 Mickey Cochrane and Dizzy Dean .

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Posted By: Eric Brehm

Mike - based on my understanding, you've got it right. That is what I believe should be reported and how to report it. Disclaimer: you must always consult with a professional tax advisor for definitive answers on tax questions.

Your long term gain from collectibles sales is reported in Part II of Schedule D and also is reported on Line 18 on the back of that schedule. (There is a worksheet to fill out for Line 18, but it probably won't have any effect on the number you enter.) Note that you may have to pay less than the 28% tax rate on a portion of your long term collectibles gain if your taxable ordinary income (i.e. your non-gain income less all your deductions) is less than $31,850 if you are single, or less than $63,700 if you are married filing jointly. You will need to fill out the Schedule D Tax Worksheet on page D-10 of the Form 1040 instructions to figure this out. This worksheet has 37 lines, but most of the lines will be zero or blank and it will get you to the bottom line (i.e. the tax you actually enter on Line 44 of Form 1040).

edited to add: P.S. -- where did you sell PSA 9 1934 Goudeys? I must have missed those.

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Posted By: Dave Haas

I know this sounds un American, but if the IRS has not been informed of the purchase of a card or of the sale of a card (via 1099) how would they know you owe taxes on it? I don't recommend tax avoidance but I'm sure there are items bought and sold on Ebay all the time that no one pays taxes on.

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Posted By: Eric Brehm

Dave -- I would guess that most baseball card sales by private collectors, including on eBay, are not reported to the IRS. And if you were to be audited by the IRS, and they discovered un-reported sales somehow, they would probably just want you to pay what you owe, and not try to prosecute you for wholesale tax evasion. I don't know how they draw the line there.

I started buying and selling cards in 2006 (mostly buying) and reported all my sales for that year. I plan to do the same for 2007 and in future years. But that's just me; I feel the best policy is to be as accurate on my taxes as I can be, and not fail to report income that I know I owe taxes on (or for that matter, losses that will save me on taxes) because the IRS probably won't ever find out about it. Perhaps someone else with more experience in this area can comment, because I'm sure many collectors face this dilemma.

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Posted By: Eric B

This is probably just wording, but Tax Avoidance is the pursuit of legitimate strategies to lessen your tax burden. An example would be to mitigate a large gain with the sale of something you know will produce a loss. The IRS has no problem with this.

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Posted By: Eric Brehm

Another example is timing certain income and deductions to reduce the effect of the Alternative Minimum Tax on your tax liability, by allocating these to years in which you are less exposed to the AMT. This is using a loophole in the tax code of sorts, but is perfectly legitimate. But the complexity of it is mind-boggling.

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Posted By: raymond g. pasternak

I hope Leon doesn't consider this article as over taxing this subject, but I thought it would be of some interest, and some current view points. And I promise not to comment on this subject any more!

http://www.nytimes.com/2008/02/10/business/yourtaxes/10ebay.html?_r=1&oref=slogin